The Big Shift in Business Models

 As the CMO’s role evolves, it will require a wider understanding of shifting business models and customer preferences.  We asked John Hagel, co-chairman for Deloitte’s Center for the Edge, to give us an update.

In the Big Shift, we are all experiencing mounting performance pressure. Our response to that pressure so far has been failing, as revealed by our analysis of the collapse in return on assets for all public companies in the US since 1965. If we are going to turn that pressure into opportunity, we need to re-think everything, including the business models that have driven success in the past.

So, what is a business model? Everyone has their own definition, so let me offer mine. Business models focus on the specific form of value delivered to customers and the economics (revenue, expenses and assets) required to deliver that value to the marketplace so that customers feel they are paying a fair price and the owner of the business earns a decent return. It’s ultimately all about money. How much are customers willing to pay for value received and how much does the business have to spend/invest in order to deliver that value?

Our ROA analysis suggests that traditional business models, the ones that created so much value for the enterprise in the early to mid-20th century, are broken. So, what are the options? Are there new business models that can turn the pressure into profit?

As an optimist, I believe that the same forces that are generating mounting performance pressure are also providing the foundation for more attractive, but very different, business models. These new business models can create unparalleled value for customers and for the firm. But to harness these business models we need to step back and question some basic assumptions about the economics of the businesses we are in.

 I see business models evolving on three fronts: payment, data and participants.

Payment

This dimension focuses on what we are asking customers to pay for. It is evolving both because customers are becoming more powerful and because digital technologies are making the invisible visible, creating new pricing possibilities that would have been unimaginable just a decade or two ago.

 The traditional business model involved payment for a product or service upfront, regardless of whether or not it was ever used. Customers are less and less willing to tolerate this form of payment and are increasingly expecting to pay for actual usage – look at everything from software as a service to automobiles for early examples of this. Of course, without the technology to monitor usage, these kinds of pricing options would be unthinkable.

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