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.