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Posts Tagged ‘Model’

If you live in a tropical climate and have good soil, you know that a bamboo shoot that you plant can grow by as much as two inches an hour. That’s the kind of explosive expansion that should drive your business model innovations.

When is good enough when it comes to business model innovation? Business people know that the pursuit of perfection can often be folly. You may only get one percent more benefit from adding twenty percent more improvement.

On the other hand, there are places where as little as a one percent improvement can provide twenty percent more benefits. Creating a business model innovation advantage is just such an area where the pursuit of perfection pays off extremely well.

In my interviews with companies whose track records were outstanding in business model development and improvement, I failed to locate companies that were turning business model development and improvement into constantly repeating processes like those used routinely in most larger companies for new product development and quality improvement.

While there would appear to be relatively little of this business model process development going on, clearly this direction will be part of creating future business advantages over competitors. Establishing this source of future customer and competitive advantage should focus on both establishing and improving a business model innovation process, and enhancing the capabilities of those who work with the process to employ it well. What are some key elements that companies should focus on?

Start by defining the process you have used. In the average growing company, most employees have been with the organization in their current job for only a few years. Today’s reality seems like all that there is, or ever has been.

As a result, people are usually focused on wanting to optimize what they have today. But if the company had simply done that kind of optimization in the past, the company might not have survived. How did we get to where we are today, and what does it teach us about what we need to be doing now?

Most companies have a process that has been used at least once to create the current business model. By making that process explicit, you can begin to see what elements need to be repeated and by whom.

Critical elements of this process mapping include:

(1) How does the process begin?

(2) How are objectives set?

(3) What questions are asked?

(4) How are the questions answered?

(5) What does the output look like?

(6) How is the output used?

(7) How is this thinking turned into operating reality?

Note that for smaller companies, you may be describing the inner dialogues that some of the senior executives have with themselves.

With that process in mind, the next step is to examine how you might improve your business model innovation process.

Copyright 2008 Donald W. Mitchell, All Rights Reserved

Almost every business has first-aid kits to help injured people recover from accidents. It’s only common sense.

Yet few of these businesses know how to treat a broken business (or strategy) model innovation process. With these questions, you’ll have just the first aid you need to recover from broken processes. Then, you can return your business to health and prosperity.

These questions will help you discover better ways of improving and replacing your business strategy. By using these questions, you should get a better sense of how well developed your business (strategy) model is now compared to the needs of having a large competitive advantage. Understanding those dimensions will give you another helpful perspective on what is good about and what needs to be improved concerning your business (strategy) model development process.

Where has your business (strategy) model created competitive advantages in serving customers?

If you are like most companies, you will find that the strategic model has helped you more with some customers than with others. In fact, a typical company will find that more than 80 percent of its customers get relatively few advantages versus what competitors provide from the company’s strategic model. Thinking about your strategic business model in this way will help you get a better feel for where you can use strategic model innovation to make greater progress.

Where has your strategy model created competitive disadvantages in serving customers?

Whenever a company focuses, one of the purposes of a strategy model, it also chooses to meet the needs of some current and potential customers less well. Sometimes these disadvantages for those customers are unavoidable, but many times they are the result of an oversight or limited thinking. Being aware of who is disfavored in what ways can often stimulate improved business models that enable a company to instead gain advantages with some of these potential and current customers.

What were the original reasons for creating these advantages and disadvantages?

Many times, a srategy model choice fit the current and expected business environment well. But permanently changed conditions can often make such choices inappropriate. A business model innovation process needs to be effective in creating business models that will work well in a broad range of business environments, as well as directing work on creating better strategy models when circumstances change in unanticipated ways that require a response.

Are those reasons for favoring this strategic model still the most compelling ones?

If they are not, you should also think about when changes took place that required a response. The next question follows on to make sense of this observation.

If your company did not make innovations in a timely way to the strategic model, what were the most probable causes of the delay?

You should separate out the issue of not noticing the changed circumstances, from wishful thinking that the new conditions will go away, from not focusing on the strategy model, from not having the skills or resources to work on a new business model.

If you had adopted the ideal strategic model for the time when your current business model was set, what would you have done differently with the benefit of hindsight?

The idea here is to determine if there are any gaps in your strategy model that should have been filled in the past. In most cases, major gaps have been present for a long time. This will help stimulate the focus of your current innovation activities.

How would your business model development process have needed to change in order to have created a more ideal strategy model last time?

Generally, the problems will lie in the area of having too few people thinking about the strategic model, running too few business model improvement experiments, not involving enough people in identifying stakeholder issues, insufficient consideration of different business environments, not preparing those enough who worked on the new business model, and too infrequent business model reevaluations. However, please do feel free to add your own thoughts about weaknesses. This list is just here to help start your thinking.

Copyright 2008 Donald W. Mitchell, All Rights Reserved

“Get there first with the most . . . .”

– Nathan Bedford Forrest

“. . . model to thy inward greatness . . . .”

– Shakespeare

Many of the most attractive business model innovations will allow only one company to prosper by following that particular path. Even better is the circumstance where once that path is taken by anyone, many other potentially attractive paths are made smaller or are permanently closed off for others. In an industry in which little business model innovation has occurred, a disproportionate potential for success can be grasped by the first company to take such a dominating track. Having started down that path usually then provides new advantages and opportunities to make even more innovations. Each implemented innovation that builds on a previous, unduplicated one then becomes another brick helping to wall off competitive vulnerability.

Those who start new companies are likely to focus on providing a better way to solve a customer’s problem or serve a customer’s need. In technology companies, this direction is even more likely to occur through emphasizing a new technology. Come back to the same company two decades later, and often the same “breakthrough” solution is still being provided rather than having been replaced with something better. Such a company finds itself vulnerable both to start-ups who are looking for the next improved way to serve customers and to established companies that are more focused on developing better solutions.

Think about Polaroid. Founded by the inventive Edwin Land, the company was the first to perceive the attractions of being able to provide photographic images within seconds. Professional photographers could use these quickly produced images to test the lighting for traditional photographic exposures. Families could check to see if the snapshot meant for the family album had the desired image or not. If not, they could reshoot until an image met their expectations. Polaroid’s solution depended on sophisticated interactions of chemicals, electronics, and mechanics.

But traditional photography kept improving its quality. Professional quality cameras, lenses, and film became inexpensive enough for many people to buy, and the skill of amateurs developed. A Polaroid image just didn’t look as good by comparison. Polaroid photography came to mean fast, expensive, and not very good.

The company’s speed advantage became less significant, too. Fast development centers opened up in many drug stores, offering one hour prints for ordinary film.

Then the digital revolution arrived, and a digital camera could provide an test image to check faster and cheaper than the Polaroid process. In digital form, photography fans could also more conveniently store, crop, and print their photographs.

Polaroid sales and profits were spoiled in the process. The company filed for bankruptcy protection in 2001.

Companies must focus on providing superior results for customers to what the alternatives are, regardless of the method used for providing those results. If that means pioneering or adopting a new business model or technology, then that’s the route the company must take. In Polaroid’s case, the company may have needed to partner with firms that had other kinds of expertise in order to deliver on its purpose, providing high-quality, fast images. By focusing on technological innovation rather than business model innovation, the firm faltered despite having had a large historical lead in serving its customers and end users. Just as easily, a technology can be a blindfold that causes better solutions not to be seen.

Technology companies should heed this example or they will find themselves looking at a technological evolutionary dinosaur in the form of their own company’s latest enhanced offerings based on the same old technology platform. Could even the technology-agnostic Cisco Systems fall prey to this same vulnerability in the future? Time will tell, but new protocols for transferring information are very likely to be created that better fit future data sending and receiving needs. Such a shift could make irrelevant solutions optimized to the current protocols. Who would win such a race to provide the best new solutions? Typically, it would be a new entrant, especially if the new entrant employs an improved business model as well as a new technology.

Copyright 2008 Donald W. Mitchell, All Rights Reserved

What is business model innovation (BMI)?

BMI is about finding new ways to add value to a business in the face of rapidly changing circumstances – economic, social, environmental, technological and political, global, national and local. People have been devising innovative ways to do business for centuries. The explosion in the breadth, scope and power of communications and other technologies over the past decade, however, and in particular the emergence of the commercial Internet, has opened new business model possibilities which were previously unimaginable. This is so regardless of the nature of the core business.

BMI requires of business owners and managers not just a thorough understanding of the key players in their particular industry, but also a sophisticated appreciation of the likely impacts of emerging global, national and local trends and events. It is no longer enough to simply be aware of what the competition is doing. This is an outdated, reactive approach which completely misses the point that the global business environment is changing in ways, and at a pace, never before seen. It is businesses which properly understand this point which will be able to position themselves to take advantage of the most profitable opportunities these trends and events open up, and to avoid their most adverse consequences.

Why BMI is important

BMI is crucial not just for the sake of maintaining current profitability, but also because the valuation of an operating business is significantly affected by the level of future maintainable earnings. Because of this, any business owner with a future sale in mind must recognise that maintaining business model relevance in the face of rapidly changing circumstances is as crucial to future sale value as it is to current profitability.

BMI – the current view

In a recent edition of Fast Thinking magazine (link here), the leader of Strategy and Change Consulting with IBM Global Business Services, Matt English, observed as follows:

… IBM’s Global CEO Study 2006, which surveyed over 750 CEOs worldwide, concluded that business model innovation is the key differentiator in an increasingly competitive and globalised market place. …

The study had examined three types of innovation which CEOs had identified as being crucial in driving growth in their organisations – products and services innovation, operational innovation and business model innovation. The study demonstrated that organisations with an emphasis on business model innovation generated a higher performance in profit margin.

English went on:

… By understanding revenue, enterprise and industry model innovation, an organisation is able to make strategic changes to its business model to increase flexibility, reduce cost and open up new markets.

The message is clear that the business model is a key area for innovation in the way organisations shape their businesses and deploy their capabilities. The business model presents strong opportunity for growth, but also provides some challenges regarding collaboration, governance and people processes and technology. …

Langdon Morris, a Senior Practice Scholar at the Ackoff Center for the Advancement of Systems Approaches at the University of Pennsylvania, had this observation in his 2003 paper Business Model Warfare (link here)

… As we examine industry after industry, we see that wherever there is an exemplar, a company that stands head and shoulders above the others, that company is almost always a business model innovator that is applying creativity in dimensions other than technology to become a market leader. …

… what’s happening continuously in the marketplace is competition between business models themselves. … What this means is the winners at business model warfare have generally applied innovation to create competitive advantages, building stronger relationships with customers by developing business models that fit closely with customer needs and preferences. …