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Business model innovation in disruptive times

Date posted: October 8, 2015

One of the more interesting businesses to emerge in recent times is Uber. It seems you see them everywhere these days.

Uber Technologies Inc. is an American international transportation network company headquartered in San Francisco, California. The company develops, markets and operates the Uber mobile app, which allows consumers with smartphones to submit a trip request, which is then routed to Uber drivers who use their own cars. By May 28, 2015, the service was available in 58 countries and 300 cities worldwide. Since Uber’s launch, several other companies have copied its business model, a trend that has come to be referred to as “Uberification”

Uber is part of a larger trend where established business models are being turned on their heads. Think Bitcoin. Think open online education.

In a fascinating article in the McKinsey Quarterly, Marc de Jong and Menno van Dijk explore how established businesses “can disrupt traditional ways of doing business by reframing the constraining beliefs that underlie the prevailing modes of value creation.” They point to a five-step process of business-model innovation that incumbent market players can employ to leverage the power of disruptive models:

  1. Outline the dominant business model in your industry.
    Define the long-held core beliefs about how to create value.
  2. Dissect the most important long-held belief into its supporting notions.
    What underpins the most important core belief— notions about customer interaction, technology performance or ways of operating, for example.
  3. Turn an underlying belief on its head.
    Formulate a radical new hypothesis, one that no one in your industry currently wants to believe.
  4. Sanity-test the hypothesis.
    Many reframed beliefs will not make sense. Applying a proven reframe from another industry may succeed. Unlike product and service innovations, business-model innovations travel well from industry-to-industry.
  5. Translate the reframed belief into your industry’s new business model.
    Once you arrive at a sensible reframe, the new mechanism for creating value pretty much suggests itself; just take the reframed belief to its logical implications.

The authors point to four areas where reframing beliefs may prove valuable— customer relationships, activities, resources and costs. In each of these areas there is positive transitional movement that innovation can drive: in customer relationships, from loyalty to empowerment; in activities, from efficient to intelligent; in resources, from ownership to access; and in costs, from low cost to no cost.

A Nobel laureate once said, “Progress is impossible without change, and those who cannot change their minds cannot change anything.” This is something business leaders should consider to keep their business models from becoming idées fixes that may end up as millstones around their necks.

The rapid emergence of new business models should also have their attention.