How Business Models Evolve Over Time
Businesses, like living organisms, need to adapt to changing circumstances in their environment in order to continue to grow. As with the animal kingdom, businesses that fail to adapt to changing times face extinction, not necessarily because they are making bad business decisions but rather because they are not making the best possible decisions to meet the situation, ultimately being outdone by competitors.
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How an Initial Business Model Forms
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An initial business model is usually the brainchild of a company's founder, or in rarer cases, a founding partnership. In many cases, these initial business models are based on simple top-down business leadership, a basic premise that has its roots far back in the prehistory of humanity and simple tribal social structures. These initial top-down business models are generally built on a strong singular leader and a series of lieutenants, which in the business world translates to varying degrees of management personnel.
Linear Business Model Development
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As a business grows along a linear business model, its most natural path in most situations is to simply become a larger version of its initial top-down strategy. While this can have some positive benefits, such as strong chain of command and adherence to the initial company mission statement, it also has potential negative implications relating to the amount of middle management required to oversee day-to-day operations.
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Divergent Business Model Development
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In stark contrast to the linear business model development, a divergent business model reaches a critical point where management decides that some sort of sweeping organizational change is necessary in order to preserve the overall economic well-being of the company. One prime example of this divergent method is the rapid shift of Apple from its focus on proprietary computer hardware and software to its current focus on its line of consumer gadgets. The gadgets themselves are also a good example of disruptive technology being introduced to the marketplace. In its most simple explanation, disruptive technology is any technology introduced to market that turns current sales trends on their heads. For example, introduction of the television severely slowed the sales of transistor radios and could be considered at the time to be a disruptive technology.
Earnings Impact of Well-Timed Business Model Changes
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Examining in detail the history of Apple and how its successfully identified its inability to compete with the technological innovation behind the PC hardware platform businesses can teach that even when the competition threatens to overwhelm the current business model, clever management can and does prevent potential financial disasters. To see the positive impact of a shift in business model evolution, business managers need only to check the earnings reports of Apple after releasing its iPod and other related new business model products after a shift in direction in the late 90s.
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