Business Model Mastery
A business model is an essential framework that illustrates the process of a company creating, delivering, and capturing value. It encompasses the range of products or services the company provides, the specific customer base it targets, the channels it uses to reach these customers, and the ways it earns revenue. This model details the fundamental principles of a company’s operation, how it makes money, and its growth trajectory. It’s a critical component of a company’s overarching strategy and significantly influences its success or failure. New companies often aim to shake up existing markets by introducing innovative business models. These models can present unique offerings, engage customers through novel methods, and generate revenue in ways that differ from traditional businesses. Business model transformation involves modifying the core ways a company functions and delivers value to its customers to enhance performance, remain competitive, and respond to evolving market conditions.
This process entails re-evaluating and adjusting the company’s strategy, operations, finances, and organisational structure to forge a more efficient and effective business model. The objective is to tap into new revenue streams, reduce costs, and augment the value delivered to customers and stakeholders. While innovation in products and processes is a hallmark of top-performing companies, the most ground-breaking success stories often stem from innovation in business models. This kind of innovation is what many CEOs aspire to replicate, yet it remains elusive within their own organisations. In many companies, there is a constant development of new products and processes aimed at reducing costs and boosting efficiency. However, the focus on creating new business models is not as prevalent. This is partly because business model innovation is significantly more challenging, and many companies lack people with the expertise to effectively execute it. While there may be high-level theoretical understanding, practical experience in transforming and implementing new business models is often lacking, making it a less trodden path when it comes to business transformation. Businesses may consider transforming their business models for several reasons. One major factor is market disruption, often caused by new technologies or innovative business models that shake up established markets or industries. Such disruptions can radically alter the competitive environment and the way business is conducted, making old business models obsolete. Another catalyst for transformation is heightened competition. This occurs when a company faces an increase in competitors, either from new market entrants or from existing rivals enhancing their offerings or value propositions.
Declining sales also frequently prompt businesses to rethink their models. A drop in sales can result from various issues, including shifts in consumer preferences, fiercer competition, economic downturns, or supply chain challenges. Other reasons for business model transformation include technological advancements, changing customer needs, evolving regulatory environments, and the impacts of mergers and acquisitions. While these factors create the need for transformation, the real challenge is in developing a new business model that not only aligns with the existing company structure but also proves to be profitable, sometimes even leading to the formation of a new business entity.
McKinsey research indicates that many business leaders expect that by 2026, up to half of their revenue will be generated from products, services, or business ventures that are currently in the development stage or yet to be conceptualised. Consequently, more top-performing CEOs are shifting their organisations’ focus towards establishing new businesses, going beyond just innovating products and processes. Effectively building new businesses can utilise an organisation’s assets and capabilities to create interconnected enterprises based on innovative business models, products, and services. Most executives in established organisations are tasked with managing businesses that were initiated by predecessors. However, a select few might have founded these businesses themselves, guiding them to success. It’s crucial to hold realistic expectations for executives who haven’t personally developed a business from the ground up.
Nevertheless, executives typically have the budget to employ individuals who have experience in starting and growing businesses, adding vital expertise to new projects. Some, however, opt not to follow this path. This may be a factor in why over half of the new enterprises started by established organisations either fail to exceed a mere $1 million in annual revenue or are shut down. Contrastingly, an increasing number of small, unfunded digital businesses in various industries manage to reach this revenue level. Interestingly, while many executives choose to embark on new business ventures without prior experience, they would rarely consider hiring HR, IT, or Finance managers without relevant experience. This underlines the significance of having the right capabilities and experience to achieve any given goals, whether that involves operational transformation or business model transformation.
As we wrap up, consider how these insights can be applied to your own business. Whether you’re at the helm of a startup or part of a long-established company, the journey towards successful business model transformation is both challenging and rewarding. Join us in our next episode, where we’ll continue to unravel the complexities of business transformation.
Until then, keep challenging norms and driving positive change in your organisation.
Bye for now!
