UK: Do You Need A New Business Model?

Last Updated: 5 December 2012

It's in the papers all the time: "Company goes bankrupt". Sometimes it's due to shady practices. But then sometimes bankruptcy leaves you scratching your head. How didn't they see it coming? Why didn't they respond to industry changes before it was too late?

Your hindsight may be crystal clear, but how is your ability to predict your own future? How do you recognise major threats to your core business model?

There are five clues to help you determine whether you need to revisit your business model.

  1. You are frustrated by customers demanding lower pricing.

    Commoditisation is one of the first clues that the value proposition has changed. What makes your product or service unique? Do customers seek out this aspect? If price is the only differentiation, it's likely your product has become a commodity.
  2. Customers are choosing an alternative solution to satisfy the same need.

    If you find you are losing your customer base, find out why. Interviewing or surveying lost customers is one way to do this. Is the new industry or product easier to use or does it take less time? Is it less expensive? Does it appeal to their sense of vanity, greed, safety or ethics?
  3. Margins are becoming slimmer due to rising costs of doing business.

    If the key cost drivers in your business model have risen out of proportion to price increases, you need to revisit your business model.
  4. Your industry is experiencing a burst of innovation and new companies are entering your market.

    This has been happening for centuries. The ice-harvesting industry, cutting ice from lakes in New York and New England, was once the biggest industry in America. Ice was cut and stored in the winter and shipped all over the world during the hot months.

    By 1915, the industry was gone. The problem was the invention, in 1850, of artificial ice makers – what we today call the refrigerator. No one in the ice-harvesting business ended up making refrigerators. They thought they harvested ice, when what they truly did was provide cooling services. They could have adapted; instead they were wiped out by the new technology.
  5. You find yourself resisting a new industry shift or technology, even when customers are asking for it.

    We saw the perfect illustration of unwillingness to accept an industry shift when we visited a Mercedes dealer. We asked the manager: "What is Mercedes-Benz's strategy for building alternative fuel vehicles?"

    It was as if we spoke the unspeakable. The manager firmly replied that they were focusing on fossil fuel technology. Will that work long term?

    Is your company wearing the same blinders? If you can spot the shift early enough, you should be able to adapt early enough.

Is sale or merger better than transition?

When is a sale or merger a better option than a transition to a new business model? It is if you or your people are wedded to what you are currently doing and can't change. Look for these signs that your current culture and leadership team are not in a position to strategically transform the business:

  • Customers are demanding that two competitors work together and merge talents, and these companies are unwilling to do so.
  • The leaders are tolerating major dysfunctional behaviour; this is often amplified in family-owned businesses.
  • The founder or owner needs to create – but has not yet begun – a succession strategy, due to such things as a serious health/personal issue or retirement.
  • The company is unable to meet its goals after three or four consecutive years.

You should also consider a sale or merger when new technology or infrastructure with long lead times and high start-up costs is involved.

Which new business model to choose?

If you opt for transition to a new business model, how do you identify one that leverages your brand equity and customer base?

First (take a deep breath, this will be a toughie), step back and assume you may not know what your brand equity is, especially in a changing market. Start with a clean slate and embark on a fact-finding mission. Recruit an outside, objective group of interviewers to survey lost customers, new customers, best customers, employees and the community, and be open to the ideas the survey provides.

Be sure to ask:

  • What compels you to buy from us?
  • What do you expect from this product or service?
  • How else could this company serve your needs?
  • What else influences your buying decision?

Mapping these questions can help you to spot pieces that can be added or modified to strengthen the value you offer.

When you have all the information at your fingertips, consider reshaping the way you think about your business. For example, instead of selling groceries, grocery stores need to think that they are selling time, entertainment and nutrition. If you rent plants to businesses, you provide ambience in the workplace that makes people happier, so really, you are in the human resources business.

Once you redefine your business in this way, a world of ideas may open up for you. And you'll be in a position to identify whether or not changes in your industry require a shift in your business model.

Sometimes you need a whole new game

When research and scenario planning show that not only do you need to stay on the cutting edge of your game, but you need a whole new game, and fast, what do you do? That's the question that lay unanswered in many executives' minds as the 46-year-old Tower Records, an international company, closed its doors for good.

Didn't Tower smartly expand abroad and across the US, opening more than 90 stores? Didn't it stay on the cutting edge, being one of the first music stores online? Tower's core value was to make hard-to-find music easily accessible to the consumer. The internet changed all that. Why didn't Tower see it coming?

So how can you change your game plan to not only survive in your market, but also thrive?

Making a successful transition

How do you successfully transition your brand to a new model, when the old one isn't completely exhausted yet?

A successful transition may simply be a matter of a strong internal structure. One way to set this up is to create two separate business units. One group runs the "old" business that you're relying on for current revenue, and another group leads the start-up business. Typically, the cultures in these two scenarios will attract different personalities and leaders.

Talk to your executive staff about your plans, and show that you are in support of innovation and change. Find the right people to do the right things, plan for their futures along the way, and you'll be as good as gold.

Take 3M in Minnesota. This company gives the biggest bonuses to people who create products and ideas that destroy existing (profitable) product lines. It's all about paying people to take a chance on something new as they give up the (perfectly good) old. This issue needs to be dealt with from the very top. The CEO must get everyone to see that she or he is totally behind the revolution, and will penalise those who don't join.

Another key point is to consider your customer. If you begin to offer a new product but the old one is still on the shelf, be sure to reduce the penalty of buying the old brand by offering an incentive, for example by providing an upgrade or accepting a trade-in.

Handling resistance

How do you handle resistance to change, from employees, executive staff or board members?

When the change is deemed a choice that the company as a whole has made, the employee is more likely to welcome and embrace the change. There are six ways to help staff welcome the change:

  1. Ensure that your people see why the desired end state is better than the present.

    When the change is perceived to be more desirable than the alternative, it is easier to accept. To make the case compelling, use hard numbers, stories, metaphors and visual images to show how the change, albeit difficult, is positive for everyone.
  2. Acknowledge mixed emotions.

    Expect ambivalence, involvement, negativity, enthusiasm, fear, eager anticipation, joy and sorrow, and lead your team through these undercurrents.
  3. Find opportunities within the change process for staff to make choices.

    Choosing such things as work hours and when and how to go about training will help employees feel a sense of control over the situation. Being flexible with details can add complexity, but in the long run it will help ensure acceptance.
  4. Be clear about what is expected from each employee and hold them accountable.

    Cast a broad net and get everyone involved in some way. Anticipating and planning can be an exciting part of the change process. Locate key leaders within your organisation and give them a larger role.
  5. Build in rituals and ceremonies to celebrate progress, provide recognition and remember the past.

    Be creative. Shred old company manuals. Give mementos. Memorialise firsts: first £ earned, first product created, first milestone achieved.
  6. Maintain focus on the end goal and on the gratification that is to come.

    A vision of the end state keeps employees engaged and productive in spite of long hours, hard work, uncertainty and challenge. When the change may not have a definite end point, create junctures at which major progress can be anticipated, communicated and celebrated.

The executive staff, even if they're fully embracing the change, will likely stumble from time to time. A big issue here is that change makes failures more likely. The CEO needs to get employees to see that failures will be celebrated as logical steps to success.

Change may not be immediately adopted. In fact, you are likely to encounter negativity and resistance. But with your support and open communication, you should be able to move even the most unmovable employees.

Communicating the transition

What's the best way to communicate a business model transition to your employees to help ensure success? Here are four communication tips to help ensure a successful transition:

  1. Acknowledge that change is scary. People are more confident when they know that their feelings are shared and that the risks are being minimised as much as possible.
  2. Be honest and upfront about everything, even if it's uncomfortable. It's better to be in the know than worry about the unknown.
  3. Acknowledge that the goal may be firm but the transition itself is likely to change and grow over time, and keep employees informed of these changes.
  4. Provide the whys. Explain why things are changing – not just at the beginning, but throughout the transition process.

Begin to answer "Why?"by developing a case for change that has solid answers to these questions:

  • Why is this important?
  • What has changed in our world that compels this transformation?
  • Why does the old model no longer work?
  • What are the ramifications of not changing?
  • What are the implications for customers? Employees? Suppliers?
  • What is the top-line impact? The bottom-line impact?
  • How does this make us a stronger and more competitive organisation?

Next comes the hard part. Leaders must have the patience and persistence to repeat the "Why?"messages over and over again. Remember: the data proves, the stories move. And the acceptance of change is ultimately an emotional shift.

Leaders will know that the message has life when they note a change in the way people in the organisation think, talk and behave about the transformation, and the end result that was envisioned becomes reality.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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