Establish and Build on Business Models that Accelerate the Potential for Greater General Prosperity
Wouldn't it be nice to have more customers? You will if you focus on developing improved business models that increase general prosperity as well as the size of your industry.
Many companies always want to have lots of excess capacity to supply customers. The cost of losing a customer is usually greater than the cost of having idle resources for these companies.
But profits and morale would be a lot higher if the organization was producing at its current maximum. How can that tighter resource usage be encouraged? Having your core business model insight relate to pursuing and stimulating an important new trend is a powerful competitive advantage to achieve higher resource use.
As nice as it is to always have an expanding supply of low-hanging fruit available to harvest, it is even better to having a rapidly growing demand for that fruit. In that way, you will have more opportunities to serve customers and be well rewarded for what you do. The most adept business model innovators are those who not only seek out the most powerful trends, but specialize on facilitating the faster evolution of those trends.
Let's consider Bob Swanson, CEO of Linear Technology, as an example. The company's business model has always been based on being a specialist. Having more application's knowledge than competitors is critical in designing analog semiconductors, which is the company's business.
Mr. Swanson realized that this expertise could be further increased by looking for ways to provide high performance chips that would replace the commodity chips being used. To support the higher cost of high performance chips, Linear Technology would have to add important benefits that the commodity chips did not provide.
In thinking about that problem, he had an important insight. The company should aim to add benefits that would accelerate the growth of the markets it served. In this way, the company's customers would receive more economic benefit from the innovation, as would the company and its other stakeholders.
The company quickly perceived that better power management would make cellular telephones and other portable electronic devices (like laptop computers and personal digital assistants) more valuable to end users by increasing how long the equipment could be operated between battery charges. With the potential for a great deal of Internet traffic to switch over to wireless battery-driven devices in the future, Mr. Swanson thought that he had found a key tangle that his company could help unravel.
With Linear Technology chips in place, battery life was greatly improved. Designers of portable electronic product could either pack more usefulness into the same sized package, or offer smaller packages with the same usefulness. As a result, portable devices quickly became more functional in many dimensions.
Driven in part by these technical improvements, device volume soared. The demand for improved models was further stimulated.
As a result, Linear Technology had to change its business model to include the additional capability of perfectly hitting its customers' frequent new-product-launch windows with improved chips following shorter development cycles. Not being meeting deadlines could cost the company and its customer over 90 percent of the potential profit from a new product.
The company's success has led to consumers and companies being able to share information more rapidly and accurately than ever before. Enabling this sharing has created a greater potential for prosperity across the whole society.
As a result, the economy will grow faster and Linear Technology should also be an indirect beneficiary of this increased prosperity as more people can afford the better performing, ever less expensive portable products that its technology enables. This wisdom of this approach was evidenced in another way during the technology recession of 2001. Sales of most portable devices continued to grow, although more slowly, while consumption of most other technology products shrank.
How does your current business model expand general prosperity?
How could a future business model do more to increase prosperity?
What key problems could your organization solve that no one else could?
How can you turn that problem solving into a continuing competitive advantage?
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ABOUT THE AUTHOR
Donald Mitchell is chairman of Mitchell and Company, a strategy and financial consulting firm in Weston, MA. He is coauthor of seven books including Adventures of an Optimist, The 2,000 Percent Solution, and The Ultimate Competitive Advantage. You can find free tips for accomplishing 20 times more by registering at: www.fastforward400.com