Business Case Studies, Executive Interviews, Mark W Johnson on Business Model Innovation

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Executive Interviews: Interview with Mark W Johnson on Business Model Innovation
April 2009 - By Dr. Nagendra V Chowdary

Mark W Johnson
Chairman and Co-Founder of Innosight.

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  • Is there any difference between a business model and a business plan? Few mistakenly suggest that for entrepreneurship courses, it is business plan and for strategy course it is business model. Surely the truth is something else? Can you elaborate on the differences between a business model and a business plan?
    I describe the definition of a business model in the HBR article as a way to describe how value is defined for the customer through the Customer Value Proposition (CVP) and how value is defined for the company and stakeholder through the Profit Formula; then Key Resources and Key Processes describe how that value will be delivered to both the customer and company. So the focus of a business model in our definition is squarely about understanding value creation and delivery. A business model is also looking at things through the lens of focusing on a single target customer versus a market. In essence, it’s a very foundational look at the business and its core DNA. While there is some overlap in describing the opportunity to reach a new customer with a new offering and how to make money in doing so, a business plan on the other hand tends to bemore aboutmaking a business case by describing and quantifying a market opportunity. The emphasis is in trying to determine how big a market opportunity is for the prospective business and to make the case for funding. It also contains more emphasis on individual functional plans or strategies of the prospective business such as the marketing and distribution plan and how the product will be sourced and manufactured.

  • When it comes to business model preparation, many dismiss it as textbookish. But your article clearly advocates the importance of a business model in orchestrating a business’ success. Can you highlight the importance of understanding a business model? Why should its thorough understanding be in the greater interests of a business?
    Thoroughly understanding and articulating the system by which your business operates is an absolutely essential part of appropriately evaluating threats and opportunities. In short, knowing what your business model really is will help you understand how to approach innovation opportunities, since you’ll know what fits into your current model and what will require real change. Similarly, itwill help you understand the severity of threats since you’ll have a lens through which to evaluate whether competitors are providing your customers with what they’re looking for in a wholly new, and perhaps disruptive, way. In this day and age, when competitive pressures are stronger than ever before, knowledge of business model is a true competitive advantage.

  • Your research observed, “an analysis of major innovations within existing corporations in the past decade shows that precious few have been business-model related.” Why do you think there are a few business model innovations coming from the existing companies?
    Business model innovation is really difficult because it requires thoroughgoing change. You need to extricate many of the rules and norms, many of which are unconscious, and associated metrics that coalesce around an existing business model. So companies either shy away from business model innovation since they assume that “oh, we don’t do that here,” or they fail because they don’t have a full understanding of the challenge. We do our field work and publish articles like the piece in HBR to help improve those odds.

  • One intriguing question facing all the established companies is when they should venture into the unknown business model territory. You have highlighted five strategic circumstances that often require business model change. What are those five strategic circumstances and how often do you think that the established companies would be facing them?
    Please see the HBR article in listing the five circumstances. I think in terms of how often, it really depends on the company circumstances (stage of life, unique industry dynamics, etc.) but we list these as key strategic circumstances since there is a high likelihood that any large, established company will face one or more of these circumstances in their lifetime if they want to continue to grow and thrive. Absence in doing any of these efforts would likely lead to a shorter company life.

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