Do You Need to Transform Your Business Model?
When your industry undergoes significant change or your internal goals shift, you must seriously consider whether your company needs to change its business model to better leverage its core competencies.
Business model transformation is often driven not by a company’s desire to expand its share of a market, but rather by the imperative to remain competitive. As such, it is crucial that your company watch for key signals that indicate the need to change a specific dimension of the business model. Strong indicators include commoditization, misaligned channel incentives, stagnant growth, untapped but desired customer segments, new regulation, and evolving customer preferences. Once alerted by these indicators, a business must take decisive action to meet the challenge as in the following example.
Orica Limited, an Australian-based multinational provider of explosives used in stone quarries, was faced with pricing pressure when low-cost competitors entered their market. Instead of succumbing to a price war, Orica altered its business model to better leverage a core competency: efficiently displacing rock. Orica changed from selling explosives to selling a turn-key blasting solution that provides quarry customers with precise blasts, improved rock yields, and reduced processing costs. By exploiting its high-end blasting techniques compared to competitors, Orica changed its revenue model from pricing for explosives to pricing by quantities of broken rock it delivers. The change to the business model not only allowed Orica to avoid a pricing war, but also reduced pricing transparency because they integrated explosives, auxiliary products, and technical services into one solution. Orica transformed its business model primarily in response to low-cost explosive competitors; additionally, customer loyalty also increased over time when customers stopped investing in this process and instead outsourced and became dependent upon Orica’s blasting solutions.
Business model transformation is an activity not to be taken lightly; in certain situations, the future of a company rests on the fundamental transformation of one or more dimensions of the business model. Watching for strong indicators and being prepared to respond to the need for transformation is integral to the long-term success of your business.