Retrench or refresh (2)

The report Retrench or Refresh puts the proposition that to stay competitive companies need to be innovative in their business model. In the final part of the report "experts explain how they feel business models need to change for survival, what leaders should focus on and what are the weaknesses in current models". What comes out of this section is more or less a list of the characteristics of a re-charged business model that is viable and successful in today's context and has features that improve competitiveness, increase efficiencies, use resources better and focuses on the customer. Characteristics include:

1. Flexibility: to evolve to business models where a) products and services are able to be paid for on an "as needed" basis, for example, in the IT world from the software license model to the software as a service (SAAS) model, b) companies can scale up or down without loss of business continuity.

2. Ability to deliver short-term cost savings and/or efficiency gains to customers: to offer customers a greater level of granularity in the way products and services can be bought, for example Ryanair's menu of options compared with British Airway's all-in single price approach.

3. Capacity to drive innovation: to engage with those interested in participation in open-innovation (looking to people outside the organization to come up with new and/or improved product and service ideas)

4. Capability to enter new markets: to look outside their traditional markets and be in a position to offer products and services tailored to customers in these new markets.

5. Collaborative ownership structures: to achieve economies of scale and reduce competitive pressures

6. Use of the digital economy: to help reinvent what the company is capable of offering and how it offers it.

(Side note: Reading through the report I noticed that the words 'sustainability' and 'environment', do not appear in it, and neither does the word 'design' – all becoming common currency in talking about business enterprises).

Standing in the way of renewing the business model are the skills of the management teams, the structures, processes, policies, and working practices that for any established company have been in place over several years i.e. the elements that comprise the design of the organization. So here lies the nub – changing the business model requires a change in the organization design.

The report does not suggest this although it does put forward a list of questions for leadership team discussion aimed at helping leaders assess whether they have a business model that is right for taking the company into a successful future.

A similar exercise was suggested by Peter Drucker. He called it "Planned Abandonment" saying that the time to abandon a product, service, policy, rule, or other organizational element is much earlier than when it begins to cause problems. As a rule it is time to abandon when any of the three following conditions apply:

1. The product, service, market, process, or whatever "still has a few good years of life"
2. Its greatest virtue is that it is fully written off. Ask instead "what is it producing?"
3. An old and declining product, service, market, process, etc is being maintained at the expense of new and growing products, services, markets, processes, etc.

He suggested that the leadership team should regularly ask a series of questions aimed at pinpointing areas for abandonment. Now seems like the right time to introduce this exercise, for organizations not doing so, as a regular (he suggested quarterly) part the business operation.

Having decided what to abandon and how to renew the business model, the next step is redesigning the organization to align with it.