Business Case Studies, Executive Interviews, Prof. John T Delaney on Business Model Innovation

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Executive Interviews: Interview with Prof. John T Delaney on Business Model Innovation
April 2009 - By Dr. Nagendra V Chowdary

Prof. John T Delaney
Dean, College of Business Administration and Joseph M. Katz Graduate School of Business.

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  • When it comes to business model preparation, many dismiss it as textbookish. But your report clearly advocates the importance of a business model in orchestrating a business’s success. Can you highlight the importance of understanding a business model? Why should its thorough understanding be in the greater interests of a business?
    Success occurs when people see opportunities and know how to capitalize on them. By understanding the terrain, you see paths thatwill not be apparent to the novice and that will offer solutions with greater value. Gaining an appreciation for business models helps entrepreneurs (and managers) do this because it ensures that they know how revenue is generated. In my industry, a business school must produce knowledge and insight that generates value for recipients. Many plans could be designed to accomplish this, which is why so many business schools (and firms providing business education consulting advice) exist. As soon as we lose sight of the need to provide valuable knowledge for recipients (students), our business plan will lose alignment with the model and begin to sputter. And any plan may work more effectively for some audiences (e.g., Executive MBA program students) than others because of forces at work in the marketplace.

  • An IBM study (Paths to Success - Three Ways to Innovate Your Business Model) identified three types of business model innovation—industry model innovation, revenue model innovation and enterprise model innovation. Are there any illustrative examples of successful business model innovations symbolizing each of these models?
    Technology is changing segments of the entertainment industry as peer-topeer file sharing has challenged the pay on demand market for music, programming, and video. Google has affected the revenue model of the Internet in ways that have increased the availability of free content and the need for ways to sort through it. (Of course, this helps Google sell ads and premium services.) Cellular phone service and Internet broadband have changed the revenue model for telephone companies. Today, two large US phone companies – Verizon and AT&T – have adopted different strategies to capitalize on the same overall business model. AT&T is emphasizing cell phone content and services (e.g., through the Apple IPhone) to offset the loss of landlines. Verizon is aggressively pursuing its fiber optic cable video option to become the comprehensive provider of cell, telephone, broadband Internet, and cable TV services.

  • Which of these three models do you think would be most appropriate for existing companies? Which of these three models do you think would mostly suit new companies?
    Because business models are general, the answer is it ‘depends.’ Individuals and entrepreneurs who understand the terrain of their business model will create plans that generate value.

  • Mark W Johnson and his coauthors in their recent article (“Reinventing Your Business Model”, HBR, December 2008) 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 so few business model innovations coming from the existing companies?
    Change is difficult in organizations. It may be that business model innovations spur the development of new firms, based on the new business model. For example, the recording industry is feverishly working to maintain a model for distributing music that is being demolished by new technology. By sheer force, the industry has achieved some success as it has tried to identify how its existing infrastructure could be supported by a new business model. It may take the creation of a new organization or the engagement of a different kind of firm to exploit the value of the new business model in that industry. (Isn’t that what Apple has been doing?)

  • Just like the way in which venturing into a new business model is important, is it also not important to bid goodbye 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? Are there any illustrative examples of companies that have successfully abandoned their old business model before inventing, adapting and nurturing the new business model?
    While I agree with the sentiment, this is much easier said than done. Business models rarely collapse overnight. Instead, they wither over time. Within existing organizations, many constituencies are slow to accept the erosion of the model, and hence the result is to wait and see or reinvest at a time when the ship is sinking. The key is the fact that it takes many years for the issue to become accepted – and by then it is often too late to recover. Apple is a firm that has adjusted its business model in key ways over the years – defying analysts and creating much new value for consumers. Similarly, Kodak is a firm that has had difficulty transitioning a strong brand from one business model to another. In a hypercompetitive world, such transitions need to becomemore fluid and usual or the pace of “creative destruction” (to use the words of Joseph Schumpeter) will increase.

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