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SteveChu LenaPetrova-ToolsieTreehouseStrategyandCommunications AdAstraInc.steve@treehousestrategy.com

ChangeHappens: BusinessModel Innovation forLanguageCompanies

SteveChuTreehouseStrategyandCommunicationssteve@treehousestrategy.com

50ShadesofGreatBusinessModels

About us

Mission: help companies grow

Demand for strategic planning, management consulting, and technology advisory services in translation and localization industry

We devise strategies to penetrate more customer accounts, broaden the spectrum of solutions and service offerings, and bring them to market.

Headquartered in the Washington DC metropolitan area, Ad Astra’s mission is to seamlessly break down communication barriers while accurately and faithfully conveying meaning and cultural context through full-service linguistic support.

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• Changing landscape, changing business models

• What is a business model?

• Why innovate?

• Case study

• Framework and tools for innovating business models

Outline

The once mighty video rental chain…

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Mail order video rental

1998

Streaming Original content provider

2007 2013

• How a company produces value—organizational design, infrastructure, culture, and operational processes

What is a business model?

• strategy determines the direction of organizations and how resources should be used to innovate business models to best meet the needs of customers

• strategy defines and communicates an organization's unique position, and determine how organizational resources, competencies, and expertise should be combined to create competitive advantage

What is

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Advantage – capabilities and results that are more beneficial to customers than other

alternatives• In the case of language companies: are

you able to charge more for language services than your competition?

Competitive advantage occurs when your products and services can be provided in a way to generate more sales and profits than

a competitor• Who: the customer touch points? Sales,

marketing, operations, AR• When: hours of business operations,

touch points, how fast you generate quotes

• Where: where you support your customers

Business model is the who, when, where, why , and how a company provides products

and services

Business model innovation: substantive changes that enhance a company’s

performance

What is competitive advantage and business model?

• It’s not working

• It’s not producing enough value or not fast enough

• Anticipate changes in the market and industry

Why change business model?

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Ad Astra is evaluating whether to hire in-house interpreters for in-demand languages for high-volume accounts or locations in order to

• Seek greater control over performance

• Retain trained interpreters

• Realize potential cost savings

• Have greater control over costs (as freelancers are entitled to increase their rates)

Business objectives

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• How many interpreters should Ad Astra hire on a fulltime basis for each grouping of sites, for each language?

• What are the potential cost saving and benefits in each scenario?

Questions we are trying to answer

• An in-house interpreter is versatile and can handle different types of interpretation assignments

• Past patterns predict the future

• Assuming changes in the marketplace in the long-term as well as anticipated new contracts

Assumption

• Look at “hot zones” for each language

• Consider annual aggregate volume

• Compare volume year-over-year

• Analyze volume and utilization by week

• Analyze volume and utilization by day

Methodology

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• Focus on Spanish, American Sign Language, and potentially the next two languages

• Focus on 3-5 major accounts in government and healthcare

Scope of study

Language Jan to Apr2 0 1 6 Jan to Ap r2 0 1 7Span ish >1 0 ,0 0 0 >2 0 ,0 0 0American Sign Language >1 0 0 0 >2 0 0 0Fren ch 1 0 0 ’s 1 0 0 0 ’sMandarin 1 0 0 ’s 1 0 0 0 ’sAmharic 1 0 0 ’s 1 0 0 0 ’sKo reanRu ssianFarsiVietn amese

Top languages, by accountHe althcare Account Gove rnment He althcare

Language 2 0 1 6 2 0 1 7 2 0 1 6 2 0 1 7 2 0 1 6 2 0 1 7

Span ish 2 ,0 7 8 .7 7 3 ,9 1 1 .5 8 6 1 5 .6 4 9 8 1 .4 3 1 6 ,5 5 4 .1 1 3 5 ,4 2 2 .6 8Ko rean 8 4 .7 1 2 4 .9 8 4 0 8 .9 2 7 2 8 .9 7 6 .1 2 0 .0 0American Sign Language 9 5 .3 2 2 7 .6 5 2 8 9 .9 0 7 4 9 .0 1 0 .0 0 0 .0 0Mandarin 8 5 .9 7 5 2 2 .4 6 1 6 5 .6 1 2 9 4 .9 7 0 .0 0 1 .0 2Amharic 2 7 5 .6 0 2 5 0 .9 5 8 2 .7 3 2 7 2 .9 1 0 .0 0 0 .0 0Farsi 3 0 7 .8 2 2 1 .0 1 1 3 7 .7 7 3 5 3 .2 9 0 .0 0 0 .0 0Vietn amese 1 5 2 .7 0 6 0 .5 5 1 8 4 .9 6 1 9 3 .3 4 0 .0 0 0 .0 0Arab ic 1 4 3 .1 3 4 .9 6 1 4 7 .3 2 1 0 0 .4 0 4 .0 8 1 .4 3Ru ssian 2 4 .8 2 4 0 .1 6 3 6 .2 7 4 4 .3 2 0 .0 0 0 .0 0Grand To tal

Jan to Ap r

Spanish, Jan – Apr 2016

Rockville, MD 20850

Baltimore, MD 20632

Hagerstown, MD 21740

Baltimore, MD 21202

Baltimore, MD 21234

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Spanish, Jan – Apr 2017

Rockville, MD 20850

Rockville, MD 20850

Baltimore, MD 20632

Hot zone: Rockville, MD 20850

Company B

Company A

0.4 mile apart

Volume by day

Wk/Date Healthcare Government Grand Total1 151.76 447.22 598.981/1/2017 14 47.92 61.921/2/2017 20.42 48 68.421/3/2017 31.25 54.15 85.41/4/2017 23.83 68.03 91.861/5/2017 20 83.04 103.041/6/2017 24.09 74.08 98.171/7/2017 18.17 72 90.172 115.37 449.45 564.821/8/2017 20.37 71.76 92.131/9/2017 22.67 71.76 94.431/10/2017 19.24 72.6 91.841/11/2017 21.75 61.5 83.251/12/2017 10.09 60.33 70.421/13/2017 7.75 61.5 69.251/14/2017 13.5 50 63.5

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Hot zone: Rockville, MD 20850 – Spanish, FTE

2 0 1 7 We e k Emma Olivia Ava Isabe lla Soph ia Mia Charlo tte NoahGrand To tal

#o fve ndorswho worked more than 3 5 h rs FTE

1 3 6 5 9 .8 4 8 2 1 .4 2 6 1 5 3 1 8 9 .2 2 3 4 .72 1 4 5 9 .9 3 4 8 .2 5 4 8 .0 7 3 1 .9 2 3 1 .8 7 8 1 4 .1 7 2 5 6 .2 1 3 6 .43 4 2 .0 8 4 0 .9 2 1 2 4 2 2 6 .8 3 2 3 .5 1 1 .7 5 1 9 9 .0 8 3 5 .04 1 2 2 4 3 6 2 4 .2 8 4 4 .7 5 3 3 2 3 .5 1 2 2 0 9 .5 3 2 5 .25 3 6 1 2 4 8 1 8 .1 7 5 7 .5 2 5 2 2 .1 7 4 0 2 5 8 .8 4 4 6 .56 2 4 3 6 3 6 2 4 4 3 .3 3 2 5 2 7 .2 5 1 2 2 4 2 5 1 .5 8 3 6 .37 2 3 .9 5 4 2 4 3 6 2 2 2 4 .6 7 3 5 .7 2 1 5 2 3 5 .2 9 3 5 .98 4 8 .3 3 6 0 1 2 3 0 2 2 1 3 .5 2 3 .8 3 1 1 2 2 0 .6 6 2 5 .59 2 4 .2 2 2 4 .8 3 7 1 .7 5 4 2 .4 5 2 9 .5 8 2 2 1 3 .8 3 1 2 4 1 .6 8 2 8 2 .3 4 3 7 .11 0 1 2 4 8 1 2 1 1 .9 8 2 3 .2 5 3 1 .6 3 2 3 .9 8 1 8 .1 7 1 8 1 .0 1 1 4 .51 1 3 5 .9 2 6 0 .2 5 1 1 .9 7 7 .2 5 2 7 2 9 .2 5 3 6 6 .5 2 8 4 .0 7 4 7 .11 2 2 3 .9 3 2 4 3 6 .0 8 2 4 3 0 .5 3 5 .7 8 3 6 .6 7 2 1 0 .9 6 3 5 .31 3 4 8 2 2 .9 5 1 2 3 .8 3 2 1 .8 4 1 4 3 6 .2 6 2 6 1 8 4 .8 8 2 4 .61 4 4 7 .8 3 2 4 1 2 2 6 .8 3 5 3 1 .5 2 5 5 0 2 2 2 .1 6 2 5 .61 5 3 3 .6 7 4 8 4 8 6 8 2 7 2 6 .1 5 1 1 .7 8 1 6 2 7 8 .6 3 7 .01 6 2 4 3 6 .0 8 3 6 .0 7 1 3 1 5 7 2 4 1 5 1 7 0 .1 5 2 4 .31 7 4 7 .8 3 1 2 4 8 2 5 3 .0 8 5 1 1 .9 2 1 9 .5 1 7 2 .3 3 2 4 .3

Grand To tal 5 4 5 .7 1 4 9 1 .8 4 4 7 8 .8 2 4 7 8 .1 8 4 6 9 .3 3 3 5 9 .8 7 3 4 6 .4 5 3 2 6 .1 9 3 2 2 .5 2 3 8 1 8 .91

• Hourly rate of $15-20

• Annualized $30,000 to $40,000

• Tax and benefits, assumed to be 30%

Current rates

• Based on Google search, hypothetically we pay interpreters $15-25.

In-house interpreter assumptions and current rates

Rate Loade d rate Annual salary Loade d salary$ 1 5 .0 0 $ 1 9 .5 0 $ 3 0 ,0 0 0 $ 3 9 ,0 0 0 $ 1 5 .5 0 $ 2 0 .1 5 $ 3 1 ,0 0 0 $ 4 0 ,3 0 0 $ 1 6 .0 0 $ 2 0 .8 0 $ 3 2 ,0 0 0 $ 4 1 ,6 0 0 $ 1 6 .5 0 $ 2 1 .4 5 $ 3 3 ,0 0 0 $ 4 2 ,9 0 0 $ 1 7 .0 0 $ 2 2 .1 0 $ 3 4 ,0 0 0 $ 4 4 ,2 0 0 $ 1 7 .5 0 $ 2 2 .7 5 $ 3 5 ,0 0 0 $ 4 5 ,5 0 0 $ 1 8 .0 0 $ 2 3 .4 0 $ 3 6 ,0 0 0 $ 4 6 ,8 0 0 $ 1 8 .5 0 $ 2 4 .0 5 $ 3 7 ,0 0 0 $ 4 8 ,1 0 0 $ 1 9 .0 0 $ 2 4 .7 0 $ 3 8 ,0 0 0 $ 4 9 ,4 0 0 $ 1 9 .5 0 $ 2 5 .3 5 $ 3 9 ,0 0 0 $ 5 0 ,7 0 0 $ 2 0 .0 0 $ 2 6 .0 0 $ 4 0 ,0 0 0 $ 5 2 ,0 0 0 $ 2 0 .5 0 $ 2 6 .6 5 $ 4 1 ,0 0 0 $ 5 3 ,3 0 0

Financial breakeven point is $38,000 or $19 per hour

• There is enough volume for three Spanish interpreters for this site conservatively, potentially four

• Data is From Jan to Apr 2017, the first 17 weeks of the year

• Three interpreters at $17/hr

• 10%+ cost saving

Recommendation for Rockville, MD 20850

Rate Hours CostNoah $ 1 8 5 4 5 .7 1 $ 1 2 ,0 0 5 .6 2 Emma $ 2 3 4 9 1 .8 4 $ 9 ,8 3 6 .8 0 Olivia $ 2 5 4 7 8 .8 2 $ 1 1 ,9 7 0 .5 0 Isabe lla $ 2 6 4 7 8 .1 8 $ 9 ,5 6 3 .6 0 Total 1 9 9 4 .5 5 $ 4 3 ,3 7 6 .5 2

Rate Loade dLoade d cost fo r

1 7 we e ksCapacity fo r1 7

we e ksIn -house Span ish in te rp re te r $ 1 7 $ 1 9 .5 0 $ 1 3 ,2 6 0 .0 0 6 8 0In -house Span ish in te rp re te r $ 1 7 $ 1 9 .5 0 $ 1 3 ,2 6 0 .0 0 6 8 0In -house Span ish in te rp re te r $ 1 7 $ 1 9 .5 0 $ 1 3 ,2 6 0 .0 0 6 8 0

Total $ 3 9 ,7 8 0 .0 0 2 0 4 0

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How do you innovate business model?

Growth agenda

Growth agenda

Grow from the core

• Stick to your knitting• Align organizational

performance to goals and vision• MBO• Balanced Scorecard

Pursue quality & efficiency advantage

• Quality improvements• ISO• TQM• Lean

• Turnaround time improvements

• Response time to customers

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Growth agenda

Pursue marketplace advantage

• Buyer power• Supplier power• Substitutes• New entrants• Competition

Innovate into new areas

• Unserved market• Underserved

market

• Customer segments

• Value propositions

• Channels

• Customer relationships

• Revenue streams

• Key resources

• Key activities

• Key partnerships

• Cost structure

9 building blocks of business model generation

ChannelsDef. How you communicate with your customer segments to deliver your value propositions.

• Sales force• Web sales• Telesales• Partner channels• Larger suppliers

Def. Different groups of people or organizations you are targeting to serve.

Customer Segments Value Propositions

• Needs require a different offer

• Reached through different channels

• Require different types of relationships

• Have substantially different profitabilities

• Willing to pay for different aspects of products and services• Mass market• Niche• Industry segments

Def. The bundle of products and services that create value for a specific customer segment.• Value quantitatively measured (price, turnaround time)

• Qualitatively measured (quality, customer service)

• Newness• Performance• Customization• ‘Get the job done’• Price• Quality• Convenience• Cost reduction• Risk reduction

5 phases• Awareness• Evaluation• Purchase• Delivery/fulfillment• Post-sales support

9 building blocks

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Key ResourcesDef. The most important assets needed to make a business model work.

• Physical• Intellectual• Human• Financial

Def. The type of relationships you have with your customer segments.

Customer Relationships Revenue Streams

• Personal assistance• Dedicated personal assistance

• Self-service• Automated services• Communities• Co-creationDriven by these motivations:• Customer acquisition• Customer retention• Boosting sales (upselling)

Def. The money a company generates from each customer segment.• Usage fee (service fee)• Asset sale• Subscription fees• Licensing fees• Lending/renting• Brokerage fees• Advertising• Fixed menu pricing• Dynamic pricing

9 building blocks

Cost StructureDef. All costs incurred to operate a business model.

• Cost-driven• Value-driven

Def. The most critical things you must do to make the business model work.

Key Activities Key Partnerships

• Production• Designing/making/delivering products

• Problem solving• Platform/network

Def. The network of suppliers and partners that make the business model work. • Strategic alliances

between non-competitors• Coopetition: strategic

partnerships between competitors

• Joint ventures to develop new businesses

• Buyer-supplier relationships• Optimizing and economy of scale

• Reduction of risk and uncertainty

• Acquisition of particular resources and activities

• Fixed costs• Variable costs• Economies of scale• Economies of scope

9 building blocks

Key partners Key activities Value proposition Customer relationships

Customer segments

ChannelsKey resources

Cost structure Revenue streams

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Steve ChuTreehouse Strategy and Communicationssteve@treehousestrategy.com