Sunday, May 31, 2009

Respond to Rapid Increases in Business Model Innovation

Since 1900, business model innovation shifts have been accelerating at an increasingly rapid pace. As a result, business models that once could serve for decades now may be threatened after only a year or two.

What can you do?

This acceleration of shifts presents an important challenge for companies of all sizes, in all industries, and in all countries. Being outstanding at what is important today will no longer be enough to succeed. Business model innovation and implementation must be added to your company's strengths.

Consider the evolution in business models that may face almost any company manufacturing a product that requires many components. Most people realize that the ability to improve that product and reduce its costs is limited until the product is totally redesigned to have greater benefits for customers and fewer parts so assembly and maintenance are easier.

Most companies plan to do these redesigns every few years. The latest trend is to customize each product for each customer, as Dell Computer does for personal computers.

Business model innovation can obliterate the relevance of that time-tested approach, however, if greater benefits can be provided by offering a service to perform the product's function rather than selling a product at all. For example, rather than buying the product, the customer might outsource all of the activities that require that product.

For many companies, this has happened with information systems. As a result of efficiencies from combining the equipment needs of many customers, the demand for computer hardware grows more slowly than it did before.

That service in turn can be wiped out by a new business model that combines several services together to provide better results at vastly cheaper cost. That is happening today in industries where the information systems were being used to run manufacturing facilities. When a company decides to outsource its manufacturing, the new vendor may not need or want the information systems or the services to support them.

If a new supplier then finds a way to provide outstanding new product design and manufacturing services into an improved business model, that outsourcing supplier may lose the business to this new business model.

Notice that having been an industry leader would not insulate a company from losses due to better business models. As a result, most future industry leaders will be companies that rapidly and continuously improve their business models to become the industry's leader in this one capability.

And on it goes. As a result, only the most flexible business model innovators will be able to achieve that lofty marketing goal of having customers for life. Are you agile enough in business model innovation to take advantage of that kind of marketing?

Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at .

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