Part 1 of the reinvent your business series looked at “market innovation”, in part 2 I outlined 9 ways for “value innovation”. This final part will conclude the series with 8 ways to reinvent your business model.
Essentialy the business model is about how to create, capture and deliver your value proposition. It’s about what activities and resources are necessary and how the company deploys them, including those outsourced. Of course all of these decisions will have an impact on your revenue and your costs, so we’ll have a look at these dimensions too.
#18 Reinvent the customer interface
How do you reach your customers? Do you rely on conventional channels? Is every step of the buying cycle addressed by the channels you use? How easy is it for the customer to reach you? All these areas can help you to identify opportunities for reinvention. Have you ever thought about how you interact with your customers, how easy it is for them to find what they are looking for?
To analyse how you interact with your customers you might want to think about the customer buying cycle, which typically includes the following steps:
- Awareness of your offer
- Evaluation of the offer
- Purchase
- Delivery
- Use
- Supplements
- Maintenance
- Disposal.
Which of these steps are covered by which channels? Do you even address all of them?
Reinventing the customer interface might also mean that you openly engage with your customers to co-create value in innovative experiences (This idea was developed by Prahalad and Ramaswamy in their book “The Future of Competition“. Their DART model summarizes the various parts: Dialogue, Access, Risk assessment, and Transparency.) The main point is above all the create a new interface by sharing information in a transparent way.
You might also want to think you which interfaces your company manages and which are outsourced.
#19 Reinvent your customer relationships
What’s the image your customers have of your company, your employees, and your products and services? How easy is it to do business with your organization? Do you offer co-creating experiences to your customers?
Creating new interfaces will surely also have an impact on the relationship you have with your customers. Treacy and Wiersema have suggested the following three images customers can have of your company:
- “Smart shopper”, i.e. you focus on operational excellence
- “Best brand”, i.e. you focus on customer intimacy
- “Best product”, i.e. you focus on product leadership and innovation.
The first step to co-creation might be an automated self-service station like the new McDonald’s automated ordering system. Although I cannot (yet) create my own burger and can easily configure my own menu, and usually much faster than if I had to talk to an employee.
#20 Invent new revenue streams
New revenue streams could include going from selling a good to renting or leasing it. Think about Hilti, the Liechtenstein based construction tool manufacturer (I wrote a case on them for the forthcoming “Strategy Synthesis“). Instead of only selling their tools, Hilti gives you the option of renting them. The additional services that come with this bring in additional revenues. Apple introduced the App Store and iTunes to bring in additional revenues. EasyMotion, an Austrian car rental service, doesn’t make the money on renting the cars, but on offering companies the cars as advertising space.
#21 Price differently
Do you benchmark your prices against competition or alternative industries? Is your price affordable to the masses? Do you think cost plus or price-minus?
Reinventing your pricing can be a powerful source of differentiation. Think again about iTunes and how music is sold now. 99 cents is a very affordable price. The same goes for most apps in the App Store. Think about the long tail: It’s no longer about margins but about volume. Besides these more innovative pricing mechanisms you have a still a range of more traditional fixed price (e.g. list price) and dynamic price (e.g. yield management) tools at your disposal. How can you creatively change your pricing? What about consultants for example not longer pricing per day, but per minute or even per hour? Lawyers have gone away from the per minute charging to offering full packages. What about selling your consulting days at an auction?
Kim and Mauborgne suggest not to price against competition but alternative industries competing for your customers.
Free of charge is of course the ultimate price for any customer. Maybe someone else could pay for the services they use. EasyMotion is such an example: Cars are financed by the advertiser. The driver only pays 1.- Euro a day. Many services on the web offer a basic version for free, which are financed by advertising or those users you opt for the premium version.
#22 Reinvent your cost base
Does your cost structure enable a strategic price targeted at the masses? What is the most expensive part of your business? How can you drive it out? Streamlining might be one option, another might be to outsource or partner with a supplier that can offer the same service at a lower cost.
#23 Collaborate with suppliers, partners, the network and ecosystem
How well do you use your connections to suppliers, partners and alliances? Could you enhance your collaboration to create competitive advantages? Partnering can provide a fast way to drop cost, but the danger might be that you outsource a capability you might need at a later stage. If you can lower your cost by buying standardized components that don’t provide any additional benefits to your customers, you should certainly do so.
Networks and the whole ecosystem become increasingly important through open innovation and engaging all stakeholders in co-creating experiences as we have seen above.
#24 Re-assess your key activities, assets and processes
How well do the activities you perform balance and reinforce each other? This one touches on #23. The key here is to think about what is really a core competency you require to fulfill the customers’ needs. What does the job for the customer? Essential activities should not be outsourced. Hilti for example could not do without R&D and manufacturing the tools, although it starts making a lot of money by leasing the tools. Manufacturing is still key. On the other hand Apple can outsource production, as the key differentiators are not so much the technology but rather software, design and marketing.
SAP became big because it decided to focus on the writing the software and partner with consulting companies like Accenture for deployment. What are really your key activities and processes? Which one do you perform best and which one could you outsource? Which are most critical to your business? Which assets are most valuable to your business? Think about people, technology, equipment, information, channels, exclusive access to partnerships and alliances, brands,…
McDonald’s for example put its main assets, the stores, to good use by expanding into the coffee business with McCafé. EasyMotion uses its main assets, the cars, not only to make revenue by renting them out, but additionally by selling them as advertising space. Hilti not only sells its assets, but rents them including additional services. How could you use your assets differently?
#25 Look at completely different industries
The first way to business reinvention I offered in part 1 was to challenge industry assumptions. The last one is about looking at completely different industries. Other industries can teach you a lot about how to reorganize your business model. Think about how a logistics company could turn to a organ transport company to get inspiration on how to deliver goods really fast. Which industries could you turn to, that face similar challenges? You might also want to look at substitute industries: what makes customers trade between your industry and another one? Think about airlines, railways and the car for example. Why would a customer chose one over the other?
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