Improve Your Business Model Concepts While Testing Specific Changes

How can you get your new business model into implementation faster without taking a lot of unnecessary risks?

Relax. While the experiments and tests are occurring, you can be thinking about the best course for your company.

A good place to start is to understand more about the elements that successful business models contain. Then, you can compare where you are with those patterns. The contrasts that come from this comparison will show you where more thinking can produce other ways to make progress while your tests of specific concepts are being conducted.

The most successful business models contain the same important elements, and you need to think about those elements in order to look for and check on ideas for improved business models.

First, the best business model in an industry creates many more resources for its stakeholders than it consumes itself in a ratio that is higher than what competitors offer.

Think of this as creating more financial as well as nonmonetary benefits for all those who come into contact with the company. The greater the ratio of benefit to stakeholders, the better the model.

Cytyc is a good example of such a company. As a start-up, the firm pioneered a new form of Pap smear test that is much more accurate than its predecessor. If a woman has cervical cancer and the disease is discovered early, she can always be cured.

Previously, many women who had cervical cancer received the erroneous information that they did not have cervical cancer when they did (and thus received no treatment) and they did have the cancer when they didn’t (and were frightened by an incorrect test result, and may have received unneeded treatment if a repeat test result was also faulty). The health, economic, and psychological benefits of the improved test to the women having the tests are obvious.

The cost of treating the early stages of this cancer is also much less expensive than having the patient get worse or die. This means that the demands on insurers and health care providers are less. Those who pay for health insurance will also have lower premiums. The community also benefits by having these women live longer, healthier lives as people others care about and rely upon in personal, family, and working relationships. Those who care about the woman also benefit from avoiding worry and having to do less to help her deal with her health issues.

Second, each stakeholder perceives that they will benefit more by encouraging the success of this business model than by supporting any other, or by ignoring the company which operates the best model.

When the competitive advantage among business models is very large in favor of each current and potential stakeholder, the company’s best interests become the individual stakeholder’s best self-interest as well. This circumstance can reverses the usual tension among a company’s stakeholders’ interests.

Haemonetics’ business model offers an example of providing a clear benefit to many stakeholders. Haemonetics is a global company engaged in the design, manufacture and marketing of automated blood processing systems. The company developed a business model vision of making safer and more economical blood components available when needed.

In the late 1980s and early 1990s, there was worldwide concern about transmitting viruses such as HIV through blood transfusions from donors. One of the technologies invented by the company, intra-operative autotransfusion, addressed this issue. Intra-operative autotransfusion allows for salvaging and washing of the red cells (a critical blood component) that would otherwise be lost by a patient during surgery. As a result, such patients are less likely to need red cells that are not their own in high-blood-loss surgeries.

In recent years, the company has followed this business model vision to address growing shortages of donated blood components. One solution was to offer a new intraoperative salvage device that can be used in a broader range of surgeries for patients to receive their own blood products. Another solution has come from introducing systems that allow blood centers to collect multiple units of needed blood components from a single blood donation without harm to the donor. With the new blood donation technology, costs are reduced, safety can be improved, and donors get the satisfaction of helping more people

There are many stakeholders involved with Haemonetics’ technology, including the patient, the patient’s family and friends, the hospital, blood donors, or other patients needing blood. For each of these, there is a clear benefit from a business model that makes safe and economical blood components available when needed.

Third, the best business models also seek to equitably share the economic benefits they generate with all stakeholders. Doing so creates a trust that permits people with otherwise widely differing interests to want to protect and support the business model.

Timberland is a good example of this approach. The footwear and apparel company sees its role as serving its stakeholders, and shares that perspective visibly and persuasively. Jeff Swartz, the company’s third CEO from the founding family, puts it this way. “Doing good and doing well are linked.”

He sees customers and consumers not as passive recipients of what the company provides but as “citizens” with a stake in the company who should be given every opportunity to tell what they want. Employees are not “hired hands” to be ordered around, but “paid volunteers” who come to work because they believe in what the company is doing. As part of this ethic, the company provides 40 paid hours of time a year for employees to do volunteer work. They apply this time to projects they care about.

Suppliers have to meet standards of quality on the products, and how they produce them. For example, Timberland wants to be sure that its products are not produced by child labor. Shareholders should get good financial results and the satisfaction of owning a stake in a company whose values they can be proud of. Mr. Swartz also sees his role as bringing the community into the company.

As two examples, Timberland provides day care on premises and also is a national supporter of City Year, a national youth service organization located in 13 cities around the United States. Many Timberland employees also work on City Year projects.

Company-sponsored volunteerism goes in so many directions, that Mr. Swartz doesn’t even try to keep track of all the activities it supports. While many other companies espouse these kinds of positive values, Timberland makes sure there is no mistake about its intent in order to be sure that resources its fine business model creates are shared fairly.

Fourth, the company’s business model would take a competitor many years to duplicate or exceed by any means currently available or potentially possible. In a world where competitive leads seem to be getting shorter and shorter, this sounds impossible. But the best business models have this core characteristic.

Invacare is a good example of this approach. The company started as a manufacturer of wheelchairs and expanded its business model to become the most efficient and easy-to-work-with, high-quality provider of almost everything you need when you go home from the hospital.

By combining product superiority and diversity with low costs in manufacturing and distribution through home medical equipment (HME) providers, the company’s business model could only be displaced by exceeding each element simultaneously. The company’s business model advantages have become so significant that other companies are hiring Invacare to handle their distribution. Each time that happens, the potential to overtake the Invacare business model is reduced.

To further increase its advantages, Invacare is starting to build a consumer brand image to create further preference for its offerings. Since many of these products are reimbursed by health insurance and Medicare, forms handling and interaction with health care providers are significant challenges that HME providers service well.

Having the HME provider as a customer lets Invacare build on the customer’s location advantages as well. Invacare has established a Web site to direct inquires to these stores in order to make them more successful in developing consumer business.

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