Continuing business model innovation is critical to the small firm that wants to be more profitable and to gain lots of market share.
How do you gain major strategic advantages over competitors? It's easy: Build a better business model and then expand on your initial successes by providing more of what customers cannot get elsewhere.
When American Woodmark, a low market share maker of wooden cabinets, first scouted out ways to improve its competitive position, the firm had no strengths to build on. It did notice, however, that customers were unhappy waiting weeks or months for new kitchen cabinets. With the advent of discount home stores, the firm saw an opportunity to compete based on low prices and fast delivery.
By reorganizing its purchasing and manufacturing processes, the company was able to gain advantages of low-cost manufacturing while still speeding products to stores.
American Woodmark's success with fast delivery to home improvement outlets propelled the company forward for many years. The company realized though that it was losing its strategic advantage when competitors began to match and in some cases exceed its performance. That challenge was a wake-up call that an improved business model was again needed.
The next vision was to become a fully-integrated just-in-time manufacturer who could create a broader choice of brands, lower costs, and improve quality while still providing fast delivery and low prices. The core building process would occur around a team-based work cell. To implement this change required changing the company's culture, helping everyone learn new ways of working, and replacing almost every procurement and manufacturing process the company employed.
With this new approach, the company could begin to offer more product, price and quality alternatives in home centers without increasing costs or hurting delivery. As a result, more fashion will be able to appear in America's kitchen cabinets.
Building on these strengths, the company was also able to expand its offerings to include vanities.
Despite this success, the firm only provides about five percent of the market for the products it produces. Building on its business model with more innovations will undoubtedly be important again to its future success.
What are the lessons of this example?
1. Profits will expand faster than market share with improved business models.
2. Without continuing business model innovations, competitors will eventually catch up and succeed in emulating the improved business model.
3. Providing new breakthroughs to customers and end users of the sort they have longest been denied will be a useful way to improve growth and profits.
4. It is better to innovate with a new business model before anyone else matches you.
Are you ready?
Copyright 2008 Donald W. Mitchell, All Rights Reserved
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