Organisations across all industries are required to consistently review their ‘Business Model’ in order to grow and in many cases, survive in an age of disruption. That was the key take away from a recent interview with Columbia Business School professor Rita Gunther McGrath.

To take this one step further, organisations that have mastered disruption such as Netflix, Uber, Apple and Tesla have shown us that it is not enough to have a business model which operates within the boundaries of current limitations of technology and regulation, they require transitional business models in order to ‘get in the game’ early. This has enabled them to define the game.

In short, product lifecycles and design cycles are accelerating, inter-industry competition is increasing and there is increased disruption from new entrants with business models focussed on delivering superior customer experience.

IDENTIFYING THE NEED FOR REVIEW

Over the last few years we have observed the five most common drivers of business model review with our clients to be:

1. Adapting to changing needs and expectations of customers;
2. Loss of competitive advantage and/or product differentiation;
3. Desire to capitalise on new market opportunities;
4. Achieving essential cost reductions; or
5. Protection from new, innovative competitors.

Whilst the symptoms of these are broad and varied the common link is that they are usually only tabled at times of periodic strategy review. Therefore, it makes sense to conduct a
business model review regularly as a part of the strategic planning process. If your organisation does not have a regular strategic planning process, then this is the first issue that
must be addressed.

THE PROCESS

• Articulate existing model: Articulating your current business model is the first step to figuring out whether you need a new one. Ask yourself: What customer problem does our model solve? How does it make money for the firm? What resources and processes support it?
• Scan for signals: Are there tough new competitors on the horizon? Have new low-end disrupters challenged your profit model? Or is there an emerging customer segment that needs to get a job done in a new way?
• Decide what is required: If the core functions of the current business model can be augmented to deliver on the changes above then a business model redesign is required (e.g. Qantas deploying Jetstar as a low-cost airline). If core functions do not exist, then a completely new business model is required (e.g. ASOS delivering the largest product range to your door with free delivery). In any case, businesses should be pushing themselves to challenge long-held beliefs in their industry during this type of review to flip the business model on its head and consider the transitional business models that could be tabled. This is what your competitors (existing and future) are doing.

INDEPENDENT REVIEW? REVIEW INDEPENDENTLY? BOTH?

Performing these types of ongoing reviews requires specific resource capability and capacity. Inappropriately structured organisations it is the remit of the Strategy and Innovation teams to consistently monitor the KPIs that illuminate the need for such a review and then conduct the process with input from relevant stakeholders. The benefits of this approach include speed to recognise issues with dedicated staff consistently reviewing; and deep knowledge of the business as they are tenured full-time employees.

Alternatively having an external party conduct the process provides benefits such as an independent vantage point, deep experience in conducting the process with multiple organisations and industry types and greater flexibility on costs due to temporary nature of contracting.

Although there is a third option. In order to extract the benefits of each approach, it is important to partner with someone who will take your team on the journey. This way the collective knowledge of the team is enhanced, the capability of permanent staff is improved and repeat instances of the process are better informed, more efficient and will ultimately have a greater impact on the business.

If choosing an external partner, then it is important that they are someone who:

• Has the experience to understand your real business challenges and proven methodologies to overcome them;
• Takes pride in seeing you succeed;
• Shows you how to do rather than just telling you what to do;
• Has the right cultural fit for your organisation that drives accountability and performance; and
• Has the ability and capacity to do exactly what they said they’d do.

IN CONCLUSION

It can be easy to dismiss rethinking your business model as something that big, innovative “tech” companies like Netflix, Tesla and Uber do, but in reality, it is essential that all businesses perform this activity on a consistent basis. I’m sure if Blockbuster had been conducting regular business model reviews we would know the brand name for better reasons than an overly used case study of how businesses can lose it all.

The best way to ensure consistency of business model reviews is through inclusion in the strategic planning process. By doing this it adds a level of consistency that is required to stay ahead of ever faster-moving business cycles and changing customer demands. It might also help you to recreate an entire industry.

If you would like to find out more about how Churchill Consulting’s Strategy and Planning team can assist your organisation, please visit our service line page and get in touch with one of the key team members to discuss.

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