Reinventing Your Business Model By Mark Johnson, Clayton Christensen & Henning Kagermann Summary Submitted by Tiffany The article “Reinventing Your Business Model” is focused on the importance of innovating business models as a means of providing new growth and opportunities for an organization. The three authors, Johnson, Christensen and Kagermann, provide a layout to demonstrate possibilities for an organization. The first step is to understand the definition of a business model.
The article explains that a business model consists of four elements that each work together to provide value. These elements include customer value proposition (CVP), which is “a way to help customers get an important job done. ” Next is the profit formula which is the plan for how the company will money while provide a value to the customer. The third element, key resources, is the assets that are required in order to fulfill the customer value proposition. Lastly, key processes are the primary operational and managerial tasks that also assist in delivering to the customer and company.
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The authors use two business examples to illustrate the process: Tata Group’s CPV for providing safer, inexpensive transportation and Hilti’s CVP for converting from commoditization of power tools to service provider through the leasing of power tools. After explaining the business model, the authors move forward to discuss understanding when a business model is needed. Although there are opportunities when a company can disrupt competitors by producing a product that is within their current model, a business must know when it is advantageous to create a new business model.
The authors state that there are five strategic circumstances that require a change: 1) An opportunity to provide value for a group that is completely shut out of a market; 2) Capitalizing on a new technology by creating a business model around it; 3) Providing a “job-to-be-done” when it doesn’t exist yet; 4) Fending off low-end disrupters; and 5) Responding to a shift in the basis of competition. Additionally, the authors stress that venturing into a new business model should not be taken lightly and should be pursued only when the opportunity is large enough and “game-changing” enough to warrant it.
At the conclusion of the article, the authors discuss Dow Corning as an example of a company creating a completely new business model independent of their existing model. Dow Corning discovered a need for a low cost product model and ultimately established Xiameter, which is starkly different from its original model. The authors also assert the need for trial and error and a willingness to revise as keys to creating a new business model.