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ILC model

The ILC Model - Capturing Market Without Risk

The ILC (Innovate-Leverage-Commoditize) model is a sensing mechanism that empowers your business to identify new opportunities without taking unnecessary risks.

 

It also makes it incredibly challenging for competitors to keep up with you.

At its core, the ILC model is about monitoring your most successful customers and copying their solutions.

 

They innovate, you leverage the success-indicating data (like their bill size), and then you commoditise their services (make it easier to use for everyone).

Since your customers identify market needs, the risk of your product misfit is nearly non-existent.

How does it work?

Interestingly, the ILC model doesn't begin with the creation of something entirely new. Instead, it starts with a service that can be easily adopted and consumed by others – your customers. These customers are incentivized to build innovative solutions that address existing or emerging market needs - in which you do not play any role (yet).

By tracking data that indicates customer success, you can recognize customers who have not only achieved product-market fit but have also created a working go-to-market approach. 

 

One of the primary indicators of customer success is their billing data with your company. If a customer is consistently generating high billing volumes or experiencing substantial growth in their billings, it could signify that they have struck gold – a winning solution that resonates with their target audience.

This data is a lighthouse to your business - it shows where are there market opportunities. You are 'leveraging' it.

By identifying customer success early on, you gain a critical advantage – the ability to proactively launch competitive services before your customers solidify their market dominance. However, it is not just a launch of competitive services, but a launch of industrialized services - you must ensure that your offering as a whole is easier to use and that other organizations would like to use it to pursue new opportunities. This is the commoditization part.

Now, because you have a stronger value proposition than before, you will attract new customers who will explore new market opportunities (Innovation), and the whole cycle starts from scratch at a larger scale.

Check the animation below to understand how this pattern looks represented on a map:

ILC4.gif

Examples

Apple & Google

Both organizations have massive app stores. Through the analysis of payments, they can identify which apps are being used most heavily, and that reveals where the market opportunities are (or, at least, this is what they should be doing if they were to follow the ILC model).
 

The recent lawsuit of Apple making it difficult for Spotify to be approved for the store and building Apple Music in the meantime - it suggests exactly this type of situation.


Below, you will find a screenshot representing the dynamics between Apple and Spotify. Clicking the image will take you the original website (https://www.timetoplayfair.com/timeline/) which explores the situation from the perspective of Spotify.

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Simon Wardley himself

Simon developed Wardley Mapping for his own work - and released it under a Creative Commons licence as a gift to the world. This webpage could not exist weren't for this licence.

Such a gift is widely recognized by people who are successful thanks to the mapping. Some books describe how difficult challenges were overcome, and what role mapping played.

 

This creates a self-selection mechanism - if you are smart and you happen to use mapping, you might want to share your insights with other mapping community members (as a "thank you" message). In other words, some smart people contribute to mapping practices, which makes mapping better, which attracts (or creates) more smart people.

With such a talent, Simon is capable of addressing increasingly more difficult challenges (and making himself even smarter).

 

This posts illustrates the effects of the ILC mechanism - in DXC Leading Edge research about rational investments, 22 experts donated their time and expertise to find out what can matter for transport in the future. 

Amazon

Today, few people remember that one of the first Amazon Cloud services was basic computing (EC2, in 2006). Since that time, we have seen a true ILC dance.

Smaller & bigger organizations continuously create new services that work with Amazon services. It was stored in the beginning. As time flies, Amazon includes some of those services in their offering.

Some commentators tend to joke that Amazon's biggest conference, re:Invent, is a place where startups die, because after each new Amazon service announcement, some presenters pack and go home, as they realize their business has just been eaten.

Popular Convenience Shop Network

A popular convenience franchise network allows individual agents to add new products and services on top of the mandatory offering.

The financial arrangements are such, that the network gets a fair share of the profit from the mandatory offering, and a very small share of profits coming from individual agent activity. This means that agents put a lot of effort into finding non-mandatory things that customers want to buy. This is where their money comes from.

However, by tracking what is being sold, where, at what price & margin, the network can quickly identify emerging consumer trends and turn some optional products into mandatory ones, depriving agents of the profit and forcing them to innovate further.

When this is played at a reasonable pace, agents cannot afford to neglect research which makes up for the 'commoditization' of their offerings. Had the network industrialized faster, agents would probably quit.

Conditions For Application

The ILC model cannot be always applied. Find conditions in which it should work.

Initial Commodity Offering

 

Whatever your initial offering is, it has to be used to build solutions that address needs for which you have no offering. If your initial offering is an end product, ILC cannot work. If you sell houses (end product, you do not typically use houses to create something bigger) and you discover that lawyers buy the biggest ones, it does not mean you should get into a law practice.
 

Domain Stability​

 

The house example from the previous point shows that ILC model might not work if it requires frequent changes of the domain of your expertise.

Contrast it with the Amazon case: Amazon does not go outside of the IT infrastructure, which makes it far easier to get good at building new products. They are all IT products and all follow a very similar pattern, so if you master this pattern - your life gets much easier.
 

Observability

 

Identifying your successful customers is crucial, but it's not always straightforward. For instance, if you rely on resellers and lack robust data analytics capabilities, you may struggle to understand which use cases are worth replicating.

In such scenarios, it's important to recognize that your end users are not your direct customers – your resellers are. You can employ ILC (Innovation Life Cycle) strategies targeting your resellers while simultaneously working to disintermediate them. This approach allows you to gain insights from your resellers and potentially bypass them to reach end users directly.

Protecting yourself against ILC

Sometimes, you may need to compete with organizations that use ILC. Or you will find yourself in a position, where your vendor might be trying to use ILC against you.

Speed​ and running your own ILC

The point is that by the time your vendor-competitor understands what you are doing and finishes to launch their version of your product, you will release something new.

They will have to rework their product, but before they are done, you will yet again release something new.
 

At some point in time, they will recognise they can't compete with you, and will either acquire you or focus on something else.

Constraints

 

There are situations where delivering a new service requires a critical capability which is not widely available. Securing your supply chains may increase the costs for your competitors - and make their efforts unprofitable.

 

Size

 

Being specialised in a very narrow niche will make you unattractive, as the competitor must invest a lot to reverse engineer your solution - but profits will be limited.

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