Reinventing Your Business Model
The Idea in Brief
When Apple introduced the iPod, it did something far smarter than wrap a good technology in a snazzy design. It wrapped a good technology in a great business model. Combining hardware, software, and service, the model provided gamechanging convenience for consumers and record-breaking profits for Apple. Great business models can reshape industries and drive spectacular growth. Yet many companies find business-model innovation difficult. Managers don’t understand their existing model well enough to know when it needs changing—or how. To determine whether your firm should alter its business model, Johnson, Christensen, and Kagermann advise these steps: 1. Articulate what makes your existing model successful. For example, what customer problem does it solve? How does it make money for your firm?
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The Idea in Practice
UNDERSTAND YOUR CURRENT BUSINESS MODEL A successful model has these components: • Customer value proposition. The model helps customers perform a specific “job” that alternative offerings don’t address. Example: MinuteClinics enable people to visit a doctor’s office without appointments by making nurse practitioners available to treat minor health issues. • Profit formula. The model generates value for your company through factors such as revenue model, cost structure, margins, and inventory turnover. Example: The Tata Group’s inexpensive car, the Nano, is profitable because the company has reduced many cost structure elements, IDENTIFY W HEN A NEW MODEL MAY BE NEEDED These circumstances often require business model change: An opportunity to . . . Address needs of large groups who ?nd existing solutions too expensive or complicated. Capitalize on new technology, or leverage existing technologies in new markets. Bring a job-to-be-done focus where it doesn’t exist. A need to . . . Fend o? low-end disruptors. Respond.