In today’s rapidly changing business world, one of the major ways to guarantee a competitive advantage is through business model review and reinvention. Existing scholarly investigations show that the focus of reinvention is not only to outperform competitors but to especially spring a business into new areas of competitive advantage. Business model innovation is expected to become even more important for success than product or service innovation in the future due to its focus on improving the value that is to be provided to consumers and how that value would be inherently delivered to drive profitability.
Any business, whether startup or existing, needs a clear and concise business model; a plan that serves as a roadmap, laying out the strategies for the continual growth of the business. It should be regularly updated as the business grows and evolves because it describes the way a business will develop and present its product / service to the market, and drive sales. A business model determines what products / services are best for a company to sell, how it wants to promote its products / services, what type of customers it should try to cater to, as well as its fair share of the market and associated revenue streams to expect.
To reinvent is to modify the business model of an organisation, transforming it for the better by making real-time and mutually supportive changes both to its value proposition to customers and to its operating model. At the value proposition level, these changes address factors such as the choice of the target market segment, product, service offering, and revenue model; and at the operating model level, the focus is on variables such as how to drive profitability, competitive advantage, utilisation of resources, and value creation.
For example, in 2003, Apple introduced its iPod with the iTunes store, revolutionising portable entertainment, creating a new market, and transforming the company. In just three years, the iPod/iTunes combination became a nearly US$10 billion product market, accounting for almost 50% of Apple’s revenue. The company’s market capitalisation catapulted from around US$1 billion in early 2003 to over US$150 billion by late 2007.
This accomplishment is well known; what is less well known is that Apple was not the first business to bring digital music players to the market. A company called Diamond Multimedia announced the Rio in 1998. Another firm, Best Data, introduced the Cabo 64 in 2000. Both products worked well and were portable and stylish. So why did the iPod, rather than the Rio or Cabo, succeed tremendously?
Apple did something far greater and smarter than take good technology and wrap it in ostentatious design. It took good technology and wrapped it in a great business model; its true innovation was to make downloading digital music easy and convenient and to that, the company built a ground-breaking business model that combined hardware, software, and top-notch service. This approach worked like Gillette’s famous blades-and-razor model in reverse: Apple essentially gave away the “blades” (low-margin iTunes music) to lock in the purchase of the “razor” (the high-margin iPod). That model defined value in a new way and provided game-changing convenience to consumers.