Art of Business Model Design : Case of RCR Tomlinson from Australia
The ABC story covers the dramatic fall of one of the oldest engineering firms in Australia.
Just three months after one of the oldest engineering names in Australia raised $100 million from shareholders to buffer itself after taking a big hit on two solar farm projects, the company has gone into administration.
So what went wrong for RCR Tomlinson?
There are lots of information and some hunches. As we are starting to understand it is clear that they missed some few key assumptions in the solar energy market.
- “They did not allow for the fact that there was a shortage of skilled solar farm workers in Australia. They bit off more than they could chew.”
- Rising equipment costs
- Understanding the regulatory environment for approvals
- Write downs on two Queensland solar farms
As one commentator put it:
“But the more accurate way to describe it is they did not know what they were doing. They bid on contracts they couldn’t complete, they underbid in order to win contracts.”
So, what happened? How can you have a successful firm fail so quickly?
It comes down to business model design.
A great framework I use to enable organisations to enter a new market is the The Knowledge Funnel: from Thinkers50 guru Roger Martin.
Any knowledge, including building a business model, goes through three stages. Mystery, Heuristics and Algorithms.
Consider the falling objects. After a long period of observation and contemplation, human beings in various cultures more or less simultaneously developed the notion of a universal force that tends to pull physical objects earthward. Understanding advanced from a mystery – why do things fall to earth? – to a heuristic, a rule of thumb for explaining why things fall – a force we call gravity causes things to fall to earth. Heuristics represent an incomplete yet distinctly advanced understanding of what was previously a mystery.
In RCR Tomlinson case, they had the large mining engineering work down from Mystery and Algorithm. They knew their work and created value.
Enter the solar industry. Not knowing the organisation it looks like from data available now they moved from algorithm to algorithm. What I mean is they did not go up the knowledge funnel and start at Mystery.
Asking the right questions at the Mystery,
- what is the solar industry?
- How fast is growing?
- Who is the competition?
- What tech and skills are needed?
- What is the business model?
Moving to Heuristics
- How might we prototype a small project?
- What can we learn about timelines, workforce, business model?
- How much of this is similar or different from the current business?
- What do we need to change?
Finally to Algorothms
- We have tested the business model.
- We have replicated projects with result a number of times
- Ready to scale
The real challenge is going back to the Mystery and showcasing humble leadership to ask the right questions and then through rigorous testing and prototyping we get the right business model.