The Transformative Business Model (Kavadias c.s.)
A business model represents a plan or recipe for the successful operation of a business, identifying source of revenue, the intended customer base, products, and details of financing. Those features interact in complex ways to determine a company’s overall success. The dominant business model in any given industry tends to evolve over time. Gradually a new one is succeeding in replacing the existing dominant one, typically by leveraging a new technology.
One might say that the business model serves as an interface between technological offerings and market demands. What features can make a business model transformative so that is can be sustained and prosper in our ever-changing world?
THE SIX KEYS TO A TRANSFORMATIVE BUSINESS MODEL
- Providing a more personalized product or service offering that is better tailored to customers’ individual and immediate needs by utilizing technology at competitive prices.
- Replacing a linear consumption process with a closed loop, which enables a reduction on overall resource costs.
- Sharing costly assets to unlock value for both ends of a two-sided online marketplace and increasing entry barriers to the industry.
- The pricing strategy is usage-based instead of product-based. The customers tend to use the product or service as they pay only when it generates value for them.
- Building a more collaborative ecosystem with supply chain partners, making cost reductions possible by allocating business risks more appropriately.
- Making decisions that better reflect market needs and allow real-time adaptation to market changes, thus creating even greater value for customers.
Theoretically, the more of the six features a business model has, the greater its opportunity to transform an industry. Research found that in reality transformative business models tend to have three or more of the six.
Businesses that think about changing their models or entering into an industry with a new model, should rate how their model performs on these six features. But before that, they should define what actually matters in the given industry as only by doing so companies can develop indicators to evaluate and compare their model on the key features, and start to work out a strategy to differentiate themselves by leveraging technologies.
Source: Kavadias, S., Ladas, K., & Loch, C. (2016). The Transformative Business Model: How to Tell If You Have One. Harvard Business Review, 94 (October), 91-98.