Hello, I'm Shlomo Maital. Welcome back to Cracking the Creativity Code Part Two, Delivering Ideas. This is session number four. I'm really happy that you're sticking with us as we discuss tool number four, activity-system maps. To set the stage for this tool, we are building a tool box. [COUGH] Proven, useful tools used by startup entrepreneurs to take ideas and to build them into sustainable, profitable growing businesses. Activity maps. So until now, we've made the point that all of our tools have to be pictures. We have to do beautiful pictures that show visually our vision, our product, our value creation formula, our value profile, and now we're drilling down even further. Now that we have the value profile, we know how to create value we know what the key features are what goes behind that? What do we have to do in terms of daily operations in our business? What are the processes that we need to do really well to create the value creating features? And here we make use of a tool invented by the man who invented competitive strategy Michael Porter and I mentioned earlier his 1980 book competitive strategy which has sold millions of copies. And here is his wonderful tool called activity system maps, or simply, activity maps. And they visualize how to build ecosystem. Remember, in our introductory session together, we talked about what is a business. And in Gary Hamill's approach, one of the key features, or aspects of a business, one of the four boxes, was the value network or the ecosystem. How you take your suppliers, and your workers, and your clients, your strategic partners, the regulators, and how you create a beautiful well functioning, smoothly functioning, machine that knits all of these pieces together, and the activity system maps, they visualize how to do this. So let's take a concrete example used by Porter himself, IKEA, many of you have been to IKEA stores. IKEA is a global company that retails furniture which it designs. Modular furniture, knock down furniture. You go into IKEA, you find what you need. Take a card, go to the shelf. Take it off, put it on the top of your car. Tie it down. Take it home. And your wife puts it together for you. IKEA has evolved relatively slowly. Began in a small village in Sweden by a genius who had a vision for a different kind of furniture business. [COUGH] His name was Ingvar Kamprad and it started as a mail-order business during World War II in 1943. In 1948 they began to manufacture furniture. There was the first IKEA catalog in 1951, the first showroom in 53. The first design of IKEA design furniture in 55. Notice how long this is taking. It's evolving as IKEA understands the market and creates a unique value profile. And then the first IKEA store was in Almhult, Sweden, a village, which included the self-service restaurant and a children's playroom. And that was a prototype. And of course later this is spread throughout the world as a powerful and unique value creating formula. Other chains have tried to copy it, I must say not with huge success. So, how can we picture visually the value creating operations, the activities, the work that has to be done in order to create an IKEA value profile. This is Porter's activities systems map. It has four black circles, four key things that IKEA does that create unique value. And then Grey circles around it. I guess there are four, eight, ten, 12, 16 grey circles, shaded circles, and they support the black circles. And all these things together tell every single person in the IKEA system how we create value and what is my role. What circle am I in and why is that circle important in creating the IKEA value? So looking closely at the IKEA activities system we see that the four key black circles that create great value. Limited customer service. Not a lot of people running around asking you what you would like and can we help you. Why does that create value? Reduces cost, and sometimes reduces bother by salespeople whom really, really don't need to bother us. Modular furniture design. The stuff comes apart, so you can put it together. That lowers cost as well, because basically we supply the labor rather than IKEA supplying labor which is expensive. To assemble furniture, we do it. Self selection by customers, we pick what we want. We do that ourself. Some advantages to that. And then very low manufacturing cost. Those are the four key value creating features. And then, around that, you have very large stores put in suburban areas so the land is less expensive, lots and lots and lots of parking and all of the supplementary things, processes activities that connect with the black circles. And of course everything is connected because this is a beautiful ecosystem. So, actually IKEA's activity map was drawn well after IKEA was functioning and in place. But my suggestion to you is as a startup entrepreneur, can you sit down with your wonderful creative idea, your product or process or service and you defined how you're creating value and you've broken it down and you know what the features are. Now, can you take these features, drill down and then build the operational model, the operational activity systems? Can you do this by using an activity map process? And you start with the four key circles. The four key processes that create the value and then all the things that you need to support it. Try not to forget something essential, because if you do, your ecosystem might not work too well. So we give you a second example of an activity map. This is Southwest Airlines. I haven't shaded in the main circles here, but as you can see there six-sided rather than circles. And there are also four of them. Southwest Airlines is amazing. It's an airline that reinvented the low cost airline business. Airlines have lost huge amounts of money in the past, big, high cost airlines. Southwest Airlines has consistently made profit, and here's how they do it. Many have copied them, not always successfully, this is how they reinvented a blue ocean approach to airlines, lowering costs and creating value for people. So the key circles, the black circles, if we had shaded them black, are limited passenger service, they don't serve expensive meals or check bags or do all of those things. Frequent, reliable departures. Keeping on time is really important. Very low ticket prices. This is a low cost airline and therefore low price airline. Remember, price, value, cost. And the value part, they have short haul flights between medium-sized cities, mid-sized cities with secondary airports, and they don't use a hub system. They fly you directly to where you want to go. And the other point about Southwest Airlines and it's legendary CEO for many many years, a man named Herb Kelleher. The other key point is what's the alternative? Who are we competing with? Well, no competition if we're flying between cities and other airlines don't bother doing it. But the competition is clear. We're competing with buses, and we're watching the bus fares, and we're pricing our fares according to the bus fares and trying to create value greater than having someone get on a bus and take a bus trip. And buses are usually pretty cheap. So, the challenge here is really big. The bar is set really high. Can we create an airline, with such efficiency and smooth operations, that we can compete with buses and create value for people and get them to fly rather than take a bus? Now, all of the things that support that, all the ovals around it, high aircraft usage, quick turnaround time, giving employees share in the company so they have an interest in the company being profitable. Paying relatively high wages. No meals. No seat assignments, you walk on and take your seat. No baggage transfers, no connection with other airlines. All of this in order to keep cost down and create value up. And all of this boils down to the simplest formula in the world for startup entrepreneurship, value up, cost down. Value high and cost down. Sometimes startups emphasize the high value. They don't always emphasize the low cost because cost cutting is frankly kind of boring and humdrum. But value creation is dramatic, innovative and creative. You need to do both. Feet on the ground, cost down, head in the clouds, value up. And that will create an airline that is consistently profitable provided you can get the delivery right, get the operations right, do the activity map. Make sure everybody knows it. Make sure it's logical. And then implement it. Make it happen. So here's the how to. Here's the formula. How do you build an activities systems map? Take a piece of paper, cut out four big black circles. Four circles. And then write down the four key processes. They've operational aspects of creating the value, and these four things create unique value for customers. Probably your competitors don't emphasis them or may not have them at all. And then to make these four key operations, value creating operations actually happen. The things that drive the value profile and those key features that create wild value. What do you need to do to make those four black circles happen? So you add smaller gray circles. A dozen or so that support the black circles and connect them so that you can see how this is all connected. And you can rearrange them a bit, and eliminate some, and add some. Make sure you've got everything in there, and then look at it, and when you can see that this is beautiful, well oiled machine. This is how I'm gonna create value, make it happen. Integrate it as a beautiful, clockwork system. Like a beautiful, complex, fine Swiss watch. So, go to the assignment section if you wish, and answer these key questions, and for action learning. For action learning, I'd like to ask to you to construct an activity map for your business idea. Use this as a way to validate your idea in advance. Can you deliver the value that you have discovered? What are the four key processes required to deliver your idea? What are the key sub-processes? Like the ones for IKEA or for Southwest Airlines. And then, what are the key conclusions that you draw regarding your plan of operations? What are the key skills that you're going to need? What skills will you need? What do you have of those skills and what will you need to develop? What will your company have to acquire in terms of its excellence? And can you communicate this unique activity systems map to every single person in your organization? These tools are not just for the CEO. They're not just for you, the entrepreneur. They're for everybody, so they understand now, tomorrow and forever. Exactly what we need to do. What I need to do as a worker in the company in order to create value and to help the company grow and remain profitable. And above all create enormous value for people and make our clients happy.
