The Six Keys to Success
We selected the 40 new business models we analyzed on the basis of how many mentions they received in the high-quality, high-circulation business press. All of them seemed to have the potential to transform their industries, but only a subset had succeeded in doing so. We looked for recurring features in the models and found six. No company displayed all of them, but as we shall see, a higher number of these features usually correlated with a higher chance of success at the transformation.
1. 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.
2. A closed-loop process.
Many models replace a linear consumption process (in which products are made, used, and then disposed of) with a closed loop, in which used products are recycled. This shift reduces overall resource costs.
3. Asset sharing.
Some innovations succeed because they enable the 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 typically happens by means of two-sided online marketplaces that unlock value for both sides: I get money from renting my spare room, and you get a cheaper and perhaps nicer place to stay. Sharing also reduces entry barriers to many industries, because an entrant need not own the assets in question; it can merely act as an intermediary.
4. 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.
5. 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.
6. An agile and adaptive organization.
Innovators sometimes use technology to move away from traditional hierarchical models of decision making in order to make decisions that better reflect market needs and allow real-time adaptation to changes in those needs. The result is often greater value for the customer at less cost to the company.
Each feature on this list is tied to long-term trends in both technology and demand. On the tech side, one trend is the development of sensors that allow cheaper and broader data capture. Another is that big data, artificial intelligence, and machine learning are enabling companies to turn enormous amounts of unstructured data into rules and decisions. A third is that connected devices (the internet of things) and cloud technology are permitting decentralized and widespread data manipulation and analysis. And a fourth is that developments in manufacturing (think nanotechnology and 3-D printing) are creating more possibilities for distributed and small-scale production.
Source: Harvard Business Review