Competition in a free market economy favors the lowest cost business model as markets mature and price-driven shoppers grow in size. Design a business model that delivers unique benefits, on the other hand, and you must also focus on efficiency. Because customers only pay price premiums for unique benefits, any inefficiency costs come right off your bottom line. Is it any wonder then that on-line retailing is growing by leaps and bounds, steadily gaining share against in-store retail? E-commerce is far more efficient, something Amazon understood in disrupting the book industry. In addition, on-line sales lower consumers’ indirect costs by saving time and gas money and, during the busy holiday season, avoiding the frustration of fighting crowds. Nevertheless, efficiency and convenience won’t overcome frustrating on-line shopping experiences. So how successfully are on-line retailers satisfying the increasingly demanding consumer? Better and better according to…
“Occupy Wall Street” should applaud social enterprise business model innovation.
As “Occupy Wall Street” protests capitalism’s greed, social enterprise leaders are thankfully tapping the power of market forces to address capitalism’s thorniest social issues. In 2000, Gerald Chertavian founded the social enterprise Year Up to address the “huge waste of human capital” he observed in poor neighborhoods as a Big Brothers-Big Sisters mentor. Year Up gives a “leg-up” to youth aged 18-24 who have been disadvantaged by low income, family dysfunctions, substance abuse, or a criminal record. The high-expectations program combines a six-month professional skills training program (covering topics like writing, networking, time management, conflict resolution, and personal finance) with project-based internships that teach a technical skill. Over 85% of its graduates go on to earn $15/hour or more. A social enterprise, according to the Social Enterprise Alliance (SEA), is “an organization or venture that achieves its primary social or environmental mission using…
Professional service firms need business model innovation too.
Commodity is likely the last word that attorneys, accountants, marketing agencies and other professional service providers would use to describe their services and knowledge. Their advanced degrees and personalized, professional approaches suggest just the opposite. But professional services are becoming commoditized because clients increasingly see the outcome of a service as standard; that is, differences from one qualified service provider to the next are irrelevant to the client’s desired outcomes. And some professional services are being transformed into on-line products. For example, QuickBooksTM and TurboTax® reduced very small companies’ use of accounting services. With the law, we see LegalZoom.com, an Internet-based law firm that commoditized straightforward legal procedures like wills and business formations, offering them online at substantial discounts. Companies are sending attorneys Requests for Proposals (RFPs) to take a company public or arrange financing, another signal that even more legal services are…
Brown goes green with a smart business model strategy
I have long admired UPS for its continuous improvements in customer value. With a mission to “synchronize the world of commerce by developing business solutions that create value and competitive advantages for our customers,” the world’s largest package deliver company has emerged as a leader in supply chain management services and less-than-full truckload shipping. These additions enable even the smallest of companies to compete with the big boys without distribution issues precluding ever being considered. Indeed, UPS is one of the reasons barriers to entry have fallen in many industries. UPS argues that logistics (the planning and control of the flow of goods) is intricately linked to sustainability, as the goal of logistics is to use the least resources to transport items from one place to another. In a one-page advertising spread in last week’s Wall Street Journal UPS touts its efforts…
Businesses start to die when business model innovation stops
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…
Trader Joe’s Business Model Wins in a World With Excessive Choices
All too often the rationally best alternative comes with subtle trade-offs that reduce the emotional benefits of your purchase. Take the Accura I purchased owing to the high service costs I had experienced with my Audi. Within hours of driving out of the Accura dealership, I grieved the Audi’s zippier feel and realized that I had just paid a huge price premium for a Honda with fancy wrapping. The emotional loss need not always be the case. Take Trader Joe’s, in a class by itself when it comes to grocery stores. Fortune magazine captures the Trader Joe’s experience perfectly in saying, “Trader Joe’s is not an ordinary grocery chain. It’s an offbeat, fun discovery zone that elevates its shelves with a winning combination of low-cost, yuppie-friendly staples (cage free eggs and organic blue agave sweetener) and exotic, affordable luxuries – Belgian butter waffle…
American Airlines Business Model Strategy Bet
In the high-testosterone game of Chicken, two drivers race towards each other at accelerating speeds. The first driver to veer his car off the path loses the game. Clearly win-win solutions fail to exist in this game. Either one player proves his cowardice, or both players crash. A physically safe, but economically lethal game of Chicken is at play in the airline industry right now with American Airlines in one of the drivers’ seats. American wants travel agencies to bypass booking on Global Distribution Systems and instead use American’s own direct-connect network to book tickets. Global Distribution Systems (GDS) consolidate and keep up to date hundreds of airlines’ fares and schedules, presenting them to travel agents and online travel agencies like Expedia. GDS companies earn revenue from the airlines for any tickets booked on their system, sharing some of the revenue with the…
10 best practices of business model innovation leaders
I love the ease with which marketing-guru Seth Godin communicates vital concepts. In a recent blog A Paradox of Expectations he writes: Better than expected might be the level of quality that’s necessary to succeed. Of course, once that becomes the standard, the expectation is reset. The basis of competition has shifted to business models because features and benefits of individual products and services have become so easy to copy. But even business model value promises are subject to the Paradox of Expectations. So how does a leader stay ahead of the commoditization curve? Follow my Ten Commandments for staying out of commodity market quicksand. They form the epilogue of my book about business model innovation, Beyond Price: Differentiate Your Company in Ways that Really Matter. Practice these behaviors in the next year and you’ll better fulfill your unique and highest value role…
AT&T’s business model Achilles Heel
Protected markets are great things, while they last. But when they end, the protected companies pay a huge price. Do you remember when the US car industry lost its near-monopoly position with the entry of Honda and Toyota, who demonstrated that high quality was affordable? When a consumer discovers there is something better after having had no choice, he feels ripped off by the monopoly-like provider. And that ah-ha is disastrous for companies when markets open as customer loyalty is essential to retaining market share. No wonder US consumers waited a decade to recognize that US car quality has improved dramatically. The company that’s going to pay a heavy price for a monopoly-no-longer position is AT&T, the exclusive Apple IPhone network since the to-die-for phone’s introduction. With Apple likely to add other providers in 2011, one would think that AT&T would be working…