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The Ultimate Competitive Advantage: Secrets of Continually Developing a More Profitable Business Model
By Donald Mitchell and Carol Coles
Entrepreneurs and business executives looking to improve their business operations will enjoy The Ultimate Competitive Advantage: Secrets of Continually Developing a More Profitable Business Model by Donald Mitchell and Carol Coles.
After studying 100 select public companies, Mitchell and Coles conclude that the key factor in improving a company's sale's growth and profitability is constantly refining and improving the company's business model.
The authors define a business model as: "...the who, what, when, where, why, and how much a company uses to provide its goods and services and receive value for its efforts."
Mitchell and Coles say the most successful entrepreneurs often made improvements to their initial business model, leading them to focus upon continual business model innovation and to constantly seek new ways of doing business.
Mitchell and Coles write: "Nothing else ... worked as well for them for improving performance. In the process, they created companies that enjoyed astonishing success for many years compared to competitors, as measured by market share, profitability, employee satisfaction, customer loyalty, recognition, and stock-price growth."
Using the radio station Clear Channel as an example, Mitchell and Coles describe the process of business model innovation:
- The radio station became more profitable by realizing advertisers are crucial radio station stakeholders and developing more advertiser-focused programming.
- Using what it learned about making its programming more desirable to advertisers, Clear Channel began acquiring other radio stations and implementing its knowledge to make the acquired stations more advertiser-friendly and, hence, profitable.
- Clear Channel focused upon building a "portfolio" of stations, designed to give advertisers maximum advertising exposure over a geographic area. Clear Channel wanted to reach listeners in a given location, regardless of the type of radio station the listener preferred.
- Clear Channel began selling bundled advertising packages which gave them a strong competitive advantage over competing radio stations, which only reached listeners interested in a particular type of music or programming.
- Clear Channel realized that bundling advertising gave a key competitive advantage over other radio stations, so it moved into billboard advertising to add a dimension to its advertising packages.
- Focusing even more upon providing advertisers a strong incentive to advertise through Clear Channel, the company began representing talent and attaching stars to advertising packages.
Continually improving its business model, Clear Channel moved from being just another radio station into becoming an advertiser-friendly media powerhouse.
Quoting Sun Tzu, Mitchell and Coles point out that "Opportunities multiply as they are seized."
How do you continually find improvements to your business model? Mitchell and Coles write: "The best way to get more innovations is to be sure that there are lots of ideas in the pipeline, and that low-risk and low-cost ideas proceed rapidly into experimentation and testing."
According to Mitchell and Coles, how a company cost-effectively accesses the best thinking of industry experts and experts outside the industry is itself an area for innovation.
As an example, Mitchell and Coles describe gold-mining company Goldcorp's innovative online program that offered geologists cash prizes for discovering better ways of finding and extracting gold from its fifty-year-old Red Lake mine, which many experts believed was tapped out.
Mitchell and Coles write: "More than 1,400 prospectors registered for the challenge. ... A year after the contest ended, the company announced that exploration based on the winning submissions had located six million additional ounces of gold reserves. ... The ultimate revenue from mining the newly found gold will exceed one billion dollars, and profits will probably be several hundred million dollars. The prizes cost only $575,000, much less than the unproductive exploratory drilling that would otherwise have occurred."
The Ultimate Competitive Advantage says Red Hat, the company selling a Linux-based operating system, is another company seeking to benefit from top-notch expertise acquired at a low-cost innovative way by relying upon open source code as the kernel of its operating system. This gives Red Hat a chance to compete with powerhouse Microsoft.
Other areas of innovation described in The Ultimate Competitive Advantage include:
- Changing pricing structure or price perceptions to increase profitability.
- Have partners and suppliers help you find ways to add desirable benefits to your company's products and services.
- Add benefits that expand a company's market share by offering benefits to your customer's customers. For example, Linear Technology, a manufacturer of semiconductor chips for wireless devices and cell phones, found that by decreasing the power drain of its chips, it could significantly extend battery life, making it the preferred chip maker for wireless devices.
-Walk in your customer's shoes to discover their true needs and wishes.
- Eliminate unnecessary costs that burden the customer. For example, drop-off dry cleaning bins eliminate the expense of a dry cleaner staying open 24 hours a day to offer service at all hours.
- Outsource certain company functions to allow time to be refocused into more profitable endeavors. Too many companies seek ways to improve things they didn't do well in the past, rather than finding more profitable future endeavors. Mitchell and Coles write: "Work on a business model that has a hundred times the potential of your current one, and even a weak beginning can turn into runaway success."
- Consider ways to customize offerings to make them more nearly match an individual customer's needs.
The Ultimate Competitive Advantage says entrepreneurs should avoid any business model which harms any stakeholders and should seek to fairly divide the benefits of business model innovation among all company stakeholders.
The Ultimate Competitive Advantage is a great addition to any entrepreneur's or executive's business library.