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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  • Just like the way in which venturing into a new business model is important, is it also not important to bid good bye to an old business model? What are the signals/triggers that the companies should look at to decide to divorce from the existing/ old business model?
    Yes, but that means divestiture and companies should be good at both creating new business with new business models while also “trading” in old business models that no longer work. Freeing up from the old will allow for more opportuinty to create the new. Businesses where further investment in innovation provides no observed return or differentiation for an overall company where differentiation defines the strategy; businesses in declining markets; business facing severe technological disruption where the existing model ismade all but obsolete—these are the conditions where divestiture should be seriously considered.

  • Are there any illustrative examples of companies that have successfully abandoned their old business model before inventing, adapting and nurturing the new business model?
    I am not sure I know of a company that successfully abandoned before creating the new business model. You want to create the new in advance of the decline of the old so you achieve a successful transition. Ibm has accomplished this in their move to services. Intel succeeeded in transitioning from Dram memory chips to microprocessors in the 1980s.

  • A few existing companies come out with a steady flow of innovations. For instance, Virgin, Google, P&G, Apple, etc. How do you distinguish a product or process innovation from a business model innovation?
    A product or process innovation extends or amplifies an existing business model – it doesn’t change how things are done on a fundamental level. For example, P&G products like Crest White Strips and Swiffer are highly innovative, but they are well within traditional business models for the firm (CPG and razor / blade). A business model innovation is an entirely new way of organizing to make money; the recently launched Mr. Clean car washes, for example, are a new business model for P&G.

    Similarly, the iMac was a product innovation for Apple, but the iPod became a business model innovation (and was ultimatelymuchmore game changing). The combination of the iPod and iTunes into a comprehensive device and service made the iPod what it is today, and getting into music services requires a very different business model than simply selling hardware.

  • You have illustrated what’s behind two companies’—Tata Group and Hilti—game-changing business model innovation. Can you please share with our readers what these two companies did to build great models?
    As described in the article Tata Motors realized they needed not just product innovation but business model innovation to make the Nano by identifying the $2500 or 1-Lakh price point as the goal. And they came up with this goal by defining the real ‘job’ customers needed to get done: to have an affordable, safer alternative than the motor scooter to transport Indian families. This laser focus ensured they integrate the right resources and processes in the right way to achieve the needed cost structure to supportmaking a lower priced car of this magnitude. This combined with a different profit formula than a traditional car constitutes a whole new business model. For Hilti, their success in building a new model resides also in a focused, customer-centric ‘jobs’ approach. Hilti for years has also tried to understand what the real challenge is for the customer. By listening carefully and defining the real customer experience needed and then defining the right offering and finally, designing the right business model to support the offering, Hilti achieved success. It was achieved through the realization that business model innovation doesn’t mean business model innovation for the fun of it, but that which follows a disciplined approach, a customer-centric approach. Further, Hilti was willing to have the patience to experiment and prototype before rolling out the new model in any real scale.

  • Many new companies come with innovative business models. However, only a very few actually succeed in the marketplace. Why is it so difficult to carve a success out of a wellplanned business model?
    They aren’t really focused on a deep customer problem first with a plan to understand the total customer experience, including experience in purchase. Further, many companies don’t exercise the patience to allowfor the iteration necessary to get the ultimate business model right. As a matter of research, most successful business model innovators change the fundamental business model four times before getting right.

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