geoff colvin
Your business model is obsolete
February 25, 2013: 5:00 AM ETAssume this: Everything you think you know about staying competitive doesn't work anymore.
By Geoff Colvin, senior editor-at-large
FORTUNE -- When Carlos Ghosn announced last year that Nissan, which he runs, will start making ultracheap cars for emerging markets under the revived Datsun brand -- and will make a profit on them -- the mainstream response was contemptuous. "A big mistake," a Toyota (TM) executive told the Wall Street Journal; "another blunder," said a Japanese professor. Make a profit on a $3,000 vehicle? Everyone knows the profits are in pickup trucks and luxury cars.
No one can predict if Ghosn's new vision will work. His previous rethinking of the business, the all-electric Leaf, hasn't amounted to much so far. But applaud Ghosn for this: He is trying to develop the most crucial competency for every company today, innovating the business model.
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"Innovation" is the hottest word in business, but most of the discussion centers on products and services. The more profound challenge for most companies now is imagining a new business model, a new answer to the fundamental question, How do we make money?
You will face this challenge. For convenience, just assume the following: Your business model doesn't work anymore. That blunt claim won't be far wrong. Even if the model has worked for decades, even if it's working okay right now, odds are that it soon won't be.
Several forces are combining to shred business models economywide. The most important is information technology, the immediate effect of which is to revolutionize every information-based business. A second-order effect is that IT makes most businesses easier and faster to start or change. It also multiplies the speed and power of other trends, such as the rise of emerging markets, the growing economic role of governments, and changing consumer tastes.
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Result: Not since the Industrial Revolution have we seen a longer or broader list of companies whose business models are suddenly obsolete. Start with virtually all companies in the media business, or any company that relies on owning copyrights or selling advertising. Then look at how major retailers -- Best Buy (BBY), Target (TGT), Wal-Mart (WMT) -- are rethinking their models in response to showrooming (browsing in-store and buying online), eBay (EBAY), and Amazon (AMZN). The whole education industry needs a new model. So do banking, the post office, computer makers, Big Pharma, music, and the telecoms. They all need new business models, and almost all are having a hard time finding them.
That's because business-model innovation is a competency that doesn't exist in most companies. It never had to. For example, the newspaper business model worked great for 200 years. Twenty generations of management didn't have to change it. Why should we expect that today's generation would know how it's done?
It's the same in most companies. Even if your model isn't 200 years old, probably no one has had to change it in a while.
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If this were a once-a-generation problem, you could hire some smart consultants and get it over with. But in today's environment, your new model will not last nearly as long as your old one did. The new normal is Amazon. It launched with an innovative model as an online bookstore. Then it also became a marketplace for other booksellers. It started offering other products (clothing, computers) requiring far different distribution infrastructures; began selling digital books, music, TV shows, and movies online; created its own branded devices (Kindle and Kindle Fire); added web services for companies; and is now investing hundreds of millions of dollars in original programming and in warehouses for same-day delivery of groceries and other merchandise. We can't count how many business models Amazon has used in its 18 years of existence. The model is changing continually.
Peter Drucker noted that "sloughing off yesterday" is almost impossibly difficult, yet every organization must get used to doing it regularly. The largest obstacles will be weak imaginations, threatened interests, and culture. Business-model innovation is the new essential competency. It's hard. It will separate tomorrow's winners from the losers.
This story is from the February 25, 2013 issue of Fortune.
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How chewy cookies altered P&G's destiny
If not for the Duncan Hines packaged chocolate chip cookie, A.G. Lafley's life story, the wealth of P&G shareholders, and even our understanding of corporate strategy might have been very different.
Feb 13, 2013 9:34 AM ET -
Comcast CEO: What we learned from Apple
Comcast CEO Brian Roberts applies the Apple model to his business empire: Keep it simple, and reinvent constantly.
By Geoff Colvin, senior editor-at-large
FORTUNE -- America's biggest media company isn't what you think. Comcast (CMCSA) takes in more revenue and commands a higher market value than Disney (DIS), News Corp. (NWSA), Time Warner (TWX), or any other competitor. Even CEO Brian Roberts marvels at how the company has risen. Founded by MORE
Dec 13, 2012 5:00 AM ETPosted in: Brian Roberts, cable, CEOs, Comcast, geoff colvin, Internet Business Models, media, telephony -
The art of the self-managing team
How companies can weather changes in their starting lineups.
By Geoff Colvin, senior editor-at-large
FORTUNE -- Talk of a dynasty swept the baseball world recently when the San Francisco Giants won their second World Series in three years. But hold on -- only one of this year's starting players, catcher Buster Posey, was a starter on the team that won two years ago. How can any team be a dynasty when MORE
Dec 5, 2012 5:00 AM ET -
Wells Fargo CEO: Why Americans are saving so much
CEO John Stumpf discusses how his bank has seen record savings deposit growth, as more Americans look for safe places to put their cash.
By Geoff Colvin, senior editor-at-large
FORTUNE -- Can you name America's largest bank? No, it's not J.P. Morgan Chase (JPM) or Bank of America (BAC). It is, surprisingly, Wells Fargo (WFC), which has the highest market cap -- recently $170 billion. (That has to make its largest MORE
Nov 26, 2012 5:00 AM ETPosted in: Banking, Banks, Economic recovery, Economy, geoff colvin, John Stumpf, mortgage crisis, Wells Fargo -
How to fix a great American business
Medtronic CEO Omar Ishrak has made Wall Street happy by creating good old-fashioned value for his products.
By Geoff Colvin, senior editor-at-large
FORTUNE -- It's a ticklish task: arriving as an outsider CEO at a great organization that's underperforming. That's the job Omar Ishrak faced in June 2011 when he left General Electric's health care business, which he ran, to succeed William Hawkins as chief of Medtronic, the world's largest medical MORE
Nov 5, 2012 5:00 AM ET -
The challenge for the new Congress: Save our skin
As the year ends, so does Capitol Hill's most partisan session ever. Who's to say the next one will be any better?
By Geoff Colvin, senior editor-at-large
As the 112th Congress blessedly nears its end, we can say exactly one thing in its favor: It showed us the problem that urgently needs solving. When the members arrived in Washington in January 2011, they knew they had drawn the short straw in MORE
Nov 2, 2012 5:00 AM ETPosted in: deficit, fiscal cliff, geoff colvin, Medicare, partisanship, tax reform, United States Congress -
The economy according to Union Pacific
CEO Jack Koraleski's take on the nation's business activity? 'Stronger than a year ago.'
By Geoff Colvin, senior editor-at-large
FORTUNE -- Can a 150-year-old company be part of the modern economy? Apparently so. Union Pacific (UNP), America's largest railroad, touches all parts of the economy, even globally -- 30% to 40% of its shipments originate or terminate outside the U.S. -- and it's doing better than many younger firms: Its stock MORE
Oct 18, 2012 5:00 AM ET -
There's no quit in Michael Porter
He has influenced more executives - and more nations - than any other business professor on earth. Now, at 65, he and an all-star team aim to rescue the U.S. economy.
By Geoff Colvin, senior editor-at-large
FORTUNE -- Right this minute, in offices around the world, business-people are holding high-level meetings to talk about strategy. They're trying to figure out if they can really achieve the lowest costs, or if they MORE
Oct 15, 2012 5:00 AM ET -
Kayak takes on the big dogs
Founder Paul English battles the likes of Expedia and Priceline by recruiting great talent and making the customer king.
By Geoff Colvin, senior editor-at-large
FORTUNE -- A successful July IPO drew attention to the surprising story of Kayak (KYAK), an online travel site that's succeeding where you'd least expect it. Launched in 2005, it faced established competitors like Expedia (EXPE), Orbitz (OWW), Travelocity, and Priceline (PCLN), and Google (GOOG) and Microsoft MORE
Sep 27, 2012 5:00 AM ET
Longtime Fortune editor and columnist Geoff Colvin is one of America's sharpest and most respected commentators on leadership, globalization, wealth creation, and management. As former anchor of Wall Street Week with Fortune on PBS, he spoke each week to the largest audience of any business television program in America. His national bestseller Talent Is Overrated: What Really Separates World-Class Performers From Everybody Else, won the Harold Longman Award as the best business book of 2009.
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Co-CEO Walter Robb says changes in the way we eat is broadening Whole Foods customer base. Play -
Whole Foods Co-CEO Walter Robb says the secret behind the brands returns are quality and authenticity. Play -
Whole Foods Co-CEO Walter Robb says companies that empower their employees to innovate move forward faster. Play -
Co-CEO Walter Robb says that Whole Foods' policy of limiting executive salaries to no more than 19-times the average employee, instills 'good faith' in the company. Play
