More About Business Model Disruption

In a recent post I talked about the distinction between disrupting your operating model versus disrupting your business model. I made two claims then which I hold even more strongly now:

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. Bad actors are evicted, of course, but the value chain itself and the roles it entails abide. This is what makes economic returns both forecastable and profitable.

Changing a business model mounts a direct attack on this ecosystem. The new model is, by definition, not the old one, hence it does not incarnate the old value chain. Instead it instantiates a new one, one that has fundamental advantages that are highly compelling. Often these are achieved by marginalizing or eliminating one or more roles in the old value chain. Sometimes the change involves reimagining how value is created altogether, calling a radically different kind of ecosystem into existence, with heretofore unheard of roles. Maybe you can survive the change—but there is zero chance you can do so and maintain your current ecosystem intact.

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. Established enterprises benefit from this every single day. Business consultants who thrive on advocating embracing business model disruption are staggeringly na?ve. To be sure, the disrupters are getting huge leverage out of the new model—that is their source of strategic advantage. But there is nothing here for an established enterprise to grab hold of without sacrificing its own crown jewels.

That’s what I think. What do you think?

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Geoffrey Moore | Zone to Win Book | Geoffrey Moore Twitter | Geoffrey Moore YouTube

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