Reinventing Your Business Model

Reinventing Your Business Model

This paper highlights many of the issues surrounding current business models and their effectiveness. Discussed below are potential reasons why many companies fail to recognize when their business model is in need of an overhaul and some of the benefits and risks that are associated with it. Also discussed are the critical elements that define a business model and their importance to its success. Last, is an example of how Ford Motor Company has restructured its business model to become a competitive player in the automobile market once again.

Reasons for so few companies investing in reinventing their business model have to do with cost, time, and the return a company will receive from doing so. Oftentimes the impact of developing a new, or revising an existing business model, can look unattractive. I believe why so many companies are neglecting to revise their business models is due in part because their model has worked for them in the past and they do not see why it will not continue to work. Furthermore, making an investment in reinventing a company's business model most likely will not produce a measurable return in the early quarters and shareholders may view this as a poor use of funds. Some benefits associated with taking on such a project would include capitalizing on lost market share, realigning a current business model to better conform to customer needs, and how to do so. Risks associated with such a project include revising your model away from your target customers, and lack of, or no, return on investment. The authors in the article make the point that, "few companies understand their existing business model well enough-the premise behind its development, its natural interdependencies, and its strengths and limitations" (Model, 3). This poses a great problem for CEO's and companies that are looking for a new and better way to compete in the ever evolving business markets that they are in. If they do not fully know and understand what their current model is saying, then they cannot begin to think about what changes to make to improve on the existing.

Within this article, Johnson, Christensen, and Kagermann talk about four elements they feel help define a business model as a whole. The four elements they rank in order of importance are Customer Value Proposition (CVP), profit formula, key resources, and key processes. While the authors did not provide any rationale behind the ordering of the elements, each element provides an important contribution to their effect as a whole. Therefore in my opinion a deep understanding of each element leads to a different order of importance. My proposed order of importance, ranked from most to least important element, is CVP, key resources, key processes, and lastly, the profit formula.

To begin I believe the most important is CVP, an element that calls for a company to find a solution to a fundamental problem that currently is not being fulfilled. Without having a plan to help customers get a task done efficiently and effectively, a company cannot thrive in its business. If a company is unable to recognize, address, and solve a problem, then they may be unable to earn money doing so.

Second in importance is the clear identification of a company's key resources which are necessary to determine its cost structure. Before a company can begin to determine how they will make a profit, they must have a complete understanding of what and how they intend to accomplish that goal. Johnson et al. say the "focus here is on the key elements that create value for the customer and the company, and the way those elements interact" (Model, 4). Without being fully aware of the types of equipment, staff, technology, and distribution channels needed, a company will fall short of being able to focus narrowly on an issue it hopes to fix, and be able to fix it well.

Thirdly, key processes determine the way in which a company achieves its desired result. This relates to how well a company is able to perform its operational procedures and its ability to replicate and increase volume related to those tasks.

Finally, I believe the profit formula should be a company's last focus when modifying, its current business model. Vaguely defined