Reinventing Your Business Model

This question stopped me when I came across Mark W. Johnson, Clayton M. Christensen and Henning Kagermann’s Harvard Business Review article, Reinventing Your Business Model, during my MBA Digital Transformation studies at the University of Canterbury.

It connected immediately with the way I have approached business throughout my career.

I have always been interested in people, ideas and possibilities. I want to understand what people actually need, what they are trying to achieve and where an opportunity exists to create something better.

The article gave me a useful framework for putting that thinking into a business context.

The product is only part of the story

One of the most powerful examples in the article is Apple’s iPod.

Apple did not invent the digital music player. Other companies had already brought portable digital music players to market.

What Apple created was a different experience around the product.

The iPod was connected to iTunes, creating a complete system for discovering, buying and listening to music.

That distinction matters.

When we look at a business, it is easy to focus on what we sell.

The more important question can be:

The four parts of a business model

Johnson et al. (2008) describe four connected elements of a business model:

These four elements are connected. Change one significantly and the others may need to change with it.

That is where business transformation becomes interesting.

Start with the job to be done

The example of Hilti particularly caught my attention.

Hilti traditionally sold high quality power tools to contractors. But what was the contractor really buying?

A drill?

Or the ability to complete a construction job efficiently?

Hilti shifted its thinking towards the job the customer needed to accomplish. It introduced a tool fleet management model where contractors could pay a monthly fee for access to a fleet of tools, including repair and replacement services.

The product remained important.

The business model changed.

That is a significant difference.

When should a business consider a new model?

Johnson et al. (2008) identify several circumstances where a new business model may be required. These include:

• reaching customers who are currently excluded from the market
• applying new technology in a new way
• identifying an important customer job that the industry has overlooked
• responding to lower cost competitors
• recognising that the basis of competition has changed

For me, this creates a much better starting point for transformation than simply asking, “What technology should we introduce?”

Instead: “What should we change, and what evidence tells us that change will create value?”

Lake Tekapo, New Zealand

The connection to my work

This is where it connects with how I work.

Before recommending a solution, I want to understand the people involved.

What are they trying to achieve?

Where are the frustrations?

What are customers telling us?

What is happening in the market?

What evidence do we have?

Where is the opportunity?

Only then can we begin to consider the solution, the capabilities required and the technology that may support it.

This is where I see the value of combining commercial thinking with human understanding.

Whether I am working with a creative business, a growing organisation, a leadership team or developing my own jewellery business, the fundamental question remains the same:

A simple exercise for any business

Take one product or service you want to grow. Write down four things:

1. Customer value: What job is the customer trying to accomplish?
2. Profit formula: How does the business make money from solving that job?
3. Key resources: What do we need to deliver the value?
4. Key processes: What needs to happen consistently for the model to work?

Then look at the whole picture.

Sometimes the opportunity is to improve the existing model. Sometimes the evidence points towards something fundamentally different.

The important thing is to understand the difference before investing heavily in the solution.

What I am taking forward

This reading reinforced something I have learned repeatedly through business:

Ideas are powerful. Understanding the customer is powerful. But turning an idea into sustainable value requires a business model that can carry it.

That is the part of transformation I find fascinating.

It sits at the intersection of people, customers, markets, creativity, commercial thinking, processes and technology.

And perhaps the most useful question to take into your next business decision is this:

My thanks

Thank you to Elsa Mari for bringing this article into our Digital Transformation class at the University of Canterbury. It gave me a framework that I can take beyond the classroom and apply to real businesses and real decisions.