The business model dilemma

A business model has to have a big idea. It has to be rooted into the company’s mindset and culture values. It has to adapt to its context and even be flexible for handling future context changes. A business model has to be visionary. And it simply has to work well, or otherwise accept its failure and change course.

When businesses decide on such important things as changing or taking up a new business model, it might be because there is some sort of crisis in the entire industry. A crisis caused by its decline, after it has inevitably reached the peak of its potential.  Established, successful industries keep doing what they usually do, because it still works and the cash keeps flowing. But when technological and social change enters the stage, a shift is bound to happen sooner or later. Surely, all players in the industry will try to take their established models to the limit, perhaps to reinvent their identity, to make a better product or service, or to offer added value. But in the end, there is only so much that a business model can support. And when it really reaches its limit, things need to change.

The question is, who is brave enough to admit that things are not working as they should? To admit that the reason for which their business is bleeding is not the latest financial crisis, or the rising oil prices, or the competition. It will not go away after a couple of bad years. Because the context has changed in such way that the model has suddenly become obsolete, just like a product. However, while some products can have a very short life cycle, business models could theoretically last forever, as long as the social and environmental requirements do not change their base levels.

Take, for instance, bars and pubs and their current business model. They could virtually still be there in 2515, provided that alcoholic drinks will still be produced, people will feel the same need to socialize over a drink, and drinking in public will still be allowed. The details of how such a business would function, however, will change. Perhaps bartenders will only be there as “beverage advisors”, telling people what to drink and when, how to mix a certain cocktail, how to combine certain drinks, and to offer a quick remedy to those who had a couple too many drinks.

Getting back to the bravery of admitting that your business model is failing – that is actually the first step towards innovating your business. And taken at the right moment, it might come with a worthwhile reward: being the first to do it in the industry.

However, things are usually not that simple. There are stakeholders and influencers and decision makers, who all have a say in the issue. And if this was not enough, innovative business models usually appear by mistake, at random, just because someone made the right connection at the right time. The reality is, innovation and change nearly never happens when you want it to happen, but when the circumstances are right. And that fact makes it much more difficult for organizations to reinvent their models when it is needed.

There are exceptions, of course. Take Dell, who actually made it happen when they needed it most: the industry had become saturated by desktop and laptop manufacturers, all of them selling pre-configured systems through brick-and-mortar channels. They all experienced the same symptoms of market decline and knew that something had to change, but it was Dell who came up with the new business model of customizing computer systems through one-to-one communication, which was made possible because of the internet. Then, the model was backed up by the just-in-time strategy, making it so much more efficient by keeping inventories to a minimum and producing exactly just what the customer wanted.

These success stories are only the tip of the iceberg, the ones that made it through the struggle of having to change. But the majority of companies and organizations out there are stuck below the waterline, either having to struggle continuously with the limitations of their business model, or having to follow the innovators, after their new models have proved successful. However, they will never be in poll position.

So what does it take to make change happen? It seems that it’s always a combination of factors: visionary and creative minds, leaders, smaller or homogeneous organizations, owners and managers who are willing to risk and people who are willing to invest plenty of time and effort into change, within a rather short period of time.

With so many conditions and such risky ventures, there’s no wonder so many organizations choose to stick to what they do until someone else raises new standards. Reinventing their business model is not for everybody. In fact, it is the decision whether to make this step or just stay put that represents a turning point for every organization. The majority of organizations out there are simply better off not trying to innovate. If they did, it might just be the worst decision they made, just because the entire context and situation is not right.

You simply cannot force change on employees, customers or other stakeholders involved, if they are not ready for it. That is an obstacle that depends, most of the time, on a much larger context, such as culture, society, history and traditions.

So in the end, it all comes down to people. Having the right people as your management, your employees and your customers. If that is right, change happens naturally. And in most cases, it will not be overdue.

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