IBM Institute for Business Value Global CEO study reported in 2009 that 7/10 companies were engaging in business model innovation, and 98% were modifying their model. So what is affecting this need to innovate?
- The economic slowdown.
- The need to capitalise on developing economies.
- The increase in new technology base.
- Low-cost rivals threaten tradition industry models and establish markets.
- And technological developments in the way we create and capture value.
All this is transforming our thinking in the way we structure our businesses. You only have to look at Microsoft, Apple, EBay and Facebook; all led with winning business models.
Peter Drucker said business models can be described by answering three questions:
- Who is your customer?
- What does your customer value?
- How do you deliver value at an appropriate cost?
If you change or modify your business model, you may need to rethink who your customer is. Ryanair changed their business model from a traditional airline serving long and short haul and converted to a low-cost short haul airline in 1990’s. Some of Ryanair’s customers moved to airlines able to serve their particular needs. However, Ryanair were able to profit from rationalisation and utilisation, minimise their marketing expense through technology educate and grow identifiable customers.
Ryanair created value for their customers offering a no frills option of no feature and few benefits. Other businesses might offer complete solutions through alliances, customer customisation options or characteristics and benefits which increase customer satisfaction.
Many companies have taken the outsourcing option to delivering value at an appropriate cost, but this is now easy for competitors to adopt. Reducing cost of sales through process improvements but also increasing efficiency in your distribution channel.
There are risks to consider when evaluating your business model and the threats, is your customer base narrow or diverse, are there emerging technologies or well-funded competitors that may gain control of your distribution channel.
Competitive advantage will be gained from the continuous evaluation of your business model.
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