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Reinventing your business model

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Article

Johnson, M. W., Christensen, C. M., & Kagermann, H. “Reinventing Your Business Model.” Harvard Business Review (2008).

Summary

The most successful disruption in a market often comes from innovative business models rather than innovative products or services. This article explores how and when a company should consider a new business model. The authors argue that one must be able to define their current business model well before determining if a new business model is necessary. The question becomes whether the new value proposition you offer to customers requires a change in multiple elements of your existing business model, and if so, a business model innovation maybe necessary. 

The authors identify five key areas of opportunity that may warrant a new business model. They also suggest that not all new products or services require a new business model and in fact, they highlight that if the new business model is not new to you or the industry, it’s probably a waste of time and money.

What this means for food and agribusiness

You can’t read a trade magazine within food and agribusiness today without having at least one article discussing disruption and new business models. Whether we are talking about Amazon in the food space or Farmers Business Network (FBN) in the agricultural retail space, the debate surrounding new business models and how it is disrupting the nature of the industry is palpable. This discussion often leads to the question of, “What should we be doing to respond?”  Of course, this question is usually referring to eliminating or at least minimizing the threat of a new entrant into the marketplace. And often, the thought is that we have to copy the new business model ourselves to keep customers from going to the new guy on the block.

The authors suggest that we should be careful not to rush to a new business model solution.  Their argument is built on the premise that we might not even know what our own current business model is, much less what the new upstarts’ business model is. The article highlights that a business model has four core elements: a specific customer value proposition, a clear profit model, identification of the key resources to deliver the value proposition profitably, and a set of process that allow for profitable delivery of the customer value proposition that is repeatable and scalable. Figure 1 illustrates these business model components.   

The most important part of the business model, to me, is the customer value proposition. In particular, I like the concept of jobs-to-be-done identified in the article, meaning, what job is the customer hiring you to get done for them? I think that in food and agriculture, we too often have created solutions, products and/or services as a way to get hired. The authors suggest we should look at this in the opposite way. What are the jobs the customer is trying to get done and can we find a new way to get that job done for them that either can’t currently be done, is being done poorly, or is too costly? If we can find this solution, we will likely get hired to do that job.

Let’s use FBN as an example. What is the job their customers are hiring them to get done that established agricultural retail is currently not able to get done? Is it product purchasing convenience? Is it product pricing transparency that allows the customer to feel their search for the best deal has been fruitful? Is it the feeling of buying products without unwanted sales pressure? I don’t know the answer to these questions, but, if I want to respond to FBN, I would clearly need to understand the value proposition that those customers see.

Once I understand the clear customer value proposition that I am seeking to respond to, I have to think carefully about whether the new customer value proposition requires a different profit model, a different set of resources, and/or a different set of processes than my current business model. If the new customer value proposition surrounds product pricing transparency, can I deliver that through my existing business model by tweaking my profit model or my processes? Perhaps it’s an opportunity to “unbundle” products and services and start a conversation with customers about the value and cost of services that support the product. This would surely require some adjustments in our profit model and maybe a tweak in the sales process. But would this require a completely new business model? This strikes the point the authors are trying to make when suggesting that not every new innovation has to have a new business model.

However, the speed of technological innovation in the forms of biological, mechanical and information technology in our industry is happening at an increasingly rapid pace. I believe these technological disruptions are fundamentally changing the nature of the jobs that customers are or will be seeking to get done. The physical nature of jobs is increasingly driven by biological and/or mechanical technology that gives the customer unprecedented control of those jobs. As farms continue to consolidate and differentiate themselves, they have the opportunity and ability to conduct activities that others may have done for them in the past. At the same time, the roles that support those jobs are changing in ways that demand a different type of human capital. More often now, information and knowledge support, through the digitization of agriculture, are replacing those mechanized services. Information and knowledge services likely have a different customer value proposition, financial model and set of resources and processes. I believe the authors of this paper would suggest this might be the area where new business models should be considered.

AUTHOR
Allan Gray
Allan Gray
March 27, 2018