Innovation is accelerating the pace at which businesses must evolve or reinvent themselves in order to adapt and thrive. Developments in customer behavior, globalization and technologies are opening a window of opportunity for innovative business models.
A business model is the way in which an organization creates, delivers and captures market and customer value. Each stable working company has a business model.
Let’s define the business model as an analytical unit used to identify the approach to innovation. Many organizations have analysts dedicated to changing the business model over time and recalibrating the organization’s offerings to market opportunities. Their objective: continually find ways to maximize value for all constituents, including:
- Customers
- Shareholders
- Employees
- The public
- The organization itself
Why Do We Need Business Models?
Many elements cause business model shifts within organizations. From the introduction of radical new products and services to a competitive sea change to technologies that bring new efficiencies, each offers an opportunity to enhance value creation and competitive advantage. Two of the most apparent results of a successful business model makeover are a new value proposition to customers and changes to the underlying operations.
Notice that the customer was listed as the first constituent for which an organization typically seeks to maximize value. A focus on updating the business model to changing market conditions keeps a company from drifting away from its customers. So it is not simply that organizations need evolving business models. They also need a focus on this discipline to drive customer value, which then drives business growth.
What can happen if a company becomes too focused on what competitors are doing instead of how to maximize value creation? A marketplace vacuum develops for competitors to fill, if they can adapt to customers’ changing needs. We’re seeing this in the cable television industry, where streaming media companies like Netflix and Hulu are taking market share by providing the content-to-cost ratio customers want.
Trending Business Models
Three hot business model types are sweeping across different sectors:
- Companies generate income by charging customers a monthly or annual fee. Once the sole domain of magazines and membership services, subscription models now span many types of businesses, including software manufacturers and residential home contractors. This typically reduces the consumer’s initial outlay by enabling the business to focus on delivering value rather than replacing customers.
- Orchestration. Flying solo is not the only way to go. Orchestrators smartly develop ecosystems of multiple businesses that can collaborate and deliver value in ways that one organization cannot. Often, orchestration leads to mergers and acquisitions.
- Virtualization. The pandemic forced some companies to consider offering remote services as a business model. Companies like Zoom transformed the way meetings are conducted by virtualizing the in-person experience. The virtualization of in-person events like conferences, museum visits, and networking meetups is indicative of this trend, as well.
Become a Business Model Master
Organizations need leaders at every level who understand business model concepts and can help mature a model. Ways of generating new models involve structured deliberations. The Southern Illinois University of Edwardsville Master of Business Administration with a Management Specialization online program prepares students for work of this nature through a curriculum focused on functional knowledge based on emerging trends.
Learn more about SIUE’s Master of Business Administration with a Management Specialization online program.
Sources:
BCG: Business Model Innovation
BMILab: The 5 Business Model Patterns You Should Follow in 2021
