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Seizing the White Space

Seizing the White Space

Mark W. Johnson
2010
T3 208 pages ยท about 3h 28m to read OL15517824Wgoodreads

Business-model innovation as a discipline, with a profit-formula framework.

Summary

Mark Johnson co-founded Innosight with Clayton Christensen and wrote this on business model innovation. The white space of the title is the range of opportunities a company cannot address with its current business model, which he distinguishes from opportunities requiring new products or new markets alone.

His framework has four elements. The customer value proposition specifies the job a customer needs done and how the offering does it. The profit formula specifies the revenue model, cost structure, margin model and resource velocity required to deliver that proposition profitably. Key resources are the people, technology, facilities and brand needed. Key processes are the recurring ways of working, including metrics, norms and rules. Johnson argues that these four interlock, that changing one requires changing the others, and that the profit formula is where most incumbents fail because their existing cost structure and margin expectations cannot accommodate a different model.

He treats the jobs to be done concept as the entry point, and argues that a company should start from an unsatisfied job rather than from its own capabilities. The prescription for incumbents is to build the new model in a separate organisational unit with its own metrics, because the existing organisation's processes and profit expectations will otherwise kill it. The cases include Hilti's shift to tool leasing, Dow Corning's Xiameter low-service channel, Tata's Nano and several others. The framework is clear and usable; the evidence is case-based and several of the examples have since performed less well than the book implies.

Key takeaways 7

  1. A business model consists of a customer value proposition, a profit formula, key resources and key processes, and the four must fit together.
  2. The profit formula is where incumbents fail, because their existing cost structure and margin expectations cannot accommodate a different model.
  3. Business model innovation starts from an unsatisfied customer job rather than from the company's existing capabilities.
  4. Resource velocity, meaning how fast assets turn over, is part of the profit formula and is frequently the element that must change.
  5. A new business model requires a separate organisational unit with its own metrics, because existing processes will suppress it.
  6. Johnson argues that most companies attempt business model innovation by adding products to an unchanged model, which does not work.
  7. Rules, norms and metrics become the hardest part of a business model to change because nobody states them explicitly.

Who should read it

Executives in established companies attempting to enter markets their current economics cannot serve, who need a structured way to specify what must change.

Where it sits in the reference 2

Business models
Business themes

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