Ii) Reasons For Reviewing Business Model

Reasons for reviewing business model involves 1 of 4 objectives, ie

i) to satisfy existing but unanswered market needs (satisfy market, eg Tata car, GrameenBank, Mobile banking, etc)

ii) to bring in new technologies, products or services to the market (bring to market, eg Swatch, Nespresso, etc)

iii) to improve, disrupt or transform an existing market with a better business model (improved market, eg Skype, IKEA, Ryanair, etc)

iv) to create an entirely new market/business (create market, eg Diners Club, Google, etc)

The motivation to review your business model involves 1 of 4 elements:

i) crisis with existing business model (reactive, eg Rolls-Royce, IBM, etc)

ii) adjusting, improving or defending the existing model to adapt to a changing environment (adaptive, eg Nokia, P&G, etc)

iii) bringing new technologies, products or services to a market or exploit existing IP (expansive, eg Nestle with Nespresso, Apple with iPods/iTunes)

iv) preparing for the future by exploring and testing new business models that might eventually replace existing ones (proactive/explorative, eg Amazon Web services, etc)

Challenges with this are:

- finding the right model

- category testing the model before a full-scale launch

- inducing the market to adapt to the new model

- continuously adapting the model in response to market feedback

- managing uncertainty

- developing an interest in the new model by all stakeholders

- aligning old and new models

- managing vested interests

- focusing on the long-term

Remember

"...Genius is 1% inspiration and 99% perspiration..."

Thomas Edison as quoted by Joanna Gray 2017b

Organisations don't spend enough time on the perspiration, ie

- does the operating system encourage innovative growth?

- do you prefer incremental innovation in products and services, and customer experience, rather than changing your business model?

- are you in the right market?

- do you spend too much focus on your core business, eg pricing, distribution, better customer experience, incremental products and services, etc?

NB "...In a given market we know that 65% of your growth over time can be explained by picking the right market..."

Erik Roth as quoted by Joanna Gray 2017b

The need for innovation by the existing organisation can be reduced by merging with or requiring innovative organisation

Innovation needs resource allocation that includes responsibilities and accountability. Generally senior management makes an inspirational speech about innovation but it does not change anything, ie people keep doing the same old thing. Inspiration needs to be linked to the operating system that has accountability and capability.

In many organisations, the core business is going well; they can generate additional savings/revenues with incremental changes. Most organisations are not ready for any major disruptions: consider the unexpected impact of airbnb in the hotel industry, Uber in the taxi industry, etc. It is hard to determine what disruption could have a major impact before it happens. Most organisations need to have staff who are scanning the horizon to determine the threats and opportunities. The ideal people to do this are the newcomers in the organisation, not the long-term employees. Newcomers will bring a new mindset to the organisation.

Organisations need to change to reflect the environment they operate in. Some examples of the evolution to reflect:

- in the 1980s, GE with its directive to be first or second in every industry in which competed

- in the 1990s, Apple with its creativity, ie think differently

- in the 2000s, Facebook's approach of disruption (move fast to break things)

- in the 2010s, hyperscaling as shown by the 10x mantra of the venture capital community

- in 2020s, post-pandemic dominant paradigm is the celebration of empathy.

The traditional business models are under threat from the Internet. It has caused monumental changes in industries with the demise of many great corporations whose influence & profitability seemed unassailable, eg

- books (on-line like Amazon v. book stores like Borders - the latter is no longer in business. Online book retailers like Amazon, The Book Depository and Dymocks (Australian multi-channel retailer) have benefited from the surge in online book sales of 26% annually while overall retail book sales have fallen 5% annually for the last five years (2015)

- media (e-newsletters/TV v. print - the latter have falling readership & circulation, eg for 23 consecutive quarters, Australian newspaper circulation has declined with falling advertising income and mass staff lay-offs, etc)

- car (almost all of the big firms were saved financially by the US Government after 2008)

- music (decades ago, big studios owned by a few key record labels & disc jockeys dominated; now the internet has allowed musicians to dominate)

- movies (large studios to virtual film-making)

- retail (clothes, books, etc from shops to Internet, ie e-commerce)

An example of the impact of the Internet is shopping. Before the Internet, shopping involved visiting stores to buy merchandise, etc. Sometimes up to 3 trips were made before a purchase. With smart phones (50%+ penetration in the USA), shoppers can use the Web to research, ie more than 50% of Americans do this before they buy in person. In other words by the time they get to the store they already know what they want to buy. Furthermore, stores are now going to shoppers by using their websites. Salespeople are being replaced by informative websites; the cashiers are being pushed aside by automatic check out machines. Thus the daily task once done by store employees are being taken over by machines or outsourced to customers.

- occupations with median hourly rates of less than US$ 14 account for nearly 60% of all job growth between 2008 and early 2010.

- it is expected that labour from the retail sector will move into the health care and food services sectors.

- after the GFC, retailers reduced staff and replaced them with technology. Walmart, which has cut its total workforce by 20,000 since 2008, has opened 455 new stores in that period.

With online sellers offering brands at up to 40% cheaper than "bricks & mortar" retailers, the latter have lost their point of difference. They have responded by reducing costs such as

- better management of supply chain including cutting out middlemen and sourcing directly from manufacturers

- going online themselves, ie "if you can't beat them, join them"

- closing under-performing stores

plus

- becoming more exclusive and up-market

- changing format of stores like installing Wi-Fi, vinyl bars, coffee shops, etc

The Australian ABC (radio and TV media) is a "... vast and complex organisation......one of the most dramatic periods of change in global media industry. Technology giants, such as Google, Apple and Facebook have blown apart the advertising and audience model of traditional radio, print and television companies. The busiest television platform in the world today is YouTube, which is owned by Google and gets 1 billion unique visits a month. Every tablet, mobile phone and desktop is now a television, newspaper, radio or book. The Apple watch...... is the latest device on which audiences can read, watch or listen - wherever, whenever and however they want...... so much of the news has been commoditised..."
Ann Hyland, 2015b

To handle this, the ABC has rolled out pod casts, multiple websites, a television catch-up service in iview, apps for its radio services and additional digital television channels like ABC News 24+ plus embraced social media.

The digital era has resulted in fragmenting media audiences and advertisers. This has undermined the business models of commercial media outlets. On the other hand, it has increased the importance of public broadcasters like the ABC in Australia. For example, there is no commercial model that can sustain a Radio National, or make the kinds of investments into local drama production, or have regional footprints with local voices and local news.

As a result, the Australian public broadcaster (ABC) is an early adapter of technology which commercial stations are reluctant to pursue.

One of the biggest challenges facing the ABC is not new technology but losing its connection to its audience. If the ABC gets complacent, then it is marching down the path of irrelevance.

The ABC needs to follow the path of becoming more deeply ingrained in the public consciousness as the home of Australian stories, culture and conversations, ie
"... in an era of global content just arriving with such a flood in Australia, there is a premium for being at the centre of Australianness..."
Mark Scott (retiring ABC's Managing Director) as quoted by Anne Hyland, 2015b

 NB
"...strategy determines WHAT to do. The business model determines HOW to do it. Strategy is the plan and the business model is the tactics..."
Vijay Kambhammettu, 2016