A Business Model Innovation Overview
Traditional business strategies exist for you’re the business owner to maintain margin. Costs are becoming harder to contain, your products are now becoming less unique or being differentiated from your competitors, and your branding message is getting lost in the chatter that is the modern business world. Everything is less effective than previously, Why? They do little to nothing to offset the multiple forces accelerating market commoditization and therefore price-competition:
- Today exists a wide supply of services organisations that enable almost any company to easily copy any other company’s offerings or capabilities, turning even high-end offerings and new-to-market offerings into commodities;
- Growing supply relative to demand as the internet eliminates barriers to entry and creates a global supply base in many markets, an excess supply made still larger by the recession;
- Stronger and stronger buyers due to industry consolidation and buying groups;
- Customers growing ability to extract lower prices due to the internet making auctions and price shopping so much easier.
Today, margins depend upon business model differentiation. In fact, business models have become the new basis of competition, replacing individual product or service features and benefits as the playing field on which companies win big or lose big.
Business owners believe that they act strategically, but they leave their business strategic decisions to past history, best practice in the industry or even the roll of a dice. Best practice in a declining sector is not best practice for your organisation, you may be keeping your head above your competitors, but you are gradually being pulled underneath.
So, what is your business model, what makes it different to your competitors, what does your customers value in your business, why do they buy from you?
A business model captures how it creates value for a group of customers while, at the same time, creating profits for itself.
The business model answers to five core strategy questions:
- Who is our target market(s)?
- What is the scope of our entire offering (including how you reach your customers and the nature of your relationship with them)?
- What is our value promise that leads customers to choose our offering, where value equals benefits less the price paid to acquire these benefits?
- What advantages make it hard for competitors to copy our value promise?
- What drives our profitability?
Business Model Strategy focuses on designing or transforming the culture of your organisation, its process so that you have a unique, a difficult to replicate advantage over your competitors which is delivering value consistently. Leadership must also establish operating process and procedures that challenge and allow the business model to adapt to external challenges to the business.
When leaders take their business model as a given, based on how others in their industry run their businesses they quickly find themselves in commodity-like markets. This is a formula for failure unless the company is the Walmart of its industry, the company with a business model that makes it the lowest cost competitor.
Behind any consistently successful company today and you’ll see a business model that:
- Offers a unique, relevant, hard to copy value promise
- Is aligned with market trends
- Is capable of generating attractive profits either because the enterprise is the lowest cost in its markets or offers unique benefits that competitors cannot easily copy
A business model makes how you do hard to copy, not essentially what, but it encompases the whole of what you do, from your relationship with suppliers, your internal process through to your customers, and your revenue model for all this. This is why business model’s can make you a powerhouse in your industry, get it right and you will be come market leader. Ignore, consider then, where is your lifebuoy?