Great Product, Shame About Your Business Model
Building or operating a business is difficult. Mistakes and failures go with the territory. This is especially true if you’re attempting some form of business transformation. You might have great technology, a terrific product or an outstanding service offering, but that’s only part of the equation. If your business model is flawed, you’re going to struggle
It’s All About Value
A business model summarises how an organisation creates, delivers, and capture value, usually in a market setting.
Constructing business models is a part of business strategy development and is called business model innovation or business model generation. There are plenty of approaches to choose from. My favourite is Business Model Generation, developed by Alex Osterwalder and Yves Pigneur, which use design thinking to supplement more established thinking around business strategy development.
Developing Your Business Model
There are more than enough methods to go around, but the basic principles when dealing with transformation – when you’re not starting from scratch – are simple enough:
First review the model you have, paying particular attention to strategy, structure, systems, service and staff.
Next, you need to look at cost drivers around resourcing, activities and partners.
After that you take a look at the revenue dynamics in the segments you operate in your value propositions, the channels you deliver through and customer relationships.
Once you have an understanding of the basics of drivers and dynamics, you start to ‘play’ with the settings of each of the building blocks of your organisation, adjusting them up and down, understanding that many of them are interconnected. This is where design thinking comes in – prototyping different models and estimating different effects for different adjustments.
It is of course all about results and typically we’re looking for high growth, increased profits, protection of our investment and a long-lived model and company, but sometimes it doesn’t work that way.
Failing to Launch
What happens if you don’t evolve your business model?
Once the world’s biggest film company, Eastman-Kodak didn’t keep up with the digital revolution, for fear of cannibalizing its strongest product lines. The leader of design, production and marketing of photographic equipment had a number of opportunities to steer the company in the right direction but its hesitation to fully embrace the transition to digital led to bankruptcy.
For example, Kodak invested billions of dollars into developing technology for taking pictures using mobile phones and other digital devices. But it held back from developing digital cameras for the mass market for fear of undercutting its all-important film business. Competitors like Canon sailed in and thrived.
Kodak filed for bankruptcy in 2012 and after exiting most of its product streams, re-emerged in 2013 as a much smaller, consolidated company focused on serving commercial customers.
When You Get It Right
What happens when you do change?
One of the world’s top athletic shoes and clothing companies, Nike, felt they were starting to become sluggish and outdated.
Nike’s leadership didn’t hesitate. They started a digital transformation of their business model, focusing on culture, supply chain, and brand and was able to better connect with its customer base.
The company focused on more powerful data analytics, updated its e-commerce strategy, created stronger digital marketing campaigns and ramped up its direct to customer sales.
More efficient and effective use of digital consumer data led Nike to open concept stores, create more membership opportunities and improve the customer experience online and through apps.
The right business model should drive up value for you and your customers, while driving down costs, that’s called value innovation.
To find out how we can help you build your skills in business model transformation, click here and take a look at our 12-month mentoring programme Transforming Leaders, leading to an MBA from a British university.