Reinventing Your Business Model

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Reinventing Your Business Model

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Why is it so difficult for established companies to pull off the new growth that business model innovation can bring? Here’s why: They don’t understand their current business model well enough to know if it would suit a new opportunity or hinder it, and they don’t know how to build a new model when they need it.

Drawing on their vast knowledge of disruptive innovation and experience in helping established companies capture game-changing opportunities, consultant Johnson, Harvard Business School professor Christensen, and SAP co-CEO Kagermann set out the tools that executives need to do both.

Successful companies already operate according to a business model that can be broken down into four elements: a customer value proposition that fulfills an important job for the customer in a better way than competitors’ offerings do; a profit formula that lays out how the company makes 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 is doing with its Nano—the $2,500 car aimed at Indian families who use scooters to get around). Capitalizing on such opportunities doesn’t always require a new business model: P&G, for instance, didn’t need a new one to leverage its product innovation strengths to develop the Swiffer.

A new model is often needed, however, to leverage a new technology (as in Apple’s case); is generally required when the opportunity addresses an entirely new group of customers (as with the Nano); and is surely in order when an established company needs to fend off a successful disruptor (as the Nano’s competitors may now need to do).

In 2003, Apple introduced the iPod with the iTunes store, revolutionizing portable entertainment, creating a new market, and transforming the company. In just three years, the iPod/iTunes combination became a nearly $10 billion product, accounting for almost 50% of Apple’s revenue. Apple’s market capitalization catapulted from around $1 billion in early 2003 to over $150 billion by late 2007.

Mark W. Johnson is co-founder and senior partner of the strategy consulting firm Innosight and author of the new book, Reinvent Your Business Model: Seizing the White Space for Transformative Growth (HBR Press, 2018).

Clayton M. Christensen is the Kim B. Clark Professor of Business Administration at Harvard Business School and a coauthor of The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty (HarperCollins, 2019).

Henning Kagermann (henning.kagermann@sap.com) is the co-CEO of SAP AG, in Walldorf, Germany. Johnson is the author of Seizing the White Space: Business Model Innovation for Transformative Growth and Renewal (Harvard Business Press, 2009).

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