Blog 57: When should we transform an industry’s main business model?

In blog 9 we talked about the business model canvas. A starting point for most things. It gives us a 360-degree understanding of our business (value proportion, our customers, cost structure, revenue streams, etc.).

Every industry sees the emergence of a main business model. Due to intense competition and market saturation, every now and then a new entrant disrupts this main business model.

Business model transformation is different from product positioning or repositioning (that we covered in blogs 33, 47, 48). Product positioning or repositioning is more to do with external messaging.

While business model transformation involves a core change. Either in value proposition or customer segments or customer relationships or distribution channels or business activities or cost structure or revenue streams (read blog 50 for different revenue streams).

As product managers we must have our ears to the ground. To sense possible business model innovations. So that, our business can stand out, unlock new value, and meet changing customer needs.

By adopting lean principles and MVPs (read blog 51 on ‘Lean Product Playbook’ and Minimum Viable Product) we can gather valuable market feedback with minimum investments.

Blue Ocean Strategy (covered in blog 38) is one such way to transform a business model. A transformative business model rarely results from technological innovation alone. It links a new technology to an emerging market need.

New technologies include:

· Sensors that facilitate real-time data capture.

· Big data, artificial intelligence, and machine learning that convert data into insights.

· Connected devices and cloud technologies allow decentralized decision making.

· Developments in manufacturing (nanotech, 3D printing) boost small-scale production.

Emerging market needs include:

· Worldwide growth in demand (led by developing countries)

· Increased diversity in customer preferences

· Rise in input costs (resources, labour, transportation, etc.)

· Heavy regulation (notably on environmental effects and business conduct)

After studying 40 new business models, HBR (source) has identified six characteristics of a transformative business model. No business model displayed all six characteristics, but higher the number - higher the chance of it being a transformative business model.

These six characteristics link new technologies with emerging market needs.

1.Personalisation: Leverage available technologies to offer personalised offerings and services. Airbnb and Uber offer personalised dashboards for the parties involved.

2.Closed-loop process: Replace a linear consumption process with a closed loop. Where, products are recycled thus reducing overall resource costs.

3.Asset sharing: Asset sharing enables sharing of costly assets. Hence unlocking value for stakeholders. Airbnb allows homeowners to share home with travellers. Uber allows car owners to share car with its passengers.

4.Usage-based pricing: Usage-based pricing reduces barriers for customers. The customer pays only to the extent of usage.

5.Collaborative system: Technology improves collaboration across the value chain enabling significant cost reductions.

6.Agile and adaptive organisation: Technology and availability of real-time data allow for quicker decision making and adaptation to changing market needs. Hence, greater value for customers at a lesser cost.

If our new business model significantly outperforms the current main business model on three or more characteristics, then our chances of building a transformative business model is high. Else, we would be better off sticking to the current main business model.

Jump to blog 100 to refer to the overall product management mind map.

I wish you the best for your journey. 😊