Young women and teens are ruthless customers, shifting from one on-trend store to another as quickly as they shift love interests. The retail clothing industry is therefore a great place to learn this vital leadership lesson: In today’s information-age economy, business model innovators emerge as winners, while those delaying business model innovation steadily lose market share. Business Week’s Benetton: A Must-Have Becomes a Has-Been tells a sad story of a retail chain I first encountered and fell in love with in the late 1980s. Founded in 1985, this Italian clothing maker brought consumers the look and feel of European clothing at an affordable price, accompanied by its bold United Colors of Benetton advertising that paralleled the bold colors of its clothing lines. By 1993 the company was 7,000 stores strong, with locations in high-end shopping malls in major US and European cities.While Benetton…
Create stronger external support for your business model success
Too often business leaders put a key fact on their mental backburner – their business is surrounded by a “containing system” that shapes their company’s opportunities, risks and outcomes. Not only should leaders align their business models with external market trends, they should try to influence or shape their containing system to best support their businesses. Here are two cases in point. As supply chain gurus, Boeing and GM have already assessed the impact of Japan’s recent natural disasters and are scrambling for parts. Less astute companies will discover over the next six months that their supply chains are more dependent on Japan than manufacturing managers ever understood. Journalist Barry Lynn predicted these disruptions in his 2005 book End of the Line: The Rise and Coming Fall of the Global Corporation. According to Lynn, America’s manufacturing sector has undergone a twin revolution. The…
What business are you in?
Baby carrot farmers are attempting to transform their vegetable into a daring, naughty snack food. The tiny orange roots are now branded Baby Carrots Rock. New packaging, bold ads and social media are part of a $25M marketing campaign. Two young entrepreneurs start College Hunks Hauling Junk, differentiating the experience they offer from what you’d except when the typical crew of a local mover shows up on your doorstep. Second Harvest Food Bank of Southern Wisconsin, which supplies food pantries with food donated by grocers and others, faces an insufficient number of food pantries to serve a growing number of needy families. Driven by its mission to eliminate hunger, it transforms itself into a mobile food pantry business after purchasing and outfitting large trucks. Harley Davidson changes the concept of its business from motorcycles to motorcycle experiences and the rest is history. Sweden’s…
If you can’t beat price, stop trying.
The loss was set in motion years ago. Still, it was hard to see my favorite airline, Midwest Express, lose the last vestige of its identity today, its name. It’s recent acquirer, Republic Airlines, also owns Frontier airlines. Republic wisely decided it could not afford to invest in two brands and Frontier better defines the combined companies. “The best care in the air,” Midwest’s brand promise, was not spin. First-class sized seats, food you’d enjoy on land and friendly service, complete with freshly baked and still warm chocolate chip cookies garnered industry awards year after year. An airline started by a corporation understood how frustrating business travel is and found a solution for frequent travelers. In every industry there are new entrants and established players driving the market lower in terms of prices and oftentimes (as in airlines) benefits. If you lack the…
Market disruptions demand business model innovation
The 2008-2009 economic recession changed customer and business behaviors, not unlike how a hurricane reshapes the built and natural environment. If you are not incorporating recession-induced changes into your business model strategy, your market position will weaken. The Recession Has Changed Consumer Behavior – Forever A recent in-depth study of consumer attitudes and behaviors by Context-Based Research Group, an ethnographic research and consulting firm, adds to the growing evidence that consumers have changed for good. (Listen up B2B company leaders, because your customers will change along with these consumer changes.) Consumers, after living through needed financial downsizing or, for the wealthy, downplaying of wealth, have discovered there’s magic in less. According to the authors: “Our studies portray a society moving into an era where we measure the quality of our lives in social terms before economic ones. Forty-three percent of Americans believe the…
Business Model Evolution
The technology sector is rapidly moving from companies competing as technology specialists to vertically integrated companies competing on solutions. HP acquires EDS and (pending) 3Com Corp. Dell quickly follows with acquisition of Perot Systems. Oracle buys Sun Microsystems (beating out IBM by 10 cents a share). Even Apple, the original vertically integrated company, is deepening its integration by acquiring chip-maker P.A. Semi. I could go on and on. What’s creating these seismic changes in business models and business model strategy? Economists call it the natural evolution of industry structure. After new technologies are proven, horizontal strategies (i.e., going after multiple market segments) often win the game, as they secure economies of scale and afford the significant innovation costs required to stay on the leading edge of technology. But over time, thanks to the dynamic forces of competition, maturing technologies become commodities. The “unmet”…
Value Promise and Profit Potential, Part Two
If you need a differentiated, superior value promise to win customers’ votes, how do you know when your value promise is no longer working and business model innovation is called for? Make sure you measure repeat purchases, your consideration rates and your win rates. Discover where you’re losing business and why you’re losing business, as losses signal a weakening value promise and threats to profit potential. Lost order autopsies can reveal – Nascent industries reducing customer interest in your categories Your differentiators becoming standards to be considered Non-traditional competitors entering your space Subgroups of customers exiting for simpler offerings Reduced profit margins also indicate a weakened or less differentiated value promise. But leaders too often forget that a compelling value promise creates the best context for reliable profit potential. They fix profits by cutting costs, forgetting value promise implications. A vital strategic leadership…
Why Business Model Innovation Matters
In November of 2008, Business Week magazine reported that Apple’s cash on hand exceeded Dell’s total market valuation. These two statistics explain how it happened – Apple net profit margin = Dell’s net profit margin plus 10 percentage points Apple operating margin = Dell’s operating margin plus 13 percentage points There is a vital lesson in the Dell-Apple financial comparison and it goes way beyond new product innovation. Apple has an incredible company-wide design competency upon which it built a differentiated business model. As a result, it introduces breakthrough new offerings while spending a much lower percent of revenue on R&D than other Top 25 innovative companies. The comparison in R&D spend tells you everything you need to know about the power of advantage and a differentiated business model built upon it. In Quarter 4 of 2008 – Apple R&D spend of 3.1%…
Business Model Innovation – About My Blog
It’s gotten harder and harder to succeed in business for a long list of reasons that, like gravity, pull leaders into a short-term focus. Our planning deceives us into thinking we’re being strategic when in reality we’re just working at different degrees of tactical. The end result is that we’re too often operationally terrific and strategically shortsighted. Are you ready to unearth an exciting new growth strategy versus incremental improvements to today’s business? If so, you’re ready for business model innovation. My blog uses the lens of business model innovation to help you radically rethink what your business is all about in order to see previously hidden growth opportunities. Together, our conversation will help you create the mindset, mental-wandering, strategic thinking and knowledge that produces better growth strategy decisions and faster execution. Every organization has a business model whether or not leaders articulate…