Many models replace a linear consumption process (in which products are made, used, and then disposed of) with a closed-loop, in which used products are recycled. This shift reduces overall resource costs.

A Closed-Loop Process

Some innovations succeed because they enable the sharing of costly assets—Airbnb allows homeowners to share them with travellers, and Uber shares assets with car owners. Sometimes assets may be shared across a supply chain. The sharing typically happens by means of two-sided online marketplaces that unlock value for both sides: I get money from renting my spare room, and you get a cheaper and perhaps nicer place to stay. Sharing also reduces entry barriers to many industries, because an entrant need not own the assets in question; it can merely act as an intermediary.

 Asset Sharing

Many new models offer products or services that are better tailored than the dominant models to customers’ individual and immediate needs. Companies often leverage technology to achieve this at competitive prices.

The Six Keys to Success: A More Personalized Product or Service

Definitions of the “business model” vary, but most people would agree that it describes how a company creates and captures value. The features of the model define the customer value proposition and the pricing mechanism, indicate how the company will organize itself and whom it will partner with to produce value, and specify how it will structure its supply chain. Basically, a business model is a system whose various features interact, often in complex ways, to determine the company’s success.

How Business Models Work

Some innovations are successful because a new technology improves collaboration with supply chain partners and helps allocate business risks more appropriately, making cost reductions possible.

A More Collaborative Ecosystem

Some models charge customers when they use the product or service, rather than requiring them to buy something outright. The customers benefit because they incur costs only as offerings generate value; the company benefits because the number of customers is likely to grow.

Usage-Based Pricing

The researchers looked for recurring features in the models and found six: personalization, a closed-loop process, asset sharing, usage-based pricing, a collaborative ecosystem, and an agile and adaptive organization. No model displayed all of them but having a higher number of features usually correlated with a greater chance of success at transformation. (The taxi service Uber can claim five of the six.)

The Main Recurring Features Of Transformative Companies

Innovators sometimes use technology to move away from traditional hierarchical models of decision making in order to make decisions that better reflect market needs and allow real-time adaptation to changes in those needs. The result is often greater value for the customer at less cost to the company.

A More Collaborative Ecosystem

The 6 Elements of Truly Transformative Business Models

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