Change operating model or business model?

I just had to share this post with you, by famous author Geoffrey Moore (remember Crossing the Chasm?).   I am not sure I agree with it, and my definition of business model and operating model may be a little different from his, but I was challenged to think hard by the following (apologies for my edits Geoffrey – see original here):

  1. It is a good thing to disrupt your operating model whenever next-generation technology can help you unlock trapped value in outmoded business processes.
  2. It is a bad thing to disrupt your business model, even when your sector is under direct attack by a new entrant who is doing just that and eating your lunch!

The first of these two changes can contain some bitter medicine that gives you grief and certainly entails execution risk, but at the end of the day it makes you a better, stronger company. The second is simply toxic. Here’s why.

All established enterprises leverage their ecosystem of partners to complete their whole product and amplify their market reach. The net result is a micro-economy in which each company helps create opportunity and value for every other company in the mix.

Changing a business model mounts a direct attack on this ecosystem.

So what? Well, it turns out that most of your company power is invested in that ecosystem. Without it, frankly, your value to your customer base is much less than you might be assuming. Even if you keep your customers from churning, you will find yourself having to field service requests that never used to come to you. And at the same time, you will be asked to perform with excellence against the standards of the new model, standards you did not invent, are not familiar with, and probably lack the talent to execute productively.

The key point here is that business, regardless of sector or vertical industry, is much more of a team sport than we normally acknowledge.  Business consultants who advise companies to embrace business model disruption are staggeringly naïve.

The disrupters may be getting a big advantage out of the new model.  But there is nothing here for an established enterprise to grab hold of without sacrificing its own crown jewels.”

I have observed the difficulty that incumbents have in reacting to new business models.  I have observed the distraction costs that they face: when they try to do new things, their core business often suffers.  But I have never thought of it in terms of destroying the value that has been built up in the existing ecosystem.  I don’t think Geoffrey’s advice is right for  all situations.  But it is something to think about … hard.  Thank you Geoffrey Moore


About Andrew Campbell

Ashridge Executive Education Focus on strategy and organisation Almost retired!
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