How Should You Evaluate Your Current Business Model?
How Should You Evaluate Your Current Business Model?
Business model innovation is job one for organizational leaders. But what is that job?
Let’s consider first how learning and improvement optimally take place.
In the last several years, Russian athletic coaches and trainers learned something very profound. Athletes could dramatically improve their performances by spending half their time thinking about perfect performance and half their time physically practicing. Traditionally, little time had been spent on visualizing perfect implementation. In both the mental and physical practice, Russians also learned that measuring the mental and physical performances was critical to progress.
Like athletes, you have to spend significant amounts of time thinking about, working on, and measuring all three dimensions of a business model. The ability to do so requires a major shift in focus and in how time is spent for many.
Most companies spend enormous percentages of their time on improving performance on inferior or obsolete business models, and almost no time on communicating the existing business model, working on the next one, or articulating long-term business model principles. Some of that time spent on old business models will have to go.
Begin by measuring how much time is being spent on each of the three dimensions of a business model, as well as how much time is being spent on improving the performance of the business model you have now . . . rather than replacing or improving it the model itself.
To understand the distinction, a layoff to handle lower volume due to lost sales is trying to improve performance of an existing business model. Outsourcing many of your unimportant activities to vary with your volume, on the other hand, can be part of a change towards a better business model. While both efforts are focused on cost improvements, only the latter is likely to open the windows to new opportunities by allowing more attention to be focused on key activities.
Also, you should measure your historical and current performance relative to competitors and potential competitors along the dimensions of a good and an ideal business model.
Just to remind you, here are those elements. In developing ideal business models to help your business reach its fullest potential, my investigation shows there are another four elements to add to the basics required for a good business model:
1. Your business model opens new windows of opportunity for you, while closing those and other important windows of opportunity for current and potential competitors.
2. You find ways to provide more helpful benefits for more types of stakeholders with each round of business model improvement.
3. You serve stakeholders who would normally not be able to meet your minimum standards to become lenders, shareholders, employees, suppliers, partners, or customers.
4. Your business model improvements expand your ability to make more types of business model innovations more rapidly in the future.
Good examples of ideal business models can be found by studying companies like Business Objects, Ecolab, Iron Mountain, and Paychex.
A good business model provides benefits to all of its stakeholders more effectively than existing competitors or new entrants can. Here are six common ways to provide a greater array and volume of stakeholder benefits:
1. Help your customers add customers for themselves faster than their competitors.
2. Stimulate industry growth through providing more benefits and fewer drawbacks at the current price level.
3. Reprice your offerings to encourage using more of them.
4. Reduce the resources needed to provide and use these offerings.
5. Reinvent the resources generated by your business model to provide even more benefits and fewer drawbacks in the future, faster than your competitors can.
6. Fairly share excess resources with the stakeholders who have supported and provided the business models success in a predictable way, so that no other organization can offer these stakeholders as much benefit now or in the future.
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