Does Business Model Strategy Matter in an Age of Uncertainty?
Economics lacks meteorology’s scientific basis, although many economists make their money forecasting where the business cycle is headed (albeit with less success than weather channels). This economist has little faith in economic predictions today as they are based primarily on past trends and relationships, captured through rigorous econometric models. The depth of this recession, its causes and its global impact in a world far more interconnected than any of us understood suggest that the present will be a distinct break from the past. Time to throw out the models, as the author of Black Swan advises.
If uncertainty reigns, what are we to do as leaders and recommend as their advisors?
This is the subject of a blog-conversation I will be sharing with two other blog authors whose insights I admire. Hopefully others will discover and join our conversation.
Bill Welter is one of the most well read consultants I have ever met. His book, The Prepared Mind of a Leader: Eight Skills Leaders Use to Innovate, Make Decision and Solve Problems, written with Jean Egmon is very timely as the quality of leadership decision making is paramount in today’s uncertain world. His blog on leadership is a must-read.
Fred H. Schlegel is managing partner for JSMI Consulting (a strategic business consulting agency) and Vice President of Business Development for GenUs BioSystems (a biotechnology contract laboratory). He is the kind of marketing thinker I wish I’d known when I was a marketing director. He aims to change the conversation companies have with their customers and create a more meaningful organization for customers and employees alike. His blog reminds me of the power of marketing concepts and why marketing-thinking should be infused throughout an organization.
Brad Shorr a wonderful web, blog and marketing consultant who reads all three of our blogs suggested we hold a conversation on line. Bill, Fred and I chose the topic “The Uncertainty Paradox.”
My role in this conversation is to write about strategy in the context of escalating uncertainty. On one level this assignment feels very straightforward. After all, strategy at its core is about dealing with uncertainty so as to invest organizational resources in the best option(s) going forward given that uncertainty. Scenario-based planning is one of the tools strategists use to help leaders prepare for and make decisions when the return on investments depends upon what outcomes emerge for key uncertainties. (For more background see “Anticipating an Uncertain Future: Scenario Based Planning”, a PDF you can find on my business strategy publications page.)
The first question that comes to mind then is “How do business models and business model innovation change in a world of escalating uncertainty?”
The business model carves out the scope of the business you are in. In a more uncertain world it’s important to define the scope of your business more broadly – around a purpose more than product or service categories – to take into account that industry boundaries may change or that you may want to change them. In a market where obesity may wreck the US economy, for example, would Coke be better off with a business model scope of
- carbonated sodas
- beverages or
- refreshing breaks?
The business model also carves out the basis on which you want to win customers, what I call the value promise. In a more uncertain world, your people need a sense of direction more than ever. A value promise provides that, although how you deliver on the value promise, the customers you sell to and how you reach them may all change.
I’ve argued in other posts that your business model must evolve as your external environment changes and competitors copy your good ideas. Just as a product or service can become commoditized, so can a business model. Companies that are flexible – that are willing and able to evolve their business models will have an advantage in more uncertain times.
Finally business model innovation becomes more important as uncertainty grows. Uniqueness, relevancy and defensibility are important attributes of a strong business model. Changes in the external environment can alter any or all three very quickly, demanding a response on the part of your leadership team.
If your company’s been basically doing operational planning under the guise of strategy, it’s time to take a time out and learn what strategy is all about – business model innovation.
How do you think strategy changes as uncertainty increases?
For insight on business model innovation and business model differentiation, read my recently released book, Beyond Price.