When and How Companies Must Reinvent Their Businesses

by Jim Berkowitz on December 8, 2008

Here’s a press release, Fresh Thinking: Harvard Business Review Article Explores When and How Companies Must Reinvent Their Businesses, that references an article that every business leader should check out:

One secret to maintaining a thriving business is recognizing when it needs fundamental change. Given the potentially permanent disruptions and seismic shifts currently affecting many markets — from autos to media — creating a new business model has become a matter of survival.

Mark Johnson, co-founder and chairman of Innosight LLC, an innovation strategy consulting firm, and co-authors, Clay Christensen, the Robert and Jane Cizik Professor of Business Administration at Harvard Business School, and Henning Kagermann, co-CEO of SAP AG, describe how companies can identify when and how to reinvent their business models in the lead article of the December issue of Harvard Business Review entitled “Reinventing Your Business Model.”

“Most companies don’t fully understand the constraints of their current business model,” says Johnson. “Chances are the model has been in place for years and has calcified into a set of unchallenged assumptions that often define a company’s strategic options instead of the strategy dictating the model.”

Great business models can reshape industries and drive spectacular growth. Think Apple and the iPod/iTunes combination. Apple was not the first to bring digital music to the masses. However, it was the first to innovate its business model, making digital music easy and convenient to download — all to the tune of becoming a $10 billion product in just three years.

In fact, a 2005 survey by The Economist Intelligence Unit reported that two-thirds of corporate CEOs believe their organizations require extensive changes to their business models. But how does a company know if it is time for reinvention?

To determine whether a firm should seek to innovate its business model, Johnson, Christensen and Kagermann advise these steps:

  • Articulate what makes your existing model successful. For example, what customer problem does it solve? How does it make money for your firm?
  • Watch for signals that your model needs changing, such as tough new competitors on the horizon.
  • Decide whether reinventing your model is worth the effort. The answer is yes only if the new model changes the industry or market.

“Reinventing Your Business Model” is well worth the read and is available online here.

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