In a seminal Harvard Business Review article from 2009, writer Joan Magretta defined a business model as “the story that explains how an enterprise works.” Peter Drucker asserts that a business model should answer three questions: “Who is your customer, what does the customer value, and how do you deliver value at an appropriate cost?” For me, the answer lies somewhere in between.
Sure, you need to have a cogent narrative on hand to tell the world why you’re doing what you’re doing when you’re doing business. In its simplest form, it shows up as an elevator pitch in numbers. It will distill your value proposition but it will also allow you to be nimble enough to change it at will.
Infuse those numbers with a solid customer strategy based on Drucker’s answers and add your own story of what success should look like for you– with this business, in this economy, with these specific competitors nipping at your heels—that’s how to make sure your model is innovative. In fact, HBR recently showed that creating yet more innovative business models remains a priority for senior decision makers across the globe:
“Since 2006, the IBM Institute for Business Value’s biannual Global CEO Study has reported that senior executives across industries regard developing innovative business models as a major priority. A follow-up study reveals that seven out of 10 companies are engaging in business-model innovation, and an incredible 98% are modifying their business models to some extent. Business model innovation is undoubtedly here to stay.”
Why? Are these leaders collectively searching for the Holy Grail of business success to handle an increasingly complex global marketplace? Of course they are. But to me, business model innovation not only helps you manage your marketplace but also must do three things in tandem:
- Create a value proposition at a speed that beats competitors
- Allow the company to identify what it does best and provide a roadmap to continue these activities at the same level, but with an eye for continuous improvement
- Quickly annihilate what a company “does worst”.
Like Einstein’s theory of relativity, these three things work together, across time and at the speed of light. For example, the numbers that make up your value proposition are meaningless unless they move with you, allowing you to meet your customer where they live. And you can’t really see what you’re doing wrong unless you track the consequences of what you’re doing wrong: Every solid business model must quickly point out your mistakes in a quantifiable way that shows where they reverberate in your company. Then and only then can you use these missteps as a platform for growth and build processes that prevent your mistakes from reoccurring — and guillotining your goals. Check out CBM’s free SWOT resource for finding out where you are when it comes to business planning from a strengths, weaknesses, opportunities and threats (SWOT) standpoint.