Jun
26
I’ve been reading and thinking a lot lately about the relatively new discipline of Business Design. Simply put, Business Design is the development of business models. It’s a holistic kind of architecture that takes in all of a company’s operations and seeks to create new ways of structuring the organization in order to better compete in the marketplace.
And what is a business model? To quote David Weston’s book Business Models: Investing in Companies and Sectors with Strong Competitive Advantage, “A business model describes a company’s operations, including all of its components, functions and processes, which result in costs for itself and value for its customers.”
I’m admittedly marketing-oriented, so to me, a business model can be boiled down to how you set up your operation in terms of the marketing imperatives of creating and delivering value to the customer. Obviously, you’ll want a business model that allows you to turn a profit, and more importantly, you’ll want a business model that delivers superior value to your customers (superior to your competitors, that is). Your business model, ideally, should also provide important strategic benefits such as differentiation and barriers to competition.
If you read the business press, you’ll note that business models, and Business Design, are hot topics today. They’re hot because they provide opportunities to innovate and grow your business. The potential is so huge that business model re-engineering has the potential to completely disrupt industries. And disruptive innovation itself can create tremendous barriers to competition, because you can simply change the playing field to your advantage.
As a classic example we all know, Blockbuster had a traditional retail business model — you drove to a store, rented a DVD and returned it later. As a customer, you had the benefit of a movie at home, but you also had all the baggage that went with the model — membership, driving, products out of stock and most of all, late fees.
Netflix, on the other hand, invented a new model, and it wasn’t just an online Blockbuster. The new subscription model — you pay only a monthly fee and get new videos when you return the previous ones — solved consumer pains by eliminating late fees, out of stocks and the inconvenience of driving. This kind of business model insight is at the heart of marketing — understand what consumers value and engineer an offer and organization that delivers it in a superior way. Netflix understood that customers didn’t want just a DVD, but wanted a home movie experience with as little hassle as possible. A simple insight, but highly disruptive when the right model was developed. It killed one big business and built another in its place. That’s the power of Business Design.
Given the primacy of value creation and delivery in the discipline of Business Design, I have begun to think of it in new terms. I call it “Value Architecture.” I would even go so far as to say the new marketing imperative is Value Architecture — we must understand intimately what the customer values and create (or modify) the overall business model in order to create and deliver that value in a superior way. Even if it means giving up organizational sacred cows and traditional market or industry assumptions.
I’ll be developing this idea further in the future, but look around and ask yourself if the old differentiators (technology, quality, service) have reached a parity point in your industry. The only way forward for many businesses may be innovation in the business model. Marketers, with their close connection to customer insight, have a unique opportunity today if they embrace their role as “value architects.”
