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Executive Interviews: Interview with Mark W Johnson on Business Model Innovation
April 2009
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By Dr. Nagendra V Chowdary
Just like the way in which
venturing into a new business model
is important, is it also not important
to bid good bye to an old business
model? What are the signals/triggers
that the companies should look at to
decide to divorce from the existing/
old business model?
Yes, but that means divestiture and
companies should be good at both
creating new business with new
business models while also “trading”
in old business models that no longer
work. Freeing up from the old will
allow for more opportuinty to create
the new. Businesses where further
investment in innovation provides
no observed return or differentiation
for an overall company where
differentiation defines the strategy;
businesses in declining markets;
business facing severe technological
disruption where the existing model
ismade all but obsolete—these are the
conditions where divestiture should
be seriously considered. Are there any illustrative examples
of companies that have successfully
abandoned their old business model
before inventing, adapting and
nurturing the new business model?
I am not sure I know of a company
that successfully abandoned before
creating the new business model.
You want to create the new in
advance of the decline of the old so
you achieve a successful transition.
Ibm has accomplished this in their
move to services. Intel succeeeded in
transitioning from Dram memory
chips to microprocessors in the
1980s. A few existing companies come out
with a steady flow of innovations. For
instance, Virgin, Google, P&G, Apple,
etc. How do you distinguish a product or process innovation from a
business model innovation?
A product or process innovation
extends or amplifies an existing
business model – it doesn’t change
how things are done on a
fundamental level. For example, P&G
products like Crest White Strips and
Swiffer are highly innovative, but
they are well within traditional
business models for the firm (CPG
and razor / blade). A business model
innovation is an entirely new way of
organizing to make money; the
recently launched Mr. Clean car
washes, for example, are a new
business model for P&G. Similarly, the iMac was a product
innovation for Apple, but the iPod
became a business model innovation
(and was ultimatelymuchmore game
changing). The combination of the
iPod and iTunes into a
comprehensive device and service
made the iPod what it is today, and
getting into music services requires a
very different business model than
simply selling hardware. You have illustrated what’s behind
two companies’—Tata Group and
Hilti—game-changing business model
innovation. Can you please share with
our readers what these two companies
did to build great models?
As described in the article Tata Motors
realized they needed not just
product innovation but business
model innovation to make the Nano
by identifying the $2500 or 1-Lakh
price point as the goal. And they
came up with this goal by defining
the real ‘job’ customers needed to get
done: to have an affordable, safer alternative
than the motor scooter to
transport Indian families. This laser
focus ensured they integrate the right
resources and processes in the right
way to achieve the needed cost structure
to supportmaking a lower priced car of this magnitude. This combined
with a different profit formula than a
traditional car constitutes a whole
new business model. For Hilti, their
success in building a new model resides
also in a focused, customer-centric
‘jobs’ approach. Hilti for years has
also tried to understand what the real
challenge is for the customer. By listening
carefully and defining the real
customer experience needed and
then defining the right offering and finally,
designing the right business
model to support the offering, Hilti
achieved success. It was achieved
through the realization that business
model innovation doesn’t mean business
model innovation for the fun of
it, but that which follows a disciplined
approach, a customer-centric
approach. Further, Hilti was willing
to have the patience to experiment
and prototype before rolling out the
new model in any real scale. Many new companies come with
innovative business models. However,
only a very few actually succeed
in the marketplace. Why is it so difficult
to carve a success out of a wellplanned
business model?
They aren’t really focused on a deep
customer problem first with a plan to
understand the total customer experience,
including experience in purchase.
Further, many companies
don’t exercise the patience to allowfor
the iteration necessary to get the ultimate
business model right. As a matter
of research, most successful business
model innovators change the
fundamental business model four
times before getting right.
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