Traditionally, business has pursued growth through a number of accepted ways (i.e. product development, R&D efforts, strategy focused on competitive advantage) but, we no longer live in traditional times. In response to the hyper-rates of change rolling through all industries, markets, and the broader culture in which we live, firms have to ask more existential questions like: What exactly is our business all about? What specific differentiated value are we delivering to which precise set of clients,? Is our firm changing with our clients and the business environment around us? This leads to the key question for today’s business leaders: What is your business model?
The past 20 years has seen growing interest, academic study and experimentation by top business leaders across all industries on that question. The concept and executive exercise of determining your firm’s business model is to “open up” the precise assumptions, decisions and mechanisms that a company uses to create and deliver value to specific customers. The discussions have evolved to a number of different visual frameworks like Alexander Osterwalder’s Business Model Canvas. As visual analysis tools, business leaders can better examine and ask focused questions about their value structure, see how different pieces of the business fit or work together, and then be able to select different combinations of elements to uncover possible alternative ways of doing business. Creating a commitment and process to do this exercise regularly allows you to test and evolve your business for new innovations, new revenue streams, competitive differentiation and further development opportunities. Since this business development approach is still not widely used in many industries, those that do will be in a better position to see, react to and capture opportunities from changing client perceptions and expectations. They will be better able to deploy their business assets and capitalize on change while others reel from change or stagnate.
In fact, Rita McGrath, Columbia Business School professor and globally recognized strategy expert, has been leading the debate that business model experimentation should be a consistent, methodical core practice for every business. She states in her controversial book, ‘The End of Competitive Advantage –How to Keep Your Strategy Moving as Fast as Your Business”:
“Virtually all strategy frameworks and tools in use today are based on a single dominant idea: that the purpose of strategy is to achieve a sustainable competitive advantage. This idea is strategy’s most fundamental concept. And it‘s no longer relevant for more and more companies… deeply ingrained structures and systems that executives rely on to extract extreme maximum value from competitive advantage are liabilities – outdated and even dangerous – in a fast-moving competitive environment.”
Her point of view illustrates the need to regularly challenge your thinking about why and how you are doing things; to expose the assumptions and guiding principles you are using. She continues:
“The presumption of stability creates all the wrong reflexes. It allows for inertia and power to build up along the lines of an existing business model. It allows people to fall into routines and habits of mind… It tends to foster the denial reaction rather than proactive design of a strategic next step.”
Her prescription for winning in this ever-changing business climate is to harness change itself by continuously and systematically learning to capture new opportunities fast, exploiting them fully, and moving on to new opportunities before the old ones are copied or exhausted. By formalizing business model innovation processes and tools into your business, you can better position your firm to ride the waves of change that we now live and work in.
The Institute will dive deeper into the different Business Model frameworks and processes available and how they can be applied to members’ businesses in future posts and through direct coaching conversations. Articles are being added into the Institute's Innovation Library for more exploration on business model innovation.