Business "Invention" and "Re-Invention": The Overarching Imperative of the Coming Decade

Imagine a group of runners lined up, waiting to start a one-mile race.  Just before the starting gun goes off, another racer pulls up to the line on a motorcycle.  The gun goes off and he squeals out, beating the rest of the field by a very wide margin.  The losing runners complain, but the "winner" observes that no one specified he had to run the race on foot.  He was simply "introducing a new model for racing."

This is an analogy for what's happening in the business world today.  Everywhere, enterprising companies are inventing new business models that change the basis of competition and give them an advantage that ensures that they win.

Apple did this in 2001 when it beat out existing digital players by providing easy, convenient downloads through the game-changing iTunes service.  Now, Netflix and Redbox are doing the same thing to Blockbuster with their own game-changing approaches.

Before we go further, let's define what we mean by a business model.  Legendary management guru Peter Drucker described a business model as the answer to three questions: 

• Who is your customer?
• What does the customer value?
• How do you deliver value to that customer at an appropriate cost?

Another definition of a business model is "a company's approach to delivering a value proposition to a customer segment at a profit."

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Some confuse a business model with strategy or tactics.  To clarify the distinction, consider the following distinctions: 

• Business models refer to the logic of the company — how it operates and creates and captures value for stakeholders in a competitive marketplace, while strategy is the plan to create a unique and valuable position involving a distinctive set of activities. 
• Even though every organization has a business model, not every organization has a strategy, that is, a plan of action for contingencies that may arise.
• Tactics are the residual choices open to a company by virtue of the business model that it employs. 

A more detailed view is offered by Mark W. Johnson, in his book Seizing the White Space,¹ which outlines four key elements of a business model:

1. The customer value proposition is the way in which the company creates value for customers by helping them to get a job done.
2. The profit formula is the recipe for making money by creating value for the customer.
3. Key resources involve all the assets that you need to deliver the value proposition... To read the full article, you must be a Trends Magazine Subscriber. To learn more, click here

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