Transforming value chains through the connected company

Last month I was guest to an event, hosted by the Rabobank; the Dutch cooperative agricultural capital provider.  I was there to informally launch a masterclass in business model innovation for the Dutch greenhouse horticulture sector (formal details will follow in the coming weeks).

At their headquarters, the Rabobank also happened to be hosting an art exhibit called “Daily Future” by the artist Alicia Framis: an interesting exhibit provoking the imagination of what life would be like on the moon and how the moon would function as a hub in intergalactic travel.

“Daily Future” exhibit at Rabobank in Utrecht (photo: Peter Cox)

A marketing manager for Rabobank in The Netherlands gave me a tour and provided intricate insights into the artist’s project. During our walk-about we came to discuss why a bank would host such exhibits in the first place. I was pleasantly surprised to hear that the bank chooses such exhibits to make a statement and provoke reaction from the public on the bank’s position in society, in order to reflect on the bank’s own conception of the same. By choosing for the current Daily Future exhibit, the bank encourages people (read customers) to think on what their future would look like, the kind of investments they would want to make to reach that future, and engage in conversation with the bank on that basis.

This is a very compelling thought. The Rabobank is the chief financier for agriculture and food industry in The Netherlands, and among the leading banks in this field, globally. It is funding the future form of agriculture and food, and as such appears to be actively provoking divergent thinking. My tour guide told me that the bank recently invited groups of horticultural producers to the exhibit to invite their opinion. Nearly all dismissed the concept as being too vague, meaningless, and uninspiring to their reality.

Reflecting on our project for the horticulture sector, the challenge dawned on me. The horticulture sector is under the weather, and in much need of new entrepreneurial impulse. I thought it was a part of a lucky spell that the bank funded our proposal to conduct a business model innovation masterclass series with their clients. But as it turned out the idea fit right into the core of the issue with which the bank is struggling, namely rescuing a declining industry. I found it a very inspiring realization.

Customers are connecting. Are you?

The Rabobank’s exhibit can be seen as an invitation to its’ customers, and society at large even, to engage into a conversation with a large corporation. In my view this relates very much to what Dave Gray has dubbed the “connected company”: the company seeking to latch onto undercurrents, reaching out to synchronize, and root itself firmly in society, in order to warrant that it is always as on point as possible in providing service to its’ customers. Much of Gray’s argument is covered in his citing of Jack Welch, former CEO of General Electric:

“I’ve always believed that when the rate of change inside an institution becomes slower than the rate of change outside, the end is in sight. The only question is when.”

The phenomenon of the connected company is pivotal to the age of value chain generation. Companies, like Rabobank, are increasingly sending out invitations to their stakeholders to engage with them on designing the future together. Just have look at Marks and Spencer’s Plan A, or Unilever’s open innovation initiative. Such initiatives can be framed as first steps to creating the connected company, a big idea!

In order to succeed, it is the responsibility of the company to make engagement meaningful through empowering their employees in the conversation, enabling them to translate outcomes into purposeful action. At the same time the connecting company is an opportunity for the (outside) change agent to take on the invitation. They must sense the underbelly of why companies are sending out these invites, and work out a way for constructive contribution to solving the problem of the corporation that is seeking to reconnect with its’ value chain community.

Panera Bread’s “pay what you can” business model

Guess what! Entrepreneur offers a free lunch and still keeps afloat: true story. The US breakfast and lunch diner chain Panera Bread started with an experiment in 2010, called Panera Cares, which let’s customers determine themselves what they pay for the meal they choose. The idea is charitable by nature, aimed at helping US families that are struggling to piece together their daily bread. People who can pay a little more are requested to leave some extra cash to support people who are short some.

The program currently runs in 3 full-concept dedicated restaurants, serving about 3500 people a week. The results so far are very surprising: 60%  of the customers pay the amount the cashier suggest them to pay, 20% pay more, and the remaining 20% pay significantly less. Each store has been earning its keep so far, covering its’ own expenses.

Panera’s CEO Ron Schaich took charge in developing the concept himself, working in store to understand the model, and contributing to development of a working prototype. (He talks more on the development of business model in the video below) In working out the business model, the following hypotheses were taken to the test for validation:

  1. Dignity to the people who cannot pay for their meal will be the key driver to the success of the concept. Stores should therefore have no cash registers, to provide the required atmosphere of dignity
  2. The concept will thrive if it is community driven; people from the same neighbourhood supporting each other. Stores are therefore best located in economically diverse neighborhoods, where one group can directly support another.
  3. It is confusing for customers to walk into a store without prices. Therefore communication on the concept should be made as clear as possible to customers.

This is a very interesting case, not because of the potential this business model might have for Panera Bread itself, because it doesn’t. Panera Bread is a $3 billion a year publicly listed company with 1600 restaurants and 7 million guests each week. The “pay what you can” model just simply is not the revenue driver that will satisfy its’ shareholders (all the more recognition to Schaich for standing his ground in providing the space for this business model innovation).

Rather, this is an interesting case, because it tells of a corporation that looked at its’ own core, and came up with a business model prototype of how it could leverage that core to come up with a higher impact alternative to the 150 million dollars a year is was spending on gifts and donations to a mix of charities before. And, what it has come up with is a highly innovative revenue stream, which other organizations can use too, namely a stream that fuses consumption and charity.

Imagine what more you could do with this. Perhaps you could pivot the model and try it out in customer communities which are less economically divers (at the Bottom of the Pyramid) and see how it works out there. Or, more radically, you could try it out on virtual communities through the web, overcoming geographical restrictions between rich and poor. There’s no telling what might happen there, you might upend international aid as we currently know it! Me and the guys working at TiP4Change really got a kick out of this case, that’s for sure!

(PS. This is sure to be overkill for regular readers, but TiP is currently contending for spot at the Unreasonable Institute startup mentoring program and could use a boost. Click to Launch!)


Post publication edit:

A recent study describes a case study of a Pakistani restaurant in Vienna, where the same Panera business model principles have been applied. The Harvard Business Review quote of the study mentions:

Only 0.5% of patrons take advantage of the opportunity to eat for free at the pay-what-you-want Wiener Deewan self-service Pakistani restaurant in Vienna, say Gerhard Riener of the University of Jena and Christian Traxler of the University of Marburg, both in Germany. Over the course of two years, customer payments stabilized at an average of 5 euros, well above the restaurant’s costs, while the number of daily guests increased by more than 50%, boosting revenue. The restaurant also benefits from fixed prices for drinks.