d5 Modeling
Definitions of "business model" vary, but most people would agree that it describes how a company creates and captures value. The features of the model define the customer value proposition and pricing mechanism, indicate how the company will organize itself and where it will be a partner with its production chain. Basically, a business model is a system whose various features interact, often in complex ways, to determine the company's success.
In any given industry, a dominant business model tends to emerge over time. In the absence of market distortions, the model will reflect the most efficient way to allocate and organize resources. Most attempts to introduce a new model fail-but occasionally one succeeds in overturning the dominant model, usually by leveraging a new technology. If new entrants use the model to displace incumbents, or if competitors adopt it, then the industry has been transformed.
The Six Keys to Success
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A more personalized product or service.
Many new models offer products or services that are better tailored than the dominant models to customers' individual and immediate needs. Companies often leverage technology to achieve this at competitive prices. -
A closed-loop process.
Many models replace a linear consumption process (in which products are made, used, and disposed of) with a closed loop, in which used products are recycled. This shift reduces overall resource costs. -
Asset sharing.
Some innovations succeed because they enable sharing of costly assets-Airbnb allows home owners to share them with travelers, and Uber shares assets with car owners. Sometimes assets may be shared across a supply chain. The sharing is often done by means of two-sided online marketplaces that have value for both sides: I get money from renting my spare room, and you get nicer place to stay. Sharing also reduces entry barriers to many industries, because an entrant need not own the assets in question; it can also act as an intermediary.
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Usage-based pricing.
Some models charge customers when they use the product or service, rather than requiring them to buy something outright. The customers benefit because they incur costs only as offerings generate value; the company benefits because the number of customers is likely to grow.
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A more collaborative ecosystem.
Some innovations are successful because a new technology improves collaboration with supply chain partners and helps allocate business risks more appropriately, making cost reductions possible.
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An agile and adaptive organization.
Innovators sometimes use technology to move away from traditional hierarchical models or to make decisions that better reflect market needs and allow real-time adaptation to changes in those needs. The result is often better value for the customer.