To Change Your Strategy, First Change How You Think
It seems that everyone these days is looking for a disruptive business model (BM) but it has to be realized that BM is only one part of the equation. Equally important is the mental model behind the BM, as well as a measurement model for both. It’s the combination of mental, business, and measurement models that facilitates real transformations to occur.
The airline industry is a cautionary tale of what happens when companies emulate new business models without bringing over an associated mental models: Southwest Airlines has been a disruptive force in the airline industry, creating an entirely new category by innovating to focus on low fares with one-class cabins, homogenous fleets, and point-to-point routes.
From the start, Southwest co-founder, Herb Kelleher, saw his competition as not just other airlines but also alternative forms of transportation like cars, buses, or trains. Therefore his mental model was not how to gain market share from other airlines, but how to create a completely new market for air travel.
This wasn’t the only difference in mental models between Southwest and other carriers. Kelleher is known for saying: “I tell my employees that we’re in the service business, and it’s incidental that we fly airplanes. Other carriers fly airplanes that carry people. Southwest serves people using airplanes”. Traditional carriers were still thinking about their business as flying planes rather than thinking about serving people, still worrying about capturing share rather than growing the market, and still measuring success based on how well they utilized planes rather than how well they served passengers.
Many companies have “platform envy” and are hence trying to emulate the network-based business models of companies like Uber, Amazon, Airbnb, and Paypal. But before you start copying their business models, let the example of Southwest be a lesson, as copying a business model without copying a mental model will lead to disappointing results. You have to change how you think before you can change what you do, and then change what you measure to close the loop.
VW is replicating Tesla’s business model but with the reverse mental model. VW thinks of itself as a car manufacturer that uses technology; Tesla, on the other hand, thinks of itself as a technology company that manufactures cars. VW would say its cars have sophisticated computers. Tesla CEO Elon Musk on the other hand has said of Model S, that it’s a very sophisticated computer on wheels.
This difference in mental models generates very different measurement models. With a manufacturer mindset, the car industry is heavily focused on measuring changes from one model year to the next. By contrast, Tesla’s technology mindset has it thinking in terms of software releases and downloads rather than model year and shipments. Musk has said, “Most cars don’t improve over time. But the Model S gets faster and better.”
There are opportunities to bring new thinking into every industry and function. For example, most retailers are merchants using technology where as Amazon is a technologist empowering merchants. Traditional retailers obsess over incremental metrics like same-store sales that are tied to business goals. By contrast, 80% of Amazon’s metrics provide feedback on how well it is helping customers achieve their goals.
The team at Actuate Business Consulting, a knowledge based management consulting firm in India, believes that copying a business model without understanding the mental model will lead to disappointing results. The digital revolution is forcing every company to move from business models focused on products and services to those that leverage networks and platforms. This shift requires dispelling myopia, embracing new organizational models, and unlearning old habits.