Markets and Business/Revenue Models
Based on the “Can One Business Unit Have Two Revenue Models” reading, Isolde’s unit Siiquent targets the diagnostic market, including hospitals and diagnostic labs, and Emanuel’s unit Teomik targets the research market, including research institutions and universities. Siiquent’s focus on the “stuff that the machines use” allows the unit to use the “razor-blade model,” where the instruments are sold at cost, but the consumables and test kits generate the profit. Siiquent also prices consumables just under the fixed reimbursements that the hospitals and labs received, making the unit a “revenue generator.” Teomik’s focus on “machines” allows the unit to avoid competing on price for the compounds but instead earn large margins on patent-protected instruments from customers like the Max Planck Institute.
Pros and Perils of a Single Revenue Model vs. Flexibility
The pro of imposing the structure of a single revenue model is that the company can define customer selection and the response to competition, as Peter discusses with Isolde and Emanuel, so the units do not take conflicting approaches. The peril of imposing this structure is that it hamstrings the units’ ability to respond to changes in the market, as Isolde tells Peter. The pro of letting the company continue on its flexible way is that the units are more responsive to the dynamic market and are able to introduce new offerings like “pay-per-test” that enhance customer loyalty and retention. The peril of this flexibility is that such offerings could potentially lead to unintended negative consequences, such as pay-per-test creating a “moral hazard” with regard to customers’ waste and damage that causes an uncertain impact on profit and blurred market boundaries fueling price competition between the units, as seen with diagnostic labs shifting from Siiquent to Teomik.
Ensuring a Fair Merging Process
To ensure a fair merging process, I would first scaffold the discussion by speaking to both divisions to hear their preferences and acting as a middleman between the divisions, so that they do not have conflicting strategies. This step mirrors my approach during the PM-related hedge fund internship I discussed in an earlier blog post, as I met with the newly merged engineering and investing divisions, relayed the perspectives of one division to the other, and diffused competition over the method for outcome prediction between the divisions. Additionally, I would draw upon democratic principles to help the divisions decide what direction to take. As a tech journalist for the Stanford Daily, I recently reported on the new deliberation platform launched by Stanford HAI’s Digital Economy Lab which uses an AI agent engaging in a Socratic dialogue with the user and displays the distribution of other users’ opinions. I would apply a similar framework to this business context to facilitate inclusive, productive discussion and drive more effective decision-making.
