BUSINESS RESEARCH

Reengineering Business Models

With more new market entrants, more savvy customers, and an increase in global market opportunities and threats, organisations are under pressure from all sides. In recent years, executives have been forced to take a sharper look at the role of their business models in driving innovation and profitability.

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February 2015

For example, in 2009 one study found that as many as 98% of companies had started to reengineer or modify their business models in some way. Research has shown that effective business models must satisfy at least three basic criteria:

  1. Does the business model align with organisational goals? The decisions made while designing a business model should result in positive consequences that enable an organisation to achieve its goals while creating and capturing value. This might seem obvious – but not all companies do this (or do it well).
  2. Is it self-reinforcing? There must be internal consistency between choices made when designing a business model. When strong reinforcement is absent, it’s advisable to discard some choices and implement new ones (Plan B). In fact, had companies such as Google, Starbucks, and PayPal stuck to their initial business models, they probably wouldn’t exist today.
  3. Is it robust? Over time, a good business model should fight off four types of threats: (1) Imitation: can rivals copy the business model? (2) Holdup: can customers or suppliers, for example, appropriate the value you create by leveraging their bargaining power? (3) Slack: i.e. organisational complacency, and (4) Substitution: can new products or services reduce the value customers perceive in your offerings?

Sources: Casadesus-Masanell, R. and Ricart, J. (2011) How to Design a Winning Business Model, HBR, Jan-Feb; Mullins, J. (2013) Transform Your Business Model By Discovering Your Plan B, Business Strategy Review, May.

Action Point

Evaluate your existing business model against the three criteria outlined above – where does it succeed and where does it need to be reengineered to be more effective?

Referenced techniques

Technique

Business Modelling

This concept is intended as a 'hands-on' practical discussion of how business modelling is used to explore a range of business decisions and to identify the essential elements that drive business.

Technique

Business Innovation

The concept explores innovation and how it can create and capture value for organisations. It will provide professionals with a basic understanding business innovation.

Technique

Marketing Mix

The concept explains McCarthy’s 4P classification of the marketing mix and compares it with the developed later 7Ps classification. You will also find some practical examples and recommendations on how to implement it in your organisation.

Technique

Business Process Re-engineering

The concept describes how to leverage best practices in business process reengineering while avoiding common pitfalls. It also reviews the latest technological and market perspectives.

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