Thursday, May 7, 2009

What is core in your Business Model?

Focusing on what a business does best, is often argued the easiest and most efficient way for companies to grow and be profitable. In the 1980s Tom Peters and Robert Waterman referred to this as "sticking to your knitting" in their classic book In Search of Excellence,a decade later Gary Hamel and C.K. Prahalad described the concept as focusing on "core competencies" in the Harvard Business Review article The Core Competence of the Corporation.

The core is not only unique competences
For me working primarily in intellectual asset and intellectual property management, the core is very often a set of innovations, unique technology, patents or developed software. But the core in a business model can equally be a unique way of delivering services, a unique position within a network of actors, a strong relationship with a certain kind of customer, strong strategic alliances, a unique recipe, a low cost operation, an established brand etc.

Increasing levels of collaboration
The trends in many industries are that markets show high dynamics in rapid development of new products, rapid commoditization of products and high price erosion. This puts pressure on the companies to open up processes and collaborate with external actors to shorten time to market, get a lead time over competitors and obtain higher margins in early phase markets. So with the increased pressure on the companies and the possibility to use external assets and capabilities, what elements of the business model should you focus on? What elements are core in your business model?

Questions to find the core
Identifying what is core and what is not, is a great starting point for business model innovation. To identify what is core in your business model a systematic way to start is to map out the different components of the business model, using the business model canvas, listing the different parts in Excel or just drawing boxes on a whiteboard and for each of the components ask:

In relation to what others could provide, how unique is:
  • How important is each of the elements for your business and the positioning in your value network?
  • How important is it for your overall business model, does it reinforce other parts or is it a weak link?
  • How difficult is it for others to imitate?
  • What future opportunities would you lose or gain if someone else provided it?
  • What are the risks of letting someone else provide it?

Identifying and using what is core
When starting to analyze what is really core in your business model you often find opportunities for business model innovation. Perhaps it’s not what you deliver but how you deliver it, that makes people buy? - Perhaps you should deliver something else as well given your good way of delivering things? - Perhaps it’s not the gadget you sell but the software interface that people like? - Could other gadget manufacturers need your better software interfaces? - Perhaps the reason someone wants to collaborate with you is because your customer relationship and contracts with a governmental organization? - Could other companies be interested to get access to the same organization?

Other tools for business model innovation:

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