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“Re-inventing business” is based on large-scale research by Volberda and his colleagues with hundreds of managers in small and middle-sized companies, and on a dozen or so in-depth case studies for companies such as TomTom and Roche.
The research shows that companies typically handle innovation in one of three ways, when it comes to their business model:
About a third of the companies research does little or nothing to keep their business model up to date. Others adapt their model to fit new or changing circumstances. Only a minority of companies is truly into radical change and a complete company makeover.
The best results, research shows, are for companies who adopt a double strategy: they adapt their existing strategy and, at the same time, are actively looking out for new models. For example, an existing retailer who also develops an online shop.
Volberda identified four signs that should alert managers that it’s time to adapt their business model. Those four signs are not financial, but rather:
Completely changing a business model is not always the best strategy, Volberda warns, because it calls for determination and patience, and because it often has significant financial implications. Investments are seldomly recovered short term, and sometimes even: never. And a radical change isn’t always necessary. In the case of Nestlé, for instance, they kept Nespresso as an autonomous division within the group for nearly 20 years to prevent the brand from being crowded out by existing business models in the company.
Volberda concludes that smaller companies should regularly check their business models to ensure it’s still going strong and they are still doing the right things. But radical or continuous change has its dangers. The financial and organisatorial implications are often simply too big to digest.
Prof. Dr. Henk Volberda (°1964) is professor of Strategic Management and Business Policy at the Rotterdam School of Management, Erasmus University. Previously, he was also associated with Wharton Business School and Duke University, a.o.