Companies Learn How to Do One Reinvention(1 / 3)

CompaniesLearnHowtoDoOneReinvention

Formostcompanies,thefirstreinventionoftheirbusinessmodelisthemostdifficult.Once,however,theseniorbusinessleaderscometounderstandtheimportanceofongoingbusinessmodelinnovation,theyrealizethatthisistheonlywayasustainablecompetitiveadvantagecanbemaintained.

WhatIsaBusinessModel?

Abusinessmodelencapsulateswhythebusinessexists,howitaspirestogeneratebenefitsforitscustomersandowners,andhowthecompanygoesaboutitsbusiness.Mostfrequently,abusinessmodelwillhavesevenkeydimensions:

Allsevendimensionswillbecloselylinkedinthebusinessmodel.Whenchangesaremadeinanyonedimension,youwouldanticipatethattherewillbeflow-oneffectsintheotherdimensionsasaresult.Thebusinessmodelforacompanywithasingleproductorserviceofferingwillbesimpletovisualize.Ontheotherhand,foralargecorporationthatoffersarangeofproductsandservices,itwillbemoredifficulttounderstandthelinksbetweenthevariousdimensions.

WhatIsMeantby“BusinessModelInnovation?”

Businessmodelinnovationmeanschanginganydimensionordimensionsofthebusinessmodelitselfinordertoenhancethecompany'sperformanceagainstitscompetitorsintermsofsales,profitsorcashflow.Forexample,thecompanymayincreasetheproductsandservicesitoffersinordertogeneratemoresales.Oritmaychangethewaycustomersinteractwiththebusinesssoastomakeiteasierforpeopletodobusinesswiththecompany.Bothofthesemovesarechangingthebusinessmodelinanattempttoenhancetheperformanceofthebusiness,bothinabsolutetermsandintermsofrelativeperformanceagainstanycompetitorsnotmakingsimilarmoves.

Logically,inordertobeabletoinnovateorupgradeyourbusinessmodel,fourbasicsareneeded:

■Youmusthaveagoodunderstandingofyourcurrentbusinessmodel—andsomesortoffeelforwhatyourpresentstakeholderswouldbelookingforinenhancements.

■Thenextgenerationbusinessmodelmustalsobeclearlydefined—inorderforyoutoevaluatewhethergreaterstakeholderbenefitswouldresultandhowthetransitiontothatnextgenerationmodelcouldbehandled.

■Youneedavision—oftheoptimumbenefitsyoucoulddelivertostake-holdersifyourbusinessmodelisworkingtoitsmaximumpotential.

■Theremustbeawillingnesstotestsmallchangesinthebusinessmodel—inordertovalidatewhetherornotthefuturechangeswilldowhattheypromise.

TheThreeApproachesBusinessModelReinvention

■Increasevaluewithoutraisingprices—Thefirstapproachistolayermorevalueontopofwhatyoualreadyoffercustomerswith-outincreasingyourprices.Inthisway,yououtperformyourcompetitorstoestablishasustainablecompetitiveadvantageoverthem.Youalsoincreasecustomerloyaltybyofferingsuperiorvalueformoneythaneveryoneelse.

Surprisingly,fewcompaniesattempttodothissystematically.Ifanyimprovementsaremade,thesetendtogetdevelopedonanad-hocbasisratherthanasthelogicalconsequenceofadeliberateprocess.Tolookforwaystoincreasethevalueyouofferandcreateanewbusinessmodel:

First,talktoyourcurrentcustomers—andfindoutwhattheirunmetneedsare.

Trytobuildonyourknowledgeassets—perhapsbyofferingcustomersadvisoryservices,needsanalysis,helpwithplanning,informationonindustrybestpracticesandmore.

Buildonyourexperiencebase—byusingyouremployeestocomeupwithideas.Askfortheirsuggestionsonthebestwaystoprovidegreatervalueatthecurrentpricinglevelsandseewhattheysuggest.

Stretchyourthinking—bylookingforideasoutsideyourindustrythatmaybeapplicable.

Lookforbenefitsthatwilladdvalueforallgroupsofstakeholderssimultaneously—ratherthanfocusingonjustonegroupatatimeasistheusualpractice.Goodinnovationswilladdvalueforallgroups.

Observeandexperiment—byspendingsometimewithyourcustomers.Seewhattheydowithyouroffering.Watchhowtheyinteractwithit.Thenfindwaystoremovethemoreawkwardcharacteristics.Comeupwithsomefreshideasandtrytheminpracticetoseewhatresults.Withanyluck,youmaybepleasantlysurprisedtofindthattherearelotsofsimplethingsyoucandotoenhanceusabilitywithoutaddinganythingtoyourcosts.

Borrowsomeexpertiseyou'veneverthoughtofusingbefore—perhapsfromyoursuppliersorpartners.Letpeoplewithdifferentbackgroundscollaboratewithyouremployeesandseewhateventuates.Theymaycomeupwithsomethingquitenovelandoriginalwhichnobodyhasyettried.

Trytoanticipatetheimplicationoftrends—andbuildinsomeallowanceforshiftsinthegeneralbusinessenvironment.Trytodevelopfourtosevenscenariosofthefutureandusethattostimulateyourthinking.

Repeatwhatyou'vealreadytriedbutwithsomedifferences—perhapsbyaskingdifferentquestionsorbychangingtheassumptionsyouworkfrom.Lookatextremesandseewhetherthatsuggestsadifferentlineofthought.

Allofthisisjustanintellectualexerciseuntilyouactuallygetaroundtotestingsomeoftheseideas.Tospeeduptheprocessofreinventingyourbusinessmodel,runlotsoftests.Tryoneideainonelocaleandanothersomewhereelseandthoughtfullygothroughwhathasbeenlearned.Youshouldhavelotsofnewideastotestandvalidate.Itmayevenbeworthwhiletobringonboardbusinessexecutiveswhohavedepthofexperienceinanotherindustryandletthemmanageyourfieldtestsforyou.Alternatively,youmaybeabletoassembleanadvisoryboardofrecentlyretiredexecutiveswhowillenjoytheassignment.Theirfunctionalbackgroundsmayprovetobeaninvaluablepartofyourbusinessmodelreinventioninitiative.

Toensurethatyourbusinessmodelexperimentsinfindingwaystoincreasevaluereachtheirfullpotential:

Watchoutforanyconflictsofinterest—whichcanarisewhentheregularsalesforceisrequiredtomakeanewoffer.Ifthesalespeoplearepaidonmeetingavolumetarget,thereislittleincentiveforthemtopushtheexperimentalnewoptions.

Beawareofyourinternal“standardoperatingprocedures”—whichmaybemakingitdifficultfortheexperimenterstorespondquickly.Lockheedestablisheditsfamous“skunkworks”togetoutsideitsnormalpractices.Youmayneedtodosomethingsimilar.

Lookforpatternsinpasttests—toseewhetherimplementationisbeingimpededbyyourbusinesssystems.Ifso,makenecessarychanges.

Considertheincentivesyouprovideforsuccess—andseewhetherthosewhocomeupwithsuccessfulbusinessmodelinnovationsarerewardedappropriately.Ifnot,whywouldtheykeeptrying?

Analyzeyourcommunicationinfrastructure—andseewhetherthelessonsfromeachbusinessmodelfieldtestarecirculatedsufficientlytoallowtheorganization'smemorytoexpandovertime.

■Adjustpricestoincreaseprofitability

Thesecondcommonapproachtobusinessmodelreinventionistotrypriceinnovations.Thisisnotsimplyloweringyourprices,butincludesanattempttofindwaystocutyourcostssoyoucanaffordtoofferyourproductsandservicesatlowerpricesoverthelongerterm.

Businessleadersshouldspendtimethinkingabouthowpricingcouldexpanddemand.Toloweryourcustomer'spriceinhibitions,youmightconsider:

Identifyingcustomerinteractionswhereyoucoulddelivermoreofyourproductsatalowincreaseincost—andthenfindingwaystoencouragecustomerstobuyinbulk.Orperhapsyoumightincludeaninexpensiveadd-onthatmakesyourownproductmoreappealingandbundleitwithyourproductorservice.

Makingincreasedpurchasesasclosetofreeaspossible—perhapsbyhavinganannualmembershipfeeoraminimumchargethatthenqualifiescustomersforfreeshippingorsomeotherbenefit.

Structuringyourcostsadvantageously—eitherbyspreadingyourcostsoveranumberofyears,providinga“shakedown”periodthatmovestheexpenditureintothenextcalendaryearorcapitalizingcosts.

Alternatively,somecompaniesmaketheirpricesmoreappealingbymovingintheoppositedirection.Theyintroduceapremium-pricedproductorservicethatsharestheoriginalproductcostbasebutoffershigherquality.Frequently,theavailabilityofapremiumofferingalsoenhancesthecustomer'sperceptionofthequalityoftheoriginalproductaswell.Withanyluck,thepremiumpaidforthehighendproductmayevenallowthepricefortheoriginalproducttobereduced.