I enjoy reading about business models for innovation and how to improve the discipline of decision making so that’s why the article, “Four Paths to Business Model Innovation”, in recent Harvard Business Review caught my eye.
In this article, Karan Girotra and Serguei Netessine write about the secrets to success that lie in what decisions to make when and why.
Drawing on the idea that any business model is essentially a set of key decisions that collectively determine how a business can earn its revenues, incur its costs and manage its risk, the author’s view innovations to the model as changes to those decisions: what your offerings will be, when decisions are made, who makes them, and why.
Successful changes along these dimensions improve the company’s combination of revenue, costs and risk.
Here are the four dimensions.
- what mix of products or services should you offer? Focus narrowly, search for commonalities across products, create a hedged portfolio.
- when should you make your key decisions? Decisions must often be made before you have enough information to make them with confidence. There are three strategies that help, A., postpone the decision, B., change the order of your decisions, C., split up the key decisions.
- who are the best decision makers? Companies can radically improve their decision making simply by changing the people who make the calls. You might appoint a better informed decision maker, pass the decision risk to the party that can best manage the consequences or select the decision maker with the most to gain.
- why do key decision makers choose as they do? When decision makers collaborate to create value, they must also be able to pursue their private objectives without damaging the value chain. Many business model innovations therefore, come from adjusting decision maker’s motivation. There are three ways of doing this. A., change the revenue stream, B., synchronize the time horizons, C., integrate the incentives. Using a framework as proposed by the authors, an experienced manager can find ways to create a better business model. When they do, they find that the resulting capabilities offer a sustainable competitive advantage.