Most companies define their business in terms of what they make or sell. And you can’t blame them. After all, we talk about Ford and Toyota as automotive companies that sell cars and trucks, not companies that sell freedom or mobility. But defining the company in terms of the value it creates for customers can yield far-reaching insights, and achieving transformational growth often means changing how you engage with customers. Enter: business model innovation.
Okay, so I have been spoilt in the past. Working at a start-up accelerator meant that I had the chance to create a business model around the value proposition from scratch. There was no status quo, so there were no rules to be broken and no toes to step on. When you have an existing operation, however, business model innovation is easier said than done.
In the simplest of terms, here are three steps to get you thinking about business model innovation when you see signs that your existing model may be nearing its use-by date:
- Understand your existing business model. It sounds too simple to be true, but for large organisations this may be more complicated than you think. What I’m talking about here is truly getting to the crux of what value you create for your customers and understand how your operating structure allows you to do this efficiently and effectively. It also means thinking about which rules and procedures will stop you from doing things differently; that is, know the limitations of your current business model.
- Understand the job that the customer is trying to get done. Personally, I’ve found great intuitive appeal in using business model canvas to hypothesise about and systematically test the business model that will best deliver customer value.
- Compare the business models of steps 1 and 2. Of course, business model innovation is not always the right answer. If you can satisfy the value proposition by tweaking your existing model, then there is no need to reinvent the wheel. If you find that a new model is required, consider establishing a separate business unit to build and roll out the new business model. Generally it only makes sense to invest in business model innovation if it will allow you to change your market or industry.
So, if you are in charge of leading innovation and strategy development at your organisation, consider whether your business model is still relevant. Blockbuster was able to get ahead of the curve once; Netflix managed to stay ahead of the curve three times.