In January 2011, HBR had a great article entitled “The CEO’s Role in Business Model Reinvention”. The central point of the article is that: “For companies to endure, they must get the forces of preservation, destruction, and creation in the right balance.” Unfortunately, CEOs are so busy working “in their business” rather than working “on their business”, they spend all of their time preserving their current model, and no time destroying or creating key components to reinvent their business model. As a result, they may find themselves blindsided and put out of business by a new competitor with a new business model.
- Why did XEROX give the mouse and “windows” technology to APPLE?
- Why didn’t AT&T invent SKYPE?
- Why didn’t MICROSOFT invent GOOGLE?
- Why didn’t BLOCKBUSTER invent NETFLIX?
And, to bring it a little closer to home:
- What changes have you made to your business model in the last couple of years?
- If an employee came to you with a “game changing” idea that might threaten your core business in the short term, would you listen to them?
- Is your business model dying, how do you know?
These are the types of questions we tackle in our monthly Vistage CEO Advisory Peer Group meetings. Last month (10/2011) Vistage speaker Nick Niemann presented “Break it and Make it — How to successfully Transform Your Business Model”. Nick provided our members with a very practical tool called the “Business Model Canvas” which enables you to examine your business in terms of 9 Business Model Building Blocks (click here to view 2 minute video). The development of this framework has been led by Alexander Osterwalder & Yves Pigneur with input from 470 practitioners from 45 countries.
A very current application of this framework is playing out in the book retail business. Borders and Barnes & Noble (B & N) had created a “Big Box” model that was dominating the market, and had put most of the independent book stores out of business. They were winning on selection, inventory, location and price. Then Amazon came on the scene with a new business model which rivaled them in terms of selection and price, without the high cost of inventory and real estate. Amazon then created the kindle and electronic books as a new component of their business model, which is turning the “Big Box” bookstores into browsing libraries, where people shop for books that they later buy from Amazon, Costco, or Sam’s Club. Borders was caught like a deer in the headlights and couldn’t adapt — They are now out of business. B & N introduced the nook as their electronic reader two years ago, and is still in the game with 27% of the electronic reader market, and nook related sales generating 24% of their revenues. A WSJ article this weekend (B&N Bulks Up Nook Boutiques for Holidays) reports that they are now doubling the size of their nook boutiques in their top performing stores and re-allocating shelf space from books to higher margin educational games and toys. Clearly, if B & N had not reinvented their business model by introducing a new component that would cannibalize their core business, they would be in sharp decline.
The Business Model Canvas is a tremendously useful framework for helping CEOs “get the forces of preservation, destruction, and creation of business model components in the right balance” . Indeed, Nick provided a “business model tool box” with pragmatic tools to help executives and their teams strengthen, defend, renovate, extend, and transform their business models. This tool box is now available as an iPad application. For more information, go to the business model generation website where you can download these tools, order The Business Model Generation Handbook, download a tool box app for your iPad, or take the business model fitness quiz.
To learn more about how fellow CEOs in our Vistage group can help you spend less time working “in your business” and more time working “on your business”, call me at 612.877.1234.