This is the second in a series of posts by Duke Strategy Professors Arie Lewin and Marco Huesch.

Let’s consider a suggestive example of deliberate business model experimentation. In our association with leading U.S. consultancies, we have seen these ideas put to good use. Recall one of the last international financial crises, triggered by East Asian currency collapses? In the late 1990’s, banks in this region faced dollar denominated borrowings, and local currency denominated credit assets. Technical insolvency of many players led to dramatic government interventions, ownership stakes sold to international banks, and depressed wholesale financial performance.

Surviving independent local players saw global banks like Citibank poach swathes of high-value personal and commercial clients. Portfolio monitoring, credit risk assessment and dynamic external monitoring were missing at most local players. Reliable financial market and commerce statistics and credit bureau did not exist to inform lending practices.

Not the best time for experimentation? Steady as she goes? Not so. Booz and Co. worked with one of the leading Thai commercial banks to transform the business model in a risky but successful series of business model experimentations. As part of that team, one of us helped to tailor overseas practices (in risk and recovery, in portfolio management in credit cards, in internal IT support and many other areas) to local organizational, cultural and resource constraints. Within a short time, our client had outperformed the local banking market in stock price and continued to adapt its business model pro-actively to the changed competitive landscape. Loyal customers and staff continue to reward the still-independent bank years later for not cutting and running.

The lessons for domestic firms are clearly that counter-cyclical investment in business model innovation can pay big. Cisco’s CEO alluded to this recently by explaining that the firm made more aggressive investments during bad times than during good times. His counterpart at IBM goes further: the Economist highlighted his belief that new leaders would “win not by surviving the storm, but by changing the game.”

Closing thoughts will follow tomorrow…

Image courtesy of Wikimedia Commons

Duke Strategy Professors Arie Lewin and Marco Huesch urge managers to invoke ancient wisdom when responding to the current economic crisis.

In these tumultuous economic times, even the most modern business strategists may benefit from the (literally) stoic calm of an ancient leader like Marcus Aurelius. “Never let the future disturb you,” he advised, “You will meet it, if you have to, with the same weapons of reason which today arm you against the present.”

Let’s take those weapons of reason out and sharpen them for a moment.

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