Strategy

The Transformative Business Model

How to tell if you have one

by

and

Christoph Loch

by

and

Christoph Loch

From the Magazine (October 2016) · Long read

Leandro Castelao

Summary.

A business model that can link a new technology to an emerging market need is the key to industry transformation. When Apple coupled the iPod with iTunes, it revolutionized the audio devices market. But most attempts to introduce a new model fail. The authors did an in-depth analysis of 40 companies that had launched new business models in a variety of industries, and here they present the key takeaways from their research.

They looked for recurring features in the models and found six: personalization, a closed-loop process, asset sharing, usage-based pricing, a collaborative ecosystem, and an agile and adaptive organization. No model displayed all of them, but having a higher number of features usually correlated with a greater chance of success at transformation. (The taxi service Uber can claim five of the six.)

Companies that are thinking about changing their business model or entering an industry with a new model can rate themselves on the six features to assess the likelihood that they’ll be transformative.

Idea in Brief

The Question

No new technology can transform an industry unless a business model can link it to an emerging market need. How can you tell whether a model will succeed in doing that?

The Research

The authors undertook an in-depth analysis of 40 companies that launched new business models in a variety of industries. Some had transformed their industries; others looked promising but ultimately didn’t succeed.

The Findings

Transformative business models tend to include three or more of these features: (1) personalization, (2) a closed-loop process, (3) asset sharing, (4) usage-based pricing, (5) a collaborative ecosystem, and (6) an agile and adaptive organization.

We usually associate an industry’s transformation with the adoption of a new technology. But although new technologies are often major factors, they have never transformed an industry on their own. What does achieve such a transformation is a business model that can link a new technology to an emerging market need.

A version of this article appeared in the October 2016 issue (pp.90–98) of Harvard Business Review.

Stelios Kavadias is the Margaret Thatcher Professor of Enterprise Studies in Innovation and Growth at the University of Cambridge’s Judge Business School and the director of its Entrepreneurship Centre.
Kostas Ladas is an associate at the Entrepreneurship Centre at Cambridge Judge Business School.
CL

Christoph Loch is a professor at and the former director (dean) of the University of Cambridge’s Judge Business School. He is also a visiting professor at PHBS Business School, Shenzhen, China

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The Transformative Business Model

Idea in Brief

The Question

The Research

The Findings

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