What is the most common unprofitable business model
Corporate developmentThe shelf life of business models is shortened
In a global study, the management consultancy Bain & Company examined the durability of business models and developed growth strategies when a company's previous recipe for success reaches its limits.
Have in numerous industries Speed of innovation and competitive situation has increased so dramatically that companies are forced to continuously review, readjust and, if necessary, redefine their core business areas. A surprisingly large number of companies will have to deal with such challenges in the coming decade.
Two out of three companies are threatened in their existence within the next ten years. Analyzes of the Fortune 500 companies show that between 1995 and 2004, 57 percent of the companies examined had to undergo significant changes in their core business - whether through portfolio restructuring or sales. This number is expected to continue to grow in the current decade.
Successful companies begin the search for a new, profitable growth path by defining their own status quo. It is important to be clear about what stage of the growth cycle you are in:
- Realizing all potential in the core business,
- gentle expansion along the core or
- Risk of expiry of the previous growth formula.
Dr. Rudolf Pritzl, partner at Bain & Company and head of the study, summarizes:
"Many companies would not have to rush into new business areas or ideas if they had consistently exhausted the first two stages of a classic growth cycle."
Once the company has reached its growth limits, the successful realignment of the core business is based on so-called in nine out of ten cases Hidden assets. These are potentials or talents that already exist in the company, but have so far been underestimated or only partially used. According to the Bain study, the need to redefine the core business has three causes:
- the profit pool changes,
- the competition attacks its own core business model directly or
- the previous growth formula of a company dries up.
If the profit pool changes in an industry, the company initially loses market share on the margins of its business areas and - without countermeasures - then the original profitability of its core business, explains Dr. Pritzl. The first quartz watch was developed in Switzerland in 1967, but the economic success of industrial mass production was mainly recorded by Asian companies, which in the 80s drove the Swiss watch industry to the brink of ruin.
"The most common cause of attacks on the original core business are competitors with a new, improved business model",
so Pritzl continues. Compaq, for example, felt this when the computer manufacturer Dell rose to become the second largest PC manufacturer in the world with its new, individualized direct sales channel. A company's growth formula often dries up unprofitable expansion efforts or saturated markets. This can currently be observed in the German mobile communications market, which after a decade of double-digit growth is now even showing declines in sales.
Five questions help to systematically uncover the hidden talents in the company:
- In which area did the company ever have a market-leading position?
- What strengths did you owe this to?
- To what extent are these virtues relevant to customers?
- Can they withstand growing competition?
- Is the organization able to make a drastic change?
According to Rudolf Pritzl, the answers have to be worked out systematically. They result from a mix of objective and researchable criteria, such as cost-benefit analyzes, market assessments and customer surveys.
[po; Source: Bain & Company; Image: Fotolia.com]
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