One secret to maintaining a thriving business is recognizing when it needs a fundamental change.
50 Harvard Business Review
|
December 2008
|
hbr.org
Business
Reinventing Y our by Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann
Model
IN 2003, APPLE INTRODUCED THE IPOD WITH THE ITUNES STORE,
Jim Frazier
revolutionizing portable entertainment, creating a new market, and transforming the company. In just three years, the iPod/iTunes combination became a nearly $10 billion product, accounting for almost 50% of Apple’s revenue. Apple’s market capitalization catapulted from around $1 billion in early 2003 to over $150 billion by late 2007. This success story is well known; what’s less well known is …show more content…
Creating a customer value proposition. It’s not possible to invent or reinvent a business model without first identifying a clear customer value proposition. Often, it starts as a quite simple realization. Imagine, for a moment, that you are standing on a Mumbai road on a rainy day. You notice the large number of motor scooters snaking precariously in and out around the cars. As you look more closely, you see that most bear whole families – both parents and several children. Your first thought might be “That’s crazy!” or “That’s the way it is in developing countries – people get by as best they can.” When Ratan Tata of Tata Group looked out over this scene, he saw a critical job to be done: providing a safer alternative for scooter families. He understood that the cheapest car available in India cost easily five times what a scooter did and that many of these families could not afford one. Offering an affordable, safer, all-weather alternative for scooter families was a powerful value proposition, one with the potential to reach tens of millions of people who were not yet part of the car-buying market. Ratan Tata also recognized that Tata Motors’ business model could not be used to develop such a product at the needed price point. At the other end of the market spectrum, Hilti, a Liechtenstein-based manufacturer of high-end power …show more content…
This is defined not only by what is sold but also by how it’s sold.
PROFIT FORMULA
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Revenue model How much money can be made: price x volume. Volume can be thought of in terms of market size, purchase frequency, ancillary sales, etc. Cost structure How costs are allocated: includes cost of key assets, direct costs, indirect costs, economies of scale. Margin model How much each transaction should net to achieve desired profit levels. Resource velocity How quickly resources need to be used to support target volume. Includes lead times, throughput, inventory turns, asset utilization, and so on.
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KEY RESOURCES needed to deliver the customer value proposition profitably. Might include:
■ ■ ■ ■ ■ ■
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People Technology, products Equipment Information Channels Partnerships, alliances Brand
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KEY PROCESSES, as well as rules, metrics, and norms, that make the profitable delivery of the customer value proposition repeatable and scalable. Might include:
■
Processes: design, product development, sourcing, manufacturing, marketing, hiring and training, IT
Rules and metrics: margin requirements for investment, credit terms, lead times, supplier
50 Harvard Business Review
|
December 2008
|
hbr.org
Business
Reinventing Y our by Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann
Model
IN 2003, APPLE INTRODUCED THE IPOD WITH THE ITUNES STORE,
Jim Frazier
revolutionizing portable entertainment, creating a new market, and transforming the company. In just three years, the iPod/iTunes combination became a nearly $10 billion product, accounting for almost 50% of Apple’s revenue. Apple’s market capitalization catapulted from around $1 billion in early 2003 to over $150 billion by late 2007. This success story is well known; what’s less well known is …show more content…
Creating a customer value proposition. It’s not possible to invent or reinvent a business model without first identifying a clear customer value proposition. Often, it starts as a quite simple realization. Imagine, for a moment, that you are standing on a Mumbai road on a rainy day. You notice the large number of motor scooters snaking precariously in and out around the cars. As you look more closely, you see that most bear whole families – both parents and several children. Your first thought might be “That’s crazy!” or “That’s the way it is in developing countries – people get by as best they can.” When Ratan Tata of Tata Group looked out over this scene, he saw a critical job to be done: providing a safer alternative for scooter families. He understood that the cheapest car available in India cost easily five times what a scooter did and that many of these families could not afford one. Offering an affordable, safer, all-weather alternative for scooter families was a powerful value proposition, one with the potential to reach tens of millions of people who were not yet part of the car-buying market. Ratan Tata also recognized that Tata Motors’ business model could not be used to develop such a product at the needed price point. At the other end of the market spectrum, Hilti, a Liechtenstein-based manufacturer of high-end power …show more content…
This is defined not only by what is sold but also by how it’s sold.
PROFIT FORMULA
■
Revenue model How much money can be made: price x volume. Volume can be thought of in terms of market size, purchase frequency, ancillary sales, etc. Cost structure How costs are allocated: includes cost of key assets, direct costs, indirect costs, economies of scale. Margin model How much each transaction should net to achieve desired profit levels. Resource velocity How quickly resources need to be used to support target volume. Includes lead times, throughput, inventory turns, asset utilization, and so on.
■
■
KEY RESOURCES needed to deliver the customer value proposition profitably. Might include:
■ ■ ■ ■ ■ ■
■
People Technology, products Equipment Information Channels Partnerships, alliances Brand
■
KEY PROCESSES, as well as rules, metrics, and norms, that make the profitable delivery of the customer value proposition repeatable and scalable. Might include:
■
Processes: design, product development, sourcing, manufacturing, marketing, hiring and training, IT
Rules and metrics: margin requirements for investment, credit terms, lead times, supplier