Growth Kamran on 25 Nov 2008 01:45 pm
Take Another Look Around
IS IT TIME FOR A NEW BUSINESS MODEL?
WHAT IS A BUSINESS MODEL?
A Business Model is a graphic representation of the fundamental logic and relationships that define, drive and support a company’s value proposition. It is a tool for innovation that will empower you to compete more effectively during the recession…and to keep on doing so when it’s over.
The concept of using business modeling to enhance performance is one of the most compelling in contemporary business thinking. In their seminal 1993 book, Paradigm Shift, Don Tapscott and Art Gaston described using business modeling, in particular, as a powerful way to exploit emerging technologies, and the concept gained broad momentum across industry verticals in the 90s as an effective means of driving innovation. For example…
According to the 2006 IBM Global CEO Study, Expanding the Innovation Horizon, CEOs believe that innovation through business models has become one of the most important strategic differentiators: “Companies that have grown their operating margins faster than their competitors were putting twice as much emphasis on business model innovation as underperformers.”
One of the key reasons, is that innovating through business models is a method for companies to adapt to and manage change—and emerge from the process stronger, more profitable and with increased shareholder value. A powerful example of innovation through business models is Apple’s development of the iPod and iTunes. Apple created a new business model that changed the way music is delivered to consumers, and recently, the company surpassed Wal-Mart as the largest music retailer in the US: 4 billion songs have been bought and downloaded from iTunes. In contradistinction thereto, the 4 major music companies have failed to innovate and change: today they all face serious, profoundly threatening problems.
HOW DOES A BUSINESS MODEL DRIVE INNOVATION?
Like most companies, one of cpSphere’s clients has been negatively impacted by the recession: sales are down, and showing a profit is increasingly problematic. As a result, we encouraged the company’s management to develop a new business model that would be a response to the changes in demand and market structure.
In this case, first we defined the company’s current model by applying, and slightly adapting, the business model concept developed by Dr Alex Osterwalder. Once that was complete, we used assessment tools, such as a SWOT (Strengths/Weaknesses/Opportunities/Threats) analysis, to determine the key weaknesses and the opportunities for improvement. (For example, we found there were several revenue streams that were managed independently, thereby duplicating management effort and increasing costs.) Finally, we created a new model by changing and improving the existing processes. Among others, we integrated the management of the revenue streams to enable cross selling, thus cutting the cost of customer acquisition, and increasing management effectiveness.
Thinking in terms of a business model as a framework for defining, assessing and improving all aspects of the business in a systematic way, enabled the innovation process and facilitated communication both internally, and with external partners such as banks and suppliers. As a result, the company will be able to compete more effectively during the current recession.
And it’s important to keep in mind, as noted in Wired Magazine, that: “Innovation can bloom even in a grim economic climate. If anything, the slowdown may foster creativity”.