The Business Model Universe
[This is a follow up to the previous post in this blog, "How to Create a Winning Business Model," February 5, 2010.]If business model innovation is the goal, and for most companies the evidence suggests that it should be, then we need a way to get there.InnovationLabs has created a unique and powerful methodology that we use with our clients to help them design their own Master Plan for Business Model Innovation.In addition to a healthy dose of conceptual material that enables executives to grasp the full scope of what business model innovation really means, we’ve also developed a powerful set of analytical tools, exercises, and worksheets that enable executives to understand the key drivers of business model innovation, and then help them apply these concepts to develop business model innovations of their own.There are 8 major elements in the toolkit:
1. The Business Model Universe2. The External Drivers of Change3. The Customer Experience Model4. Core and Edge Markets Analysis5. Market Leader Analysis6. Competitor Analysis: Jobs to Do7. Who Innovates?8. Putting it All Together: The Complete Business Model Innovation Package
In this blog post I’ll cover the first, and I’ll explain the others in the coming weeks.
1. The Business Model Universe
To understand business model innovation, the first thing you have to do is to discover the underlying patterns that shape business strategy. This means you need to see the patterns of economic change and the structure of industry competition across a wide cross section of the economy.It may surprise you to find out that when you really dig deeply into the question, the successful business model innovators of the last few decades, the companies that so many of us admire, have really figured out how to do only two things better than their competitors.Some of them have built market share and establish growth by expanding their markets as broadly as possible, bringing in more, and then still more customers. As Wal-Mart has shown, the fastest way to do this is to lower the price. The name for this underlying trend is commoditization, and it’s been the driver of success for many companies in addition to Wal-Mart, including firms as diverse as Dell, Home Depot, Ikea, Target, and Southwest Airlines.The underlying insight is simple: commoditize your market, or your competitor will do it to you.Others grow by developing products and services that are more desirable because they are more and more differentiated. This route, increasing customization, is the path taken by companies like Starbucks and Apple in the mass market, or, at the high end of the luxury market, Bentley autos and Prada shoes.Some companies, however, choose to neither commoditize or customize. Instead, they stay exactly where they’ve been, but unfortunately this simply allows their competition to pass them by. In this group we companies that are going or already have gone out of business, and the nearly dead ones, such as Sears, K-Mart, Circuit City, as well as GM and Chrysler.There is a fourth option, the one that is by far the most difficult to achieve. That is the sweet combination of growing the mass market while providing increasing customization. In the very long history of commerce very few companies have been able to do this, but today one company has reached the top of the internet universe by doing exactly this: Google. How?Google’s market is everyone; its service is free. And the service it provides is utterly and entirely customized.No wonder everybody wants to be Google! Microsoft, Facebook, and Twitter are all claiming that they’ll be the “next Google.” But Google wants to be the next Google too!(It’s a fascinating story, and the topic of a detailed case study I’m working on. It will be part of my next book, The Innovation Master Plan: How to Create a Winning Business Model, coming in Q4 2010. Please click on this link to go to the page where I am posting portions of the work-in-progress and inviting reader feedback. Thank you.)Together, these four business models help explain nearly everything that’s been happening in a wide swath of industries, including advertising, air travel, autos, banking, entertainment, fashion, financial services, fast moving consumer goods, media, retail, technology, and a great many other B2C and B2B industries as well.Locating your own company and your competitors in the Business Model Universe is an important first step in becoming a business model innovator.
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