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Upgrade to a New Business Model Rather Than Try to Get More Out of Your Existing Business Model

May 6, 2008
Perhaps the biggest limit on any organization's rate of progress is that it can absorb relatively few changes at one time. Accomplish more with each change, and you will out pace the competition.

Working only on improving performance measures has several potential problems in this regard.

First, improvements in one area may hurt performance in another area. So the gain may not be as large as you intended. In some cases, there will be no gain, or even lost performance overall.

Second, if the change has negative unintended consequences, you will have to make other changes that will also sap your capacity for change while increasing the risk of further negative consequences.

Third, working on individual performance measures is like aiming for the big rings at the outside of the bulls-eye target in darts, archery, and shooting. You don't get as many points for hitting those targets.

An improved business model change may be worth many times what each successful performance gain can provide in an existing business model. For example, Dell's adoption of lean manufacturing for quick delivery of customized personal computers reduced manufacturing costs. But it also reduced capital intensity, and improved customer service and preference for Dell products.

The combined effects of these changes greatly exceeded the benefits that lower costs alone could have generated. With a focus on lowering costs alone, Dell might have been tempted to standardize products and make long production runs as most of its competitors did historically. Those changes would have reduced the effectiveness of Dell in attracting and serving customers, and could have reduced the company from having a good business model to no longer having one.

Key Questions

What business that you're familiar with has what you think is a good business model? A good business model provides benefits to all of its stakeholders more effectively than existing competitors or new entrants can.

You will probably find it easiest to consider businesses that you know well as a customer, supplier, or industry participant. If you cannot think of any examples, consider a consumer service company you like or a restaurant chain that you frequent.

What makes it a good business model?

Write down your reasons for making your selection. Specifically focus on what provides an advantage. In considering why your example is a good business model, can you also think of any business models better than the one you have selected?

How could the business model you've selected become more ideal? An ideal business model adds these four elements to what is a good business model:

1. Your business model opens new windows of opportunity for you, while closing those and other important windows of opportunity for current and potential competitors.

2. You find ways to provide more helpful benefits for more types of stakeholders with each round of business model improvement.

3. You serve stakeholders who would normally not be able to meet your minimum standards to become lenders, shareholders, employees, suppliers, partners, or customers.

4. Your business model improvements expand your ability to make more types of business model innovations more rapidly in the future.

If you are like most customers, suppliers, or industry participants, you have seen at least some shortsighted behavior by the company you are modeling that amazes you. How could improving on that shortsightedness be done to cause a better match with an ideal business model?
About the Author
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at

http://www.2000percentsolution.com .
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