Perspectives on Business Modelling: Understanding and Changing Organisations

Business analysis
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We moved your item s to Saved for Later. There was a problem with saving your item s for later. You can go to cart and save for later there. Average rating: 0 out of 5 stars, based on 0 reviews Write a review. Anders G Nilsson. Tell us if something is incorrect. Add to Cart. Free delivery. Arrives by Friday, Oct 4. Or get it by Wed, Sep 25 with faster delivery. Pickup not available. Perspectives on Business Modelling. Business units lucky and skilled enough to discover an unfulfilled job and develop a product or service that addresses it enter the sustaining innovation phase of the business model journey.

At this stage, customer demand reaches the point where the greatest challenge the business faces is no longer determining whether the product fulfills a job, but rather scaling operations to meet growing demand.

Whereas in the creation phase the business unit created customers, in the sustaining innovation phase it is building these customers into a reliable, loyal base and building the organization into a well-oiled machine that delivers the product or service flawlessly and repeatedly. The innovations characteristic of this phase of the business model journey are what we call sustaining innovations — in other words, better products that can be sold for higher prices to the current target market. A curious change sets in at this stage of the journey, however: As the business unit racks up sales, the voice of the customer gets louder, drowning out to some extent the voice of the job.

Why does this happen? Customers can be surveyed and polled to learn their preferences, and those preferences are then channeled into efforts to improve existing products. The business unit is now no longer in the business of identifying new unmet needs but rather in the business of building processes — locking down the current model. The data that surrounds managers is now about revenues, products, customers, and competition. The performance metrics in this phase focus on the income statement, leading managers to direct investments toward growing the top line and maximizing the bottom line.

At some point, however, these investments in product performance no longer generate adequate additional profitability.

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At this point, the business unit begins to prioritize the activities of efficiency innovation, which reduce cost by eliminating labor or by redesigning products to eliminate components or replace them with cheaper alternatives. Broadly, the activities of efficiency innovation include outsourcing, adding financial leverage, optimizing processes, and consolidating industries to gain economies of scale. Managers should not bemoan the shift to efficiency innovation. It needs to happen; over time, business units must become more efficient to remain competitive, and the shift to efficiency innovations as the predominant form of innovation activity is a natural outcome of that process.

To managers, the efficiency innovation phase marks the point where the voice of the shareholders drowns out the voice of the customer. Gleaning new understanding of that initial job to be done is now the long-lost ambition of a bygone era, and managers become inundated with data about costs and efficiency. The business unit frequently achieves efficiency by shifting to a modular structure, standardizing the interdependencies between each of the components of its business model so that they may be outsourced to third parties.

In hardening these interdependencies, the business unit reaps the efficiency rewards of modularization but leaves flexibility behind, firmly cementing the structure of its business model in place. Deviations from the existing structure undermine the modularity of the components and reduce efficiency, so when evaluating such changes, the business will often choose to forsake them in pursuit of greater efficiency. Now, when the business unit generates increasing amounts of free cash flow from its efficiency innovations, it is likely to sideline the capital, to diversify the company, or to invest it in industry consolidation.

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Make a decision on how you would like to manage it, focusing on growth or on efficiency, and track the right metrics. Ritalba Lamendola, PhD is Founder and Managing Director at Eveura Sarl, a boutique management consulting company based in Switzerland, working with business model development for start-ups and small, medium sized enterprises, with focus on high-tech. Managing organizational change will be more successful if you apply these simple principles. Enter the code below and hit Verify. Spieth, P. Advances in LeadershipScience helps leaders take advantage of brilliant insights from the field of social neuroscience on what drives human behavior in the workplace.

Whereas the sustaining innovation phase was exciting to managers, customers, and shareholders, the efficiency innovation phase reduces degrees of managerial freedom. The natural evolution of business units occurs all around us. Consider the case of The Boeing Co. The business was announced in and launched its first version, the , in , with Lufthansa as its first customer.

With orders from several additional major airlines, the new business unit demonstrated that its medium-haul plane fulfilled an important job to be done. Before even delivering the first , Boeing began improving the and launched a stretched version, the , with a longer fuselage to meet demands from airlines requiring greater seating capacity. The business continued to improve how it served customers with the Next Generation series in the s, which offered even bigger aircraft and better avionics systems.

Facing increased competition and demands for improved financial performance, the business shifted its focus to efficiency innovation in the early s. To free resources and liberate capital, Boeing began to outsource aspects of production. Most notably, Boeing sold a facility in Wichita, Kansas, that manufactured the main fuselage platform for the to the Toronto-based investment company Onex Corp. Outsourcing subsystem production allowed the business to improve its capital efficiency and deliver improved returns on capital.

Given that road map, what is the hope for companies that seek to develop new business models or to create new businesses? But doing so successfully requires paying careful attention to the implications of the business model road map. Unaware of the interdependencies and rigidities that constrain business units to pursuing their existing journey, managers attempt to compel existing business units to pursue new priorities or attempt to create a new business inside an existing unit.

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Several recommendations for managers emerge from this insight. Determine how consistent the opportunity is with the priorities of the existing business model. The only types of innovation you can perform naturally within an existing business model are those that build on and improve the existing model and accelerate its progress along the journey — in other words, those innovations that are consistent with its current priorities — by sharpening its focus on fulfilling the existing job or improving its financial performance.

Therefore, a crucial question for leaders to ask when evaluating an innovation opportunity is: To what degree does it align with the existing priorities of the business model?

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The greater the similarity, the more appropriate it is for the existing business to pursue the opportunity. How does pursuit of the opportunity affect the existing profit formula? Are the margins better, transaction sizes larger, and addressable markets bigger? If so, it is likely to fit well with the existing profit formula.

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How can established models and methods be employed for the understanding and change of organisations? One of the key issues presented in this book is. Business Modelling is the use of models and methods to understand and change organisations. The main objective is to bridge the communication gap between.

If not, managers should tread with caution in asking an existing business to take it on — and should instead consider creating a separate unit to pursue the new business model. This distinction helps explain the performance of the two innovations with which we opened this article. So while Google maintains its exceptional search business, its social network failed to gain momentum. Daimler started car2go as an experiment tested by its employees working in Ulm, Germany. Recognizing that the priorities of a business that rents cars by the minute are very different from those involved in selling luxury vehicles, Daimler has kept car2go separate and allowed it to develop a unique business model capable of fulfilling its job profitably.

To achieve successful business model innovation, focus on creating new business models, rather than changing existing ones. As business model interdependencies arise, the ability to create new businesses within existing business units is lost. The resources and processes that work so perfectly in their original business model do so because they have been honed and optimized for delivering on the priorities of that model.

The classic example of this was the movie rental company Blockbuster, which attempted to develop a new DVD-by-mail business in response to the rise of Netflix Inc. The paradox that managers must confront is that the specialized capabilities that are highly valuable to their current business model will tend to be unsuitable for, or even run counter to, the new business model.

The Bumpy Road to Business Model Innovation: Overcoming Cognitive and Organisational Barriers

But unleashing this growth potential requires very different behaviors than those required to successfully exploit existing markets. It must be a process because events are discrete activities with definitive start and end points, whereas processes are continuous and dynamic. Learnings from a previous event do not naturally or easily flow to subsequent events, causing the same mistakes to be repeated over and over. In contrast, processes by their nature can be learning opportunities that incorporate in future attempts what was discovered in previous iterations.

Enacted as a process, the act of creation will improve over time and refine its ability to discover unfulfilled customer jobs and create new markets; the success rate will improve alongside the process, creating a virtuous cycle of growth. While we have not discovered a perfect exemplar of this discipline, we have been tracking the efforts of some leading companies that are intent on building such a capability.

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While it is too early to hold any of them up as success stories, we can nonetheless discern five approaches that we believe have the potential to lead to success. Spot future growth gaps by understanding where each of your business units is on the journey. In our course at Harvard Business School, we teach students to use a tool called the aggregate project plan to allocate funding to different types of innovation. We see application for this tool here as well. Armed with this view, Carolinas HealthCare System has been able to plan innovation activity by type, ensuring that the organization invests appropriately across all three categories of the business model journey.

As Dr. More importantly, it has helped us see that both types are important.

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Run with potential disruptors of your business. Another approach is to create incentives and channels for entrepreneurs to bring new and, in some cases, potentially disruptive business models to you, either as potential customers or as ecosystem partners. ARM Holdings plc, a developer and licenser of system-on-chip semiconductors, headquartered in Cambridge, U. Today, nearly every smartphone and mobile device includes at least one ARM design.

The company achieved this ubiquity by inviting customers and consumers into its development process so that it will be the first company called by customers seeking to design a new chip. Start new businesses by exploring the job to be done. For incumbents, this requires staying focused on the job rather than the market or capability.

One example of this discipline is Corning Inc. When it becomes apparent that a Corning business can no longer generate a premium price from its technical superiority — when it reaches the efficiency innovation stage, in our framework — the company divests that business and uses the proceeds to expand businesses in the sustaining stage and to create new ones. For example, when Corning realized that liquid crystal display LCD would eventually replace cathode ray tube CRT technology to become the future of display, the company focused on the job to be done — display — rather than just on the CRT market, which at the time was important to the company.

Corning began inventing products to enable the growth of the LCD industry and eventually decided to exit the CRT market.

Resist the urge to force new businesses to find homes in existing units. When a new business is housed within an existing unit, it must adopt the priorities of the existing business to secure funding; in doing so, the new business often survives in name but disappears in effect. Once a new business is launched, it must remain independent throughout the duration of its journey, but maintaining autonomy requires ongoing leadership attention. In the quest for efficiency, what has been somehow forgotten is the vital leadership role that corporate executives can play in fostering organizational innovation by countenancing the creation of multiple profit formulas and housing these different businesses in a portfolio of business models.

EMC Corp. This embedded capability for exploiting existing markets while identifying and investing in new markets allowed EMC to expand out of its traditional memory business into machine virtualization, agile development, and information security. Executives sometimes prefer to invest in their existing businesses because those investments seem less risky than trying to create entirely new businesses.

We take great hope from the insights about business model innovation and corporate renewal that we have explored in this article — not because we believe that business units can evade or escape the journey that we have described, but because we believe that the corporations that house these units can. There remains much to be learned about corporate renewal and the business model journey, but we hope that insights from the business model road map can help companies learn how to create robust corporate-level business creation engines that will renew their organizations and power growth.

The challenge is great — but so are the potential rewards. Lindgardt and M. See D. In discussing processes, we refer to all of the processes that Garvin identified in that article. This business model framework was developed in ; see M. Johnson, C. Christensen, and H. For more information about organizational capabilities, see C. Christensen and S.

See E. Then as the organization grows, companies typically create corporate offices and business units that separate responsibility for the administration of the organization from the specific business.

Today, managers tend to operate lean corporate offices that often function as thin veneers between the business and investors, but we believe that there is a vital role for the corporate office in leading business creation and developing innovation. For a more complete treatment of jobs to be done, see C. Christensen, T. Hall, K. Dillon, and D. Shih and M. Wheelwright and K.