In every business life there comes a time when it must rethink its business model. This rethinking usually results in a modified business model and resulting changes in business capability some or all of the business strategy, processes, organization and IT might experience changes as a result. Competitive pressures, changes in market dynamics, regulatory changes, customer demand, decline in growth etc. are the most common reasons that prompt this rethinking. The most prominent changes in business models occurred with the advent of the internet in business. Brick and mortar, organizations were forced to adapt their business models to factor in this new ecosystem. Some did and some are still struggling with it but the fact remains that organizations are aware that their business models need to change. A change in business model does not imply a fundamental gutting of the old model and the introduction of a new one. It also does not imply a horizontal or vertical shift i.e. a fundamental change in the core value proposition. A change in business model can be, and usually is, as simple as a ripple out i.e. growing the core in concentric circles of value.
- These ripples of value can be based upon a fundamental change in business capability
- A "brick and mortar" retailer opens an online store thereby introducing a fundamental change in its distribution capability
- An insurance company increments its captive agent sales force with other broker/dealer networks
- They could be building upon your existing base of customers. For example, introducing changes increase or decrease in product offerings (product, price, bundling or unbundling etc.)
- A retailer can offer different products
- A life insurance company can offer car insurance to its customers
- They can be leveraging a core competency for other purposes
- An internal IT organization can provide software it developed to other companies
- A retailer can start a consulting arm to provide supply chain and logistics consulting to other companies
The rethinking or reassessment and resulting change in business model happens in continuous and happens in cycles of change. There was a time that these cycles were in decades i.e. a change in business model was warranted every 10-20-30 years. In our increasingly efficient marketplace this cycle has shrunk to a few years now. In hypercompetitive spaces such as retail, these cycles have shrunk even further. Now that the first wave of changes has settled in, the hyper competitive pure plays are looking for other means of generating value.
Amazon is a case in point. It started as an online bookseller. Soon expanded its product offering to include just about everything retail. That expansion is continuing but not sufficient to sustain growth. It needed to do more so it expanded into providing other vendors the ability to sell their goods on Amazon. With this mode, they found another way to monetize their traffic, gained additional source of revenue and increased traffic all at the same time!
- Gained a larger share of the wallet of their existing customers when they buy additional goods and services provided by vendors
- Amazon charges the vendor for the privilege to have an online store and for every transaction executed on the store
- Their customers now had a one stop shop to come to for all their needs. So they visited more and of course bought more!
Then Amazon changed is business model to let others use its infrastructure served as a web service. This was a brilliant move to capitalize on their knowledge, to gain economies of scale, gain a captive market of dependent businesses and the ability to set standards that will eventually result in more things done the Amazon way! The latest move is to capitalize on its expertise in fulfillment and logistics. Now, Amazon will ship goods sold by its vendor partners even if they are sold elsewhere including at rival eBay! Once again, they have capitalized on their core competency, gained additional sources of revenues, created a captive market, gained economies of scale for their own operations enhanced their ability to set standards and dictate terms!
Sourabh Hajela is a management consultant and trainer with over 20 years of experience creating shareholder value for his Fortune 50 clients. His consulting practice is focused on IT strategy, alignment and ROI. For more information, please visit www.StartSmartS.com. Or feel free to contact Sourabh at [email protected].