Business Model Design is the conscious process of designing your business model. Disruptive, or transformative business model, are normally designed to multiply the impact of your value proposition and/or disrupt your market structure so that it is harder for your competitors to compete with you.
Historically most companies have adopted the prevailing business model in their market and have innovated almost accidentally as they responded to internal innovation or market events.
Business model design enables managers to step back and look at business models in their direct and indirect competitors, assess their existing business models, and then make conscious decisions about what sort of business model they need to prosper.
For most companies, the business model that they use is one of several possible business models. Where the business model has emerged through unconscious management decisions there is a significant likelihood that it is not the best business model for the market at this time and place.
When we undertake business model design we are consciously thinking about the goal – a customer-centric focus on the problems that our customers and stakeholders need solving.
Business Model Design Maximises Customer Value
We then map the value propositions (our products and services) to those problems. The rest of the business model is then designed around maximising the value of the value propositions to the customer.
This shifts the emphasis from minimising costs, or maximising quality, to one of maximising customer value. The reason that we do this is that significant business model innovations deliver increases in customer value of more than 5,000%
The increase in value that the customer gets should be transformative, far greater than incremental cost, quality and speed improvements.
Because the business model design process can deliver such large increases in customer value business profitability and shareholder value follow along.
Shareholder value is seen as dependent on maximising customer value, rather than being the goal of corporate endeavour as falsely claimed by Milton Friedman.
[Milton Friedman claimed that the core purpose of corporations was to generate shareholder value. This leads to a focus on short term results and unethical decision making that tend to destroy or reduce shareholder value]
Corporate Business Model Design
Companies go through stages of maturity in business model design
Zero
At this stage companies are unaware of business model design. Their business models are replicas of other comnpetitors in the market with little of no business model differentiation. A traditional pub, single outlet retail outlet or law firm will often fall into this category.
Unconscious
In the unconscious stage, companies are often slowly changing their business models as management sees changes in the market and adapt to them. These changes may deliver results or be failures. An example would be a bricks and mortar retail outlet adding a website to sell goods online because its competitors have done so and they have a fear of missing out. This is a change to the business model but there is no thought about what the innovation means overall.
Conscious
At the conscious stage of business model design companies have an awareness of the business models that they have within the company and have systematically mapped out the business models that they use. Language inside the firm has changed to reflect this and they often see the business model as a source of competitive advantage
Focused
Companies at the focused stage are aggressively challenging whether they have the right business model to compete in the market. They are assessing alternative business models as both offensive and defensive plays and are looking for weaknesses in competitors business models to exploit
Radical
The final stage of business model design is when a company is explicitly looking for business models that will disrupt or transform a market. A company looking at radical business model design is looking for a way to upset the table, significantly hurting the revenues of all existing players and planing to generate a significantly larger share of post disruption revenue as a result
Companies that move up through the levels described above can slowly gain an advantage over their rivals. The awareness of what a business model is and how it can be used give them the ability to design business models to achieve specific corporate results
