Business model: a large range of meanings from SKUs to value.

The Important

  • Business model transformation requires clarity on the central reason for transformation.
  • Reasons can range from SKU-based financing to value chain reengineering.
  • The latter is the most compelling motivator, but also the hardest to do organically.

Discussion

When people say they are doing “Business Model Transformation” they might mean anything from SKU-based financing to value chain reengineering. It is important to know which, especially for the company doing the transformation.

There are many reasons why a company may be motivated to change its “business model”. For example, a company may have an insight about how to create, deliver, and/or capture value, in a compelling and differentiated way, would be one good reason. A certain revenue model may become the hot topic, subscription for example. A certain type of P&L construction may be viewed as leading to higher company valuation, recurring revenue for example. The last two examples of motivators can be traps, because in these cases, business model change can devolve into a solution in search of a problem. There can also be a complex entanglement of important, not-so-important, and distracting motivators. Lastly, customers may be demanding change, also a seductive reason, with its own hidden traps, including uncertainty as to what the real customer objective and destination is.

One theme we have written about already, and will be writing about more with respect to the Networking industry, is how the increasing emphasis on software-only products and cloud-based services, are coming together in a new value chain we refer to as “Network-as-a-Subscription“. These probably unavoidable industry trends, and opportunities for value disruption, are good motivators for business model change. Without this bigger vision of value disruption, some business model transformation efforts can devolve into SKU-based financing, or an incoherent portfolio of offerings and policies.

If we focus on the value change spectrum, and we consider the low-end, SKU-based financing, that may be the easiest change to make, put a few SKUs on the price list, but it also may be the least impactful. OTOH, a complete reimagining of the value chain is the hardest to do, requires true product/solution roadmap investment, and potentially end to end change. Change of this magnitude is difficult to do organically, and may require either an incubation or transformative inorganic strategy.

If you focus on The Important, your objective will guide your journey, instead of thousands of inconsistent and uncoordinated functional decisions and actions. Here’s looking at your business model, a compelling end-to-end story of how you will create, deliver, and capture value.

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