Phones4U was placed into administration today in unusual circumstances. Normally administrators are called in when the cash runs out at a business. In this case, Phones4U ran out of suppliers despite making a reported £100m in profits. For whatever reasons (and there is a lot of speculation about the reasons) O2, Vodafone and then finally EE didn’t see fit to renew distribution agreements with Phone4U. This post will investigate what two management models can teach us about the business model challenges at Phones4U.
Now this isn’t intended to be a smug or condescending post. In today’s economy, the failure of any business that employs people is an absolute tragedy. I wish all the employees the very best of luck in finding new work soon. I’m also pleased to read in the press that the management are trying to do the right thing for those who awoke this morning to find out that they don’t have a job.
It’s my hope that in reviewing these two frameworks, within the context of Phones4U that I’ll demonstrate how important management theory is in practice. The first model will be the business model canvas by Alex Osterwalder and the second is the more classical Five Forces Analysis by Michael Porter.
Business Model Canvas
Osterwalder’s canvas allows us to join up the different elements of a business model. In the case of Phones4U, when the partners are drawn on and connected with other elements of the canvas the reliance on partners is startling.
In the early days the relationship was symbiotic. The networks needed stores to educate consumers and reach the mass market. The stores needed the networks to provide bundled offerings for the consumer to select from. Once the contract was signed, Phones4U got a commission payment.
As the mobile networks developed their own direct channels and consumers became more educated to their choices, the need for Phones4U waned brining us to the next framework, Porter’s Five Forces.
Porter identified five areas by which one could assess the level of competition in an industry. When applied to Phones4U you can immediately see how the business was under immense pressure from its former partners the networks.
Other than the threat of new entrants, which is low due to the difficultly in setting up contracts with major networks and phone providers, all of the other areas are high.
Suppliers were able to negotiate hard with Phones4U as their own direct to customer channels gained a firm foothold.
Threat of substitutes was high with alternatives such as Carphone Warehouse and the direct offerings of the networks.
Bargaining power of buyers was also on the whole very high as consumers became more educated about the deals available.
Finally industry rivalry was high. Networks were battling with one another and also competing with the high street chains.
There is sometimes a sniffiness that arises when management models are brought into consideration. They are considered to be too academic or theoretical. Constructed by professors in their ivory towers with little relevance to real business.
My opinion is very different, management models serve a vital purpose in assessing the health, threats and opportunities presented to a business. Use them as an employee, manager or investor in business to make important decisions about the direction of your career, your work and your financial investments.
What are your thoughts on this? Contact me directly or in the comments to share your view.