How to profit by changing the way you do business
By changing what decisions are made in the business model, when they are made, who makes them, and why they are made, you will be able to come up with business models that better manage information and incentive risks and, as a result, outperform existing business models, disrupt established ways of doing business, and lead to a sustainable competitive advantage, according to Karan Girotra and Serguei Netessine in their book The Risk-Driven Business Model: Four Questions That Will Define Your Company.
Traditionally, in order to find significant new growth in a business it has been necessary to come up with a breakthrough product or process innovation. But those sorts of innovations are difficult to invent and there is a lot of uncertainty involved in commercialisation. According to the authors, it is possible to produce significant new growth while delivering existing products based on existing technologies to existing markets, by innovating with respect to the business model.
How exactly do you go about innovating with a business model? The authors suggest that you can innovate with any of these factors:
- What: For example, Zipcar changed the car rental business model by offering hourly rentals rather than daily.
- When: For example, Zara changed the fashion clothing model by leaving the clothing design step until a few weeks before sale, rather than many months.
- Who: For example, in the early days Amazon arranged for its suppliers to fulfil customer orders, whereas now Amazon is in the order fulfilment business.
- Why: For example, in 2004 the US Department of Defence adopted performance-based contracting so that contractors were paid for the time jet engines were working rather than for the time they were being repaired.
I found this to be the type of book which prompts the reader to think about many new possibilities for his or her own business situation. In my opinion the book, and particularly the business model innovation matrix which it provides, is likely to be a very useful resource for any business strategist.