Friday, January 21

New Capitalism and New Business Models

There's interesting new territory to be explored for those of us keen to implement radical business ideas ...

This month seems to be dedicated to "Business Model Innovation".   There are suddenly serveral articles about this on the web, and it was also the focus of the latest issue of the Harvard Business Review.

Business Model Innovators argue very plausibly that any innovation ultimately becomes a commodity as our competitors catch-up, so we always need to stay one-step ahead to ensure our survival.  This philosophy affects not just what we sell, but also how we sell it.  And critically, we mustn't delay the development of innovations #2 and #3 just because operating profits from innovation #1 are still rising!

It's reasonably compelling I think, even from the scant summary above. 

So where can we look for visions of our future business models?   A regular PESTLE analysis can clearly help, but if we simply turn back a few pages in our now-well-thumbed Harvard Business Review issue, we find another source of inspiration:

Michael Porter's article "Creating Shared Value" argues that the business eco-system is seeing a gradual shift towards embedded behaviours which improve profits but also benefit consumers, employees and suppliers.

Over in the UK, Porter also appeared on BBC Radio 4's "In Business" programme this week, to make these same arguments.

He talked about three "levers" to create shared value:
  1. Reinvent products which are good for consumers, instead of creating demand for bad products
  2. Reduce wasted resource, thereby reducing cost and time, as well as environmental harm
  3. Building businesses according to local "cluster" capabilities

The rise of the ethical consumer and the growth of  Generation 'G' will certainly have stimulated this shift.   Corporate Social Responsibility really didn't get to the heart of this new capitalism—it was more of a sticking plaster to protect companies and consumers whilst they developed more sympathetic sets of values.

Much of this thinking represents a reversion to the habits of some early industrial companies, which put enormous energy into the wider wellbeing of customers and employees.  Often this was stimulated by the beliefs of company owners who didn't feel beholden to shareholders.  But also, prior to the development of the advertising industry consumers just had more commonsense, and tended to spend greater proportions of their hard-earned cash on products which were actually good for them!

So it seems the time may be ripe for us to reconsider our business models along the lines of shared value.  Not only can we improve the lot of our customers (and let's hope they remember!) but we can also expect to improve our balance sheets, especially if we can reach a place our competitors haven't even dreamt of.

Porter now considers that this kind of thinking will become the biggest source of growth and innovation in the next 10-20 years.

Let's make room for disruptive innovation then, and consider whether provocations like these could stimulate into being entire new business models which meet our customer's burgeoning expectations of shared value.

  • Could you benefit by abandoning your biggest channel-to-market during 2011, given that it's now in decline? 
  • Could your management accountants examine contributions by consumer instead of by product?  
  • Could you stop advertising and rely on incentivising the crowd to do that work for you? 
  • Could your best employees become more valuable by spending one day a week working for the competition? 
  • Could you stop selling tools, and start providing experiences ... perhaps at no charge to the end user? 
  • Could you sell at higher margins by persuading your customers to take products they don't know think they want?

Have fun, and please let me know how you get on!

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