Contributed on December 18, 2014

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Reinventing your Business Model

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Harvard Business Review

Transcript

REINVENTING YOUR
BUSINESS MODEL
HARVARD
by Mark W.Johnson, Clayton M.Christensen, and
Henning Kagermann
BUSINESS
REVIEW
One Secret to maintaining a thriving business is recognizing
when it needs a fundamental change.
Articulate what
makes your
existing model
successful
Watch for
signals that
your model
needs changing
Decide whether
reinventing your
model is worth
the effort
T h e a n swe r i s
YES only if the
new model changes
the industr y or
market
To see past the borders of what is and into the land
of the new, Companies need a road map.
First Step
Realize that success
starts…
…by not thinking about
business models at all
…with thinking the
opportunity to satisfy a real
customer who needs a job
done
Second Step
Construct a blueprint
laying out how your company
will fulfill that need at a profit
That plan has four elements
Third Step
Compare the new
model to your existing
model to see how much
you’d have to change it
to capture the
opportunity
First Step Second Step Third Step
A Business Model consists of four interlocking elements that,
taken together, create and deliver value.
Customer Value
Proposition (CVP)
Profit
Formula
Key Resources
Key
Processes
Every successful
company already
operates according to
an effective business
model.
A successful company is one that have found to create
value for customers. CPV
It is not possible to invent
or reinvent a business
model without first
identifying a clear
customer value
Target Customers
Job to be done to solve an important problem or
fulfill an important need for the target customer.
Offering, which satisfies the problem
or fulfills the need. This is defined not
only by what is sold but also by how
it is sold.
proposition.
The profit formula is the blueprint that defines how the
company creates value for itself while providing value to the
customer.
Profit
Formula
Revenue Model.
How much money can
be made: price x volume.
Cost Structure.
Start by setting the price
required to deliver the CVP
and then work backwards
from there to determine
what the variable costs and
gross margins must be.
How costs are allocated:
includes cost of key
assets, direct costs,
indirect costs, economies
of scale.
Margin Model.
How much each
transaction should net to
achieve desired profit
levels.
Resources Velocity.
How quickly resources
need to be used to
support target volume
The two elements that describe how the value which is
created will be delivered to the customer and the
company.
Key Resources
Key
Processes
Needed to deliver the
customer value
proposition profitably.
Operational and managerial
processes that allow a
company to deliver value in a
way they can successfully
repeat and increase in scale.
+
+
Key
Processes
People, Technology, products,
Equipment, Information,
Alliances.
Rules and metrics such as credit
terms, lead times, supplier terms.
Norms: opportunity size needed for
investment, approach to customers
and channels.
Key Resources
Major changes to any
of these four elements
affect the others and
the whole.
Established companies can often create new products that disrupt
competitors without fundamentally changing their own business
model.
When a new
business model
is Needed?
These circumstances often require business model change
Address needs of large groups who find
existing solutions too expensive or
complicated.
Example
The Nano’s goal is to open car ownership
to low-income consumers in emerging
markets.
Capitalize on new technology, or leverage
existing technologies in new markets.
A company develops a commercial
application for a technology originally
developed for military use.
Bring a job-to-be-done focus where it
doesn’t exist.
FedEx focused on performing customers
unmet “job” : Receive packages faster and
more reliably than any other service could
Fend off low-end disruptors.
Example
Mini-mills threatened the integrated steel
mills a generation ago by making steel at
significantly lower prices.
Respond to shifts in competition.
Power-tool maker Hilti switched from
selling to renting its tools. Low-end
entrants had begun chipping away at the
market.
An opportunity to…
A need to…
Creating a new model for a new business does not mean the
current model is threatened or should be changed. A new model
often reinforces and complements the core business.
Embraces the Low End
High-margin, high-overhead
retail prices
pay for value-added
services.
Customized solutions,
negotiated contracts.
R&D, sales, and
service orientation.
Spot-market pricing, low
overhead to accommodate
lower margins, high
throughput.
No frills, bulk prices,
sold through the
internet.
IT system, lowest-cost
processes, maximum
automation.
Customer Value Proposition Profit Formula
Key resources and
processes
Traditionally high-margin
company found
new opportunities in low-margin
offerings by
setting up a separate
business unit that
operates in an entirely
different way.
Investment paid back in just
three months!
The Elements of a Successful Business Model.
Systematically
identifying all of the
constituent parts of a
successful business
model.
Understand how the
model fulfills a potent
value proposition in a
profitable way.
Judge how well the
existing model could
be used to fulfill a
radically different
CVP.
What it needs to
do to construct a
new one.
Break the
Rules.
Identifying new
competencies.
Be patient for
growth but
impatient for
profit.
Envelop new
technology in
the appropriate
model.
Customer Value
Proposition
Key Resources
Profit Formula
Key Processes