Changing a business model can look very attractive because significant successes have been attributed to such actions, and we all want to emulate those transformations. Research has shown a strong correlation between higher operating margin growth and business model innovation compared to operations or “product, service, markets” innovation.
Although business model change seems appealing, this type of innovation challenges the foundational decisions underlying the current business, disrupting the very structure that is currently paying the bills. Therefore, finding the right time for a business model change is fundamental to success. Some signs of favorable timing include:
- Evidence of commoditization or declining industry margins
- Indications of over served customers
- Inability to keep pace with changes in your industry
- Base industry technology being used in outside industry products
- Opportunities coming from the current product/service portfolio to serve customers in outside industries
- Degradation in innovation metrics such as sales attributed to new products
Industry evolution can be unforgiving, and change can go much faster than expected, requiring diligence in the timing of a new business model design.
Soft Decisions Also Count
Decisions related to identity are often an important part of a company’s business model. Core resources and competencies reflect choices for values. The company’s brand represents promises delivered in its value proposition. There is a point at which proposed business model changes can remove the foundation that sustains the brand, and ultimately, the business’s identity. When this sequence of events occurs, business model innovation may suggest restructuring the company.
Amid a sea of uncertainty, one thing is clear: business model design must be aligned to the business’s identity for any possibility of a successful innovation outcome.
A profitable business is the best indication of a viable business model. But over time, changes occur that threaten business model sustainability – such as commoditized products or services, declining sales, and margin erosion. Innovating and redesigning business models that are future ready and sustainable have become a top organization priority.
What successes or failures did you create or experience when changing or adapting to your organization’s new business model?