Why is it so difficult for established companies to pull off the new growth that business model innovation can bring? Because they don’t understand their current business models well enough to know if those models would suit new opportunities or hinder them, and they don’t know how to build new models when they need them.
Successful companies already operate according to business models that can be divided into four elements: a customer value proposition that fulfills an important job for the customer in a better way than anything competitors offer; a profit formula that enables the company to make money delivering the value proposition; and the key resources and key processes needed to deliver that proposition.
Game-changing opportunities deliver radically new customer value propositions: They fulfill a job to be done in a dramatically better way (as P&G did with its Swiffer mops), solve a problem that’s never been solved before (as Apple did with its iPod and iTunes electronic entertainment delivery system), or serve an entirely unaddressed customer base (as Tata Motors has been doing with its Nano — the $2,500 car for Indian families who can’t afford any other type of car and usually use motorcycles to get around).
Although delivering new customer value propositions doesn’t always require a new business model, new models are necessary under certain conditions. They are often needed to leverage a new technology (as in Apple’s case); when the opportunity addresses an entirely new group of customers (as with the Nano); and when an established company needs to fend off a successful disruptor (as the Nano’s competitors have been doing).
What successes did you enjoy after changing your business model? What roadblocks, if any, did you encounter?