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QBS On Strategy, Business Models and Innovations Published: Sunday, March 1, 2009 By: Dr. Manuel Ángel (Coco) Morales

To create and to cultivate a value-generating organization, leaders need a soundable external perspective on the world, the market and its developments.  Given the turbulence and uncertainty of these times, it is becoming increasingly difficult for leaders to look inside their organization and develop strategies to sustain success…

Our technical advice is that with the high rate of market or external change, organizations must change as fast or faster than their environment, markets, or contexts.  Strategies themselves have shorter and shorter life:  they rapidly become obsolete or copied in a changing world, particularly when drastic disruptions occur.  Unparallel changes call for unparallel responses.  Part of the explanation for short life of strategies is the intense competition plus the difficult economic realities, quickly reducing any competitive advantage.

One point to remember is that technology is creating a kind of economic dynamic of stressing and lowering transactional costs, and any efficiencies gain accruing to the organization are quickly competed away, so they have to be careful with this tricky route.  So organizations must force and manage change in their businesses, becoming proactive and intellectual leaders of their industry or work domain.

Strategic management is about deploying a strong external perspective.  One key requirement is to recognize INFLECTION POINTS at which mayor changes occur due to new knowledge, economic conditions or changes in customer value or preferences.  These require the organization to make fundamental strategic changes, yet traditional leaders are far removed from the coalface being late at noticing new realities and taking external action.

Rather than waiting until the performance of the organization declines, strategic management recognizes when external change is called for.   The recipe: CREATE NEW PRODUCTS, SERVICES AND PROCESSES before the competition.  In addition it is important to be vigilant to new entrants, which usually come from outside the industry, regardless of their knowledge and experience capability.

Strategic leaders should challenge the status quo, challenge the conventional knowledge base, challenge the boundaries and the positions within the market, as well as consider HOW TO INVENT NEW COMPETITIVE SPACES.  They should challenge industry beliefs or norms, tap into the creative aspirations of their intellectual capital, and encourage ongoing questioning, debates and dialogues about the organization and its business.

Strategic leaders must prevent cultural inertia, minimize resistance to change, stimulate research, learning and experimentation, and develop new approaches, frameworks and competencies.

So this is how we come to a BUSINESS MODEL as a method by which the organization generates revenue and profit.  It addresses the question how the business makes, in a sustained manner, money.  Such a model specifies what activities the organization undertakes, where is positioned in the value chain, and how it generates revenue.  The business model is related to the organization’s strategic planning venture.

Strategic leaders should continually challenge and test their business model.  Innovation in the business model requires that they understand the current model, and the deconstruct it, understanding their underlying assumptions and analyzing which are its vulnerabilities in its relation with the market or the environment.

The historical model (almost 100 years old) for addressing the challenge of financial returns has been to reduce all sorts of costs and move slowly into the future.  This is a muddle through-incremental model.  The new growth model instead places the emphasis on developing novel business model and strategic action, which requires fostering innovation and managing change and uncertainty rather than equilibrium.  This is a revolutionary model.

The business model is the entire system for delivering value to customers and earning a profit on that activity.  It is as simple and complex as that!

 


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