Transformative Business Models

We usually associate an industry’s transformation with the adoption of a new technology.  But although new technologies are often major factors, they have never transformed an industry on their own.  What does achieve such a transformation is a business model that can link technology to an emerging market need.

– Kavadias, Ladas, Loch.  Harvard Business Review.

The Idea: No new technology can transform an industry unless a business model can link it to an emerging market need.

The Findings: Transformative business models tend to include three or more of these features:

  1. A more personalised product or service.  Offering products or services better tailored than the dominant models to customers’ individual and immediate needs.  Leveraging technology to achieve this at competitive prices.
  2. A closed-loop process. Replace a linear consumption process (where products are made, used, and then disposed) with a closed loop where used products are recycled – reducing overall resource costs.
  3. Asset sharing. Enable the sharing of costly assets (eg. Airbnb with homes, and Uber with cars), sometimes across a supply chain. Sharing typically happens by means of two-sided online marketplaces that unlock value for both sides.  Sharing also reduces entry barriers to many industries, because an entrant need not own the assets in question; it can merely act as an intermediary.
  4. Usage-based pricing. Charging users when they use the product or service, rather than requiring them to buy something outright.  The customers benefit because they incur costs only as offerings generate value; the company benefits because the number of customers is likely to grow.
  5. A more collaborative ecosystem.  New technology improves collaboration with supply chain partners and helps allocate business risks more appropriately, making cost reductions possible.
  6. An agile and adaptive organisation.  Use of technology to move away from traditional hierarchical models of decision making in order to make decisions that better reflect market needs and allow real-time adaptation to changes in those needs.  The result is greater value for the customer at less cost to the company.


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