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How to Identify New Business Models

December 21, 2011 | Joseph V. Sinfield, Edward Calder, Bernard McConnell, Steve Colson | Strategy

Companies traditionally pursue growth by investing heavily in product development so they can produce new and better offerings; by developing consumer insights so they can satisfy customers' needs; or by making acquisitions and expanding into new markets. The authors identify a fourth method, which they call "business model experimentation," or using thought experiments to quickly and inexpensively examine new business model possibilities. Building an organizational competency in business model innovation allows companies to treat the business model as a variable and not a constant. The authors put forth a series of six questions that are core to any organization's business model "Ò such as who is the target customer, what customer need is to be filled "Ò and offer a template that helps create alternative answers to those questions. Using the template helps a company discover combinations that may, for example, be used in other industries but that can be applied by analogy to their own, or to uncover opportunities to more comprehensively fulfill a customer service need. Thus the model can serve as a critical enabler of growth. The choices available are not infinite; some combinations of variables are inherently related, and there are only a few ways that any combination can be practically addressed while remaining consistent with the organization's mission. The authors give in-depth examples of the process of using the template at two organizations: Kennametal, a tool manufacturer in Pennsylvania, and Infineum, a global company that develops, manufactures and markets petroleum additives for the fuel and lubricant industry. They maintain that the experimentation process helps organizations understand their model and make better-informed decisions about the way they compete.

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