Reinventing Your Business Model

Journey-Driven Consulting

Driving Sustainable Differentiation and Growth

Disruption and change are rippling through all sectors of the economy as creative approaches to digital business challenge models designed for a physical world.

This wave of change will continue to disrupt entire industries while driving spectacular growth. Organizations that resist the realities of a digital economy will lose share or be completely left behind. 

New business models often threaten company leaders. But by crafting innovation within a familiar business framework with an obsessive eye on the customer, strategists can overcome the fear of change.

The trend

In a world where digital startups regularly challenge the status quo, the threat from agile competitors will only accelerate. It’s why the saying “disrupt yourself, before someone else does” has become the battle cry in boardrooms all over the globe. The pressure becomes even more intense as the digital economy becomes connected, changing how we derive revenues and identify new opportunities for growth.

In this piece from Razorfish, we explore several ways to drive sustainable differentiation and growth: 

  • Future-proofing your business model 
  • Recognizing opportunities for business model innovation
  • Creating a culture around customer obsession 
  • Recommendations for innovators

 

Future-Proofing Your Business Model

Every business model, from selling ice cream on a warm summer day to delivering clean electric power on a cold winter night, is composed of three components that work together to deliver a customer-obsessed enterprise.

SapientRazorfish Customer Obsession Diagram.
Business model innovation with customer obsession at the core

Create a unique selling proposition (USP) fueled by customer obsession 

At the core is a clear selling proposition—preferably one that is unique to your own organization, and that only you can deliver. History shows this often starts with a simple realization of a customer need or fundamental problem. When San Francisco’s hotel space filled up months in advance due to Dreamforce (the annual show conducted by Salesforce.com), three guys living in a shared apartment realized there was plenty of unused capacity for temporary housing in the city’s huge stock of privately owned real estate. This realization was the impetus for the founding of Airbnb, which not only disrupted the hotel industry, it spawned the “access economy” that makes idle assets available, in real time, to those in need. 

The most potent selling propositions today are inspired by an empowered customer participating in a connected economy, where both unique needs and relative urgency among buyers and sellers can be easily matched and exchanged over global networks, a model initially inspired by eBay. Such value propositions are fueled by a willingness to focus on the real problem buyers want solved (such as “I need a temporary place to stay” versus “I need a hotel room”).

1.Innovate throughout your profit equation

“Revenue minus cost equals profit” is the most fundamental equation of business. Yet most business leaders start with cost and then add margin to arrive at a price the market will allow. The most dramatic business model innovations we see today (including the one religiously practiced by Steve Jobs) often reverse this approach. In this scenario, business leaders start with a price they believe is competitive, even irresistible, and a reflection of true value by buyers seeking compelling alternatives. 

Clearly, in the pursuit of industry disruption via digital techniques, we can’t ignore current industry realities. The founders of Uber knew they had to be even more attractive and responsive than the taxi industry, just as the founders of Dollar Shave Company knew they needed to meaningfully differentiate within a mass-market consumer products category. Both built rapidly growing companies around a USP of hassle-free products, information-driven services and worthwhile prices.

In contrast, FedEx didn’t attempt to compete on price but rather designed a model to deliver packages far faster and more reliably than any service could at that time (which gave it a competitive advantage over UPS for years). In cases where price is at a premium or at parity, time can be a more attractive selling proposition than price. CVS’ Minute Clinics broke the time barrier by making nurse practitioners available without appointments. ZocDoc makes cancelled appointments available to patients desiring same-day care. Firestone’s virtual showroom lets buyers find the right product at the right price from the right dealer in a fraction of the time previously required.

2. and 3. . Don’t overlook the critical role of resources, people and process

The people and resources that underlie your selling proposition’s profit equation can be your most critical component. Any competitor can imagine how a more competitive price coupled with a USP can steal share, but delivering on a vision requires a skillful orchestration of people, technology, facilities, sales channels and brand connections. It seems obvious, but having leaders and teams focused on the product and customer life cycle, ensuring that the right information is available at the speed of business to take action, and developing a process for solving problems and implementing needed changes quickly are vital for breakthrough differentiation and sustained leadership.

Recognizing Opportunities for Business Model Innovation

Business model innovators should look for circumstances that signal an opportunity to transform a business model and disrupt a category. Let’s examine those with the greatest potential: 

Underserved markets

When groups of customers are shut out of a market because offerings are too costly or complex, opportunities to innovate are everywhere, especially in a digital economy. Personal computers connected to the Internet ushered in a new era of empowered customers and citizen journalists. As a result, new business models were rapidly created by organizations such as Amazon and scores of digitally empowered companies that connected with consumers and networks to create value. Consider Zara, the Spanish retailer that uses technology to make the latest fashions available to middle-class incomes at speeds much faster than upscale competitors. Innovation in distance learning is making higher education available to rural areas far away from urban-centered universities, which will help accelerate the economic development of undeveloped countries.

New and emerging technology

Wrapping a new business model around an emerging and widely accessible technology is what disrupted the music industry, via the iPod. Technology has been a significant disruptor of the media industry, most notably in the streaming of home entertainment. Even the commercialization of military or space technologies inspires business model innovation; the microwave oven, the Global Positioning System (GPS) and the Internet itself all started at NASA and in the military. Virtual technologies are changing shopping and selection as well, reducing the costs of sales by reducing retailer footprints. Audi City brings a virtual shopping experience—combining touch-and-feel experiences with the instant gratification of digital configuration—to people in highly concentrated urban areas, far away from the organization’s physical dealers, which are found mostly insuburban neighborhoods.

Product usage insight

In a connected economy, products become transmitters and receivers of information, enabling every brand to enter the advice business. This process also allows customers to continually advise brands. Nike, a provider of athletic apparel, now provides athletic advice using its Nike+ device-integrated apps and services to collect and analyze how its customers use its products. Customers use the same means to provide feedback to Nike marketers, creating a tight bond of mutual participation and collaboration. 

Consider the auto parts dealer that doesn’t sell things but rather alerts drivers when critical components of their vehicles should be proactively serviced. A connected economy also enables brands to expand their USP by forming communities of customers who help and advise each other, with customers recommending products and services for the brand to consider. This continuous feedback loop has proven more effective than traditional annual focus groups.

Combing information and access

Sometimes the sum is greater than the parts, especially in the context of big data and digitally connected products. This intelligence can create revenue-generating insights beyond a company’s initial USP. For example, what if Divvy used its location- and time-based bicycle traffic data to advise restaurants and convenience stores what time they should open on weekends? The opportunity to monetize digital data, data we simply didn’t have until now, creates new revenue opportunities for any brand. 

The creative use of data also enables relationship marketing. Knowing that a distinct consumer segment happens to be interested in a popular cultural topic makes it possible to create content and services that resonate and advance the brand. Creative use of information also transforms casual encounters into essential relationships. These information-enabled relationships might include Uber telling you your car is approaching on the next block, or FedEx telling you that your package is at a distribution center and will be at your door the next morning. Events and information that used to be invisible are brought to the digital forefront, helping companies build an unprecedented level of trust and reliability. Southwest Airlines, for example, with its latest Transfarency campaign, builds on the desire of its customers to avoid hidden costs and charges by openly exposing its fee structures, then comparing them with other leading airlines.

Competing with speed

Competing with speed has been a hallmark of business advantage for decades, but it’s often reserved for brands with big capabilities and resources. But in a digital economy, speed is more accessible as a business differentiator. Further, customers know companies have data about them they’ve never had before. Their expectations for fast response with extraordinarily high levels of relevance grow every day. Using data to compete with speed is giving rise to more sophisticated real-time marketing. Initially tied to programmatic ad buying, real-time marketing now goes beyond serving up targeted ads to responding to changes in the marketplace faster than competitors. Achieving this differentiated capability requires streamlining of the business processes that give marketers the opportunity to be there first. It also requires a new mindset and a culture that recognizes the value of speed.

“There are only two sources of competitive advantage: the ability to learn more about our customers faster than the competition and the ability to turn that learning into action faster than the competition.”

Jack Welch General Electric

For example, Zara co-founder Rosalia Mera pioneered what is known as “fast fashion,” breaking through the industry standard that took six months to get new designs to the store, achieving this feat in two weeks. She was inspired by Jack Welch, an evangelist for the importance of speed in business, to create an organization designed to respond to market dynamics faster than competitors. Amazingly, Zara is able to compete with breakneck speed and yet still perform at four times the profitability of its primary rivals, clearly earning its repeat nod in Forbes’ 100 Most Valuable Brands.

Creating a Culture Around Customer Obsession

Obsessing about customers from an “outside in” view is especially important in an economy that has been transformed by the digitally empowered buyer. Given the technologies that exist today, especially social, mobile, information and cloud, it is critical to design (even co-create) customer experiences that can be delivered with less friction and at greater speed than alternatives designed for a physical world.

“The secret of change is to focus all of your energy, not on fighting the old, but on building the new.”

Socrates

Beyond working with customers to identify critical needs and solve problems, companies must also proactively imagine how a customer-obsessed competitor could become “Your Worst Nightmare.” Imagine a competitor with “free” products and services that rival and augment your own, then think about what it would take to both be that rival and fight that rival from stealing your share of the market. Imagine what new markets could be created around customer needs that your rivals are less equipped to meet. The exercise of thinking through, innovating around and planning for Your Worst Nightmare is one of the best future-proofing exercises—one we frequently recommend for clients looking to create value through transformation.

Instead of starting with company needs and opportunities, Razorfish starts with customers, developing strategies and experiences that address and sense opportunities for transformation. Building from right to left, as illustrated below, we then drive customer-obsessed value with platforms, data and processes that create business value.

Business Operations to Human Inspiration Diagram.

Recommendations for Innovators

Break inside-out habits

Crafting a value proposition through a lens of your own internal capabilities feels natural, especially if the approach has been highly successful. But things have changed—in a digital world, full of empowered buyers who operate on their own timetables within their own rules, business leaders need to see the world as a customer, even if that view creates scenarios that challenge business models that have worked for decades. 

When envisioning new products and services, avoid starting with the obvious: “How can we add value to customers?” Rather, start with an approach inspired by Clayton Christensen, author of The Innovator’s Dilemma: “What is the customer job to be done?” Use exercises like Your Worst Nightmare to get people comfortable with outside-in thinking. One of the best things you can do: tell your people to get comfortable being uncomfortable. This can go a long way in helping you sustain conversations that would otherwise be shut down.

View consumption data as an economic resource

Consumption data, which reveals how customers use your products and the products of others, is poised to create massive disruption (but enormous benefit). That’s because consumption data is rapidly becoming a viable economic resource, fueled by intelligent platforms that use machine language and advanced algorithms to garner deep customer insight.

Look beyond your home sector

Taking advantage of this trend requires an open mind. And often, business leaders can’t see opportunities that lie right in front of them. Getting inspiration from business leaders outside your home sector helps you push through the gridlock. List the companies you admire most (and why you admire them, as a customer) to generate ideas for how you can add value to your offerings.

Keep it simple

What is the most dramatic learning of today’s digital economy? Products and companies that offer the lowest level of complexity for the maximum amount of value are the ones experiencing spectacular growth and high valuations. Yet the belief that complexity is synonymous with sophistication and savvy continues to fuel high costs, failed implementations and loss of share.

Deriving value through the reduction of product and service features feels counterintuitive to many business leaders. But as Clayton Christensen reminds us, the best value propositions “nail the customer job to be done—and nothing else.” Try adopting the lessons of Steve Jobs by focusing on how a reduction of product features adds more precision to the customer “job to be done.” You’ll be pleasantly surprised at the results this type of exercise can yield.

The Time Is Now

Sixty-six current Fortune 500 companies were founded in or after the year 2000. In that time, we’ve watched entire industries redistribute billions of dollars of value through business model disruption. By knowing precisely how your current selling proposition delivers superior value over alternatives, you know which components of your business model to defend and which to disrupt. New and emerging technologies will power even more techniques to propel your business model forward with the speed, agility and strength to succeed, with the potential to disrupt and transform the business landscape. Don’t wait for this disruption to happen to you. Plan for it, drive it and own it.

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