By Mark W. Johnson
Every successful company, whether it knows it or not, owes its success to its business model.
I explained this in an article that was published in Harvard Business Review in 2008 and, now, 10 years later, that still holds true, as more and more of the business discourse is focused on digital transformation. A digital platform, or a digital solution, may enablea new epoch of transformative growth, but when you get under a company’s hood, the engine of transformation turns out to be its business model.
In my article, I identified the four interlocking elements that, taken together, create and deliver value to both companies and its customers:
Successful business models have an exceptionally strong CVP and a stable, scalable system in which all the elements mesh together seamlessly while complementing each other. As simple as this framework may seem, its power lies in the complex interdependencies of its parts. Major changes to any one of these elements affect the others and the whole.
For an example of digitally enabled business model transformation, consider Domino’s Pizza, which has experienced a massive turnaround since 2010. As it improved its online and mobile platforms, it introduced heavily advertised features such as pizza profiles, which allowed users to order more easily, and loyalty programs, which boosted frequency of use. Domino’s transformation was enabled by its online storefront, but it worked because it successfully attracted and retained new customers while turning occasional customers into dedicated fans, at the same time that it extracted more value from each transaction.
Building its own digital platform was a game changer for Dominos, but it’s not what changed its game. It did that by strengthening its CVP (adding more in the way of both convenience and fun) and its Profit Formula (by increasing its volume and its resource velocity), and by upgrading the resources and processes that it needed to support them. The key to transformational growth is still a powerful and coherent business model.
Mark W. Johnson is a cofounder and senior partner of the strategy consulting firm Innosight.