Business Model Changes

Many readers of this email newsletter contributed to Blue Canyon research on the challenges of implementing changes in a firm’s business model. We appreciate your insights! In this month’s email newsletter, we want to share some of the initial findings from this project.

The motivations for implementing changes to a firm’s business model are many. Based upon responses to our on-line survey, the two primary motivations are driven by performance problems. The most frequent reason motivating changes in the business model is that the “Old business model is failing to deliver adequate growth”, followed closely by the “Old business model is failing to deliver adequate profits”.

External motivations are also important in many cases. While trailing the above performance-related motivations, two other factors were recognized as important in decisions about changes to business models: “A new business model is required due to external changes (e.g., regulation, technology)” and “A new business model is required in a new market or product segment”. All four of the motivations cited above were scored as frequent motivations for change on a scale that ranged from “Rarely a factor” to “Frequently a factor”.

A simple conclusion is that most firms will regularly identify reasons to change their business models. That reality underscores the importance of the following finding from our research. By a very substantial margin, the two reasons cited as responsible for situations in which the new business model failed to deliver the hoped-for results were “Implementation process was poorly managed” and “Internal resistance to the new business model”. Those two factors emerged from a long list of problems that spanned a spectrum from a flawed strategy to customer resistance to competitor responses. Firms with strong implementation competencies are those best positioned for successful changes to their business models.

Our research identified fourteen key dimensions of changes to business models. While there were differences among them, a basic finding was that all posed a substantial degree of difficulty in implementation, with every one of the fourteen scored above the midpoint on a scale that ranged from “Not Very Demanding” to “Extremely Demanding”. The changes that were ranked as most demanding were ones associated with newly targeted markets. Ranked most difficult was “Shifts from a domestic business to a global business”, followed closely by “Shifts between a business market and a consumer market”. Not too far behind in assessed degree of difficulty were “Shifts in the focus between small customers and large customers”, “Shifts between a product business and a service business”, and “Shifts from a bricks-and-mortar business to an ‘e’ business”.

We conclude that there are strong and frequent motivations for changing a firm’s business model, that strengths in managing the implementation process are those most critical to realizing success with such changes, and that almost all dimensions of change to the business model are challenging. In future email newsletters, we’ll provide some best practice insights about achieving success with business model changes.