Reinventing the business model for sure-fire success

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Wanted: CEOs from India

: Business model innovation is the current topic of prominence in business discussion, but without any sure-fire methodology or examples of ensuring repeatable success. The most important challenge for a CXO is to continuously reinvent the existing business model keeping pace with new realities and possibilities. While many would like to see the proof of success before making any drastic change in the existing models, some would feel that, perhaps, it will never ever be relevant to them. It is only the ones with foresight who would explore, implement and achieve what the others would miss in the first place. This chapter will be immensely useful to CXOs as it will compel them to think and propel them towards action.

Why Undertake Business Model Innovation? What is it?

Sometimes when you innovate, you make mistakes. It is best to admit them quickly, and get on with improving your other innovations.—Steve Jobs

Business model for a traditional economy was a simple feat. Traditional organisations were doing everything by themselves, right from sourcing the raw material to manufacturing and selling, and even support functions were all maintained and run from within the enterprise. Traditional firms already knew what to make for whom and had limited local competition on price, quality and proximity. All decisions were simple and valid for a long time.

A few years ago, it was possible for a person to open a manufacturing unit by himself, procure raw material, do the advertising and serve the customer segment of his choice. This is how the old economy normally worked. However, the new entrepreneur will also have to consider global manufacturers who may be eyeing his customers through the internet; outbound call centers and selling their wares to customers in his vicinity. Worse still, they may be using the workforce or manufacturing units in the same industrial estate and the call centre in India to serve these targeted customers.

In the current scenario, all these variables change continuously. This presents a challenge and requires a concerted effort. One of the three following choices is available:

•Undergo the forced change from the environment

• Follow the change when others have proven the results

• Try and lead the change

Innovation is required if one really wants to be in the third category and that too through innovative business model. Since the current environment is characterised by a high level of complexity and ambiguity, it needs an ontological perspective to understand the business model and construct it for giving it lasting value.

Thanks to the concept of sense making put forward by Weick, ontological perspective of business model design helps in bringing together multiple disciplines of strategy, customer value orientation, information and communications technology, process and people management. Sense making concept implies finding logically reinforced possible choices out of vague questions, muddy answers and negotiated agreements that attempt to reduce confusion.

IT has proved and pioneered the value of outsourcing to obtain cost, time and quality advantage in the global economy. Fuelled by the lower cost of high speed bandwidth connectivity, this has also been extended to other business processes. Businesses across the world are outsourcing business processes to service providers who specialize in these services that are served from cost-effective locations. The next wave of organisational scope and scale would come from dynamic collaboration across various constituents of the “new” value chain. The successful innovation will be through dynamic forming or reforming of partner alliances, while ensuring seamless delivery of services, products development or manufacturing for superior customer experience. Information technologies will play a cementing role in realizing business model innovating.

In this chapter, we will discuss how to realise this dream and try to clear the cobweb of confusion surrounding business model and the role of IT in innovating it. A word of caution however—unless the core concepts and rigors of business model are understood, any innovation in this space may remain cosmetic.

What is Business Model?

A business model is the value an enterprise creates for its customers. Defined in terms of its business architecture including network of its partners and suppliers, business model also depicts the way the enterprise is structured for creating, marketing and delivering its value and relationship to generate sustained profit and revenue streams. Some experts also explain business model as “architecture of revenue” to illustrate the point.

According to Chesbrough and Rosenbloom, the rise of e-commerce and e-business has thrown a spotlight on the study of business model, which has not yet been prominent in academic discourse, but widely discussed by practitioners and investors. Business model is, however, much in use as a term among the new age venture capitalists for whom it represents a loosely understood concept of making money. One reason for academic scholarship not focusing on the concept may be that it draws from and integrates the variety of academic and functional disciplines, gaining prominence in none.

We are discussing a very unique thought that business model is a melding construct between technological possibilities and realising economic value. Business strategy (for that line of business) and corporate strategy (for the entire corporation) are the two starting points for business model development. Hence, business model loosely represents everything from how a company earns revenue to its organisational structures. However, it would be prudent to define business model as the way a company wants its strategy of revenue and profit generation by creating value to its customers through processes, people and technology. This conceptual representation of business model helps the firm to articulate implementation of its strategy through process, people and technology.

Extracted with permission from Tata McGraw-Hill Publishing Company Limited