I recently read a study conducted by St. Gallen University discussing business model innovation and how to tell when it is time to re-think your current business model. So what is a business model? In the study, a business model is defined as, “a unit of analysis to describe how the business of a firm works”. In simpler terms, your business model is a list of all of the various parts that make up your “secret sauce” and how that is transferred to customers as an item of value.
As a business strategist, my profession is to perform deep analysis on symptoms of errant business strategies, determine their origin, and rebuild strategies to get companies back on track. While we have been successful in accomplishing these goals, most solutions are built around concepts that were unknown or under-developed in our clients’ current core strategies, not business model innovation. This realization caused me to examine the difference between building better solutions and re-thinking business models to determine if my firm needed to re-think our business model.
Building Better Solutions
Building better solutions typically results when a current business measure has shown a trajectory other than what the business owners desires. This can includes employee turnover, slowing sales, loses in productivity and/or profitability, or team conflict, to name a few. In these scenarios, my team functions like forensic scientists, where they look at every possible cause of the trajectory change and systematically track its origin.
For example, we had a client whose sales were not meeting company expectation. While the natural assumption would be a problem in marketing and advertising, our team found that the problem was with the relationship between the sales manager and the sales team. After coaching sessions with the sales team alone, management alone, and one session with everyone, sales improved 15% in the next quarter. After reading the St. Gall study, I have to wonder if the improvements would have been greater if our solutions were used to help the business owner re-think his/her business model.
Business Model Innovation
While building better solutions usually results in changes in processes and practices, it does not require changes to the overall business model. Business model innovation (BMI) occurs when a business owners examines their target audience, value proposition, delivering the value, and the revenue model to capture customers seeking that value, and making changes to two of the four sections. As the study describes, BMI does not have to be an industry changing breakthroughs, it can start as simple as adopting proven strategies from corporations that have achieved the level of success the company desires.
For example, in the tire industry it is common to see sales that offers “buy three, get one free”. What if a retail company used the same method, but modified to fit their industry? Imagine the response if a retail store offered, “Spend $200 in one department, get a $50 gift card for any another department”? By making this change to the value proposition section of the business model, the business could expand their market reach within existing customers, increase sales in departments that are under performing, retarget customers if the $50 gift card is not redeemed the same day, and introduce an enticing concept to new customers.
To make the BMI complete, the business owners would also change the revenue model to one that makes the $200 purchase be in a department where profitability is high (i.e. clothing) and require all customers to register to receive the $50 gift card, to fortify the sales funnel. Further, using digital marketing and social media customers could be re-targeted based on the purchases in both departments and offered incentives for referring friends and family.
After my analysis I have concluded building better solutions is “a pound of cure” and business model innovation is “an ounce of prevention”. Our clients and business owners in general would be better served by looking at the totality of their business model in response to unwanted trending. Definitely make changes to processes and practices to get the business back on track, but use those strategies as a measure of the effectiveness of the related business model section. During the re-thinking process if changes are made, the business owner must also examine the effect of those changes on the other three sections and adjust accordingly.
Click here for a video summary of the study.
Click here for our BMI notes.
Whether you voted for the president elect or not, we have to recognize the unique opportunities that may be afforded us by having a President who is an owner of a multi-billion dollar, multinational corporation. If President Trump were to use the same principles in governing the United States as he would evaluate a corporation he just purchased, we could experience a significant positive impact as entrepreneurs and business owners.
In this scenario, the federal government would be the parent company of USA Inc. The 50 states would be franchisees, run by individual CEOs (governors), and Congress would be the board of directors. The citizens of the USA would be the primary stock holders and would receive quarterly statements on productivity, profitability, and overall fitness of their investment. There would be quarterly meeting between the CEOs and President Trump, where each would give a state of the state and President Trump would give a state of the union report to Congress annually.
Once this core system is in place President Trump would then look at the current fiscal budget to determine the causes of the mounting deficits. He would remove redundant and unnecessary departments including the IRS, Department of Education, Health & Human Services, and the Department of Transportation. Additionally, the government would remove subsidies and special tax breaks for companies with sales above $100 million, which would total annual savings of $250 billion. The government would still provide oversight on those services by appointing a few executive vice-presidents who will oversee up 18 states each and have a staff of no more than three in this effort.
The money saved would be given to the states to scale up for increased responsibilities, building better systems for service implementation, and fulfilling the requirements of implementing a consumption tax that replaces the income tax system.
Further, each entity of USA Inc. (TANF, Medicaid, Medicare, etc.) that provides services to the American people would be audited to determine if current strategies maximize productivity while reducing costs; for example, using a competitive bid system for Medicare/Medicaid providers including doctors, pharmaceutical companies, hospitals and equipment companies. In this scenario, service providers would receive competitive rates, but will be held to strict standards of quality service and brand experience. Potential savings could easily top $50 billion dollars.
The result of these activities would be an annual operating budget of $2.8 trillion dollars and more than $200 billion dollars a year being paid on the national debt, through increased revenue from the consumption tax and savings from eliminating pork-laden bureaucracies.
In terms of raising the standard of living for USA Inc.’s shareholders, by lowering the top corporate tax rate to 25% for companies with sales above $100 million dollars and 15% for all others, it will be easy to move the minimum wage to $15 per hour. Moreover, corporations would be given tax incentives to contribute to employee housing, childcare, and health insurance to offset the increases caused by the consumption taxes. The lowering of corporate taxes would also remove the incentive for corporations to outsource services, thereby bringing jobs back to USA Inc., which will revitalize smaller states, provide funding for education, and raise the economic strength of individual communities.
With the core functionality of USA Inc. under control, President Trump and Congress would turn their attention to our global economic engine and apply the same level of scrutiny, cost cutting, process improvement, and accountability. All supply chain partners will be held to the same standards of USA Inc. or will risk removal from the supply chain. New partnerships will be forged in emerging markets that have products/services that not only fit our needs, but the prospective partner has shown a willingness to raise their standards to that of USA Inc.
I know this is a short snippet in a much larger conversation, but we need to start this conversation with our local politicians to make the best of a once in a lifetime situation and truly make America great for everyone!!