Journal of Change Management, Vol. 4, No.

3, 259 276, September 2004

The wheel of business model reinvention: how to reshape your business model to leapfrog competitors
SVEN C. VOELPEL , MARIUS LEIBOLD & EDEN B. TEKIE

Harvard University, USA,

University of Stellenbosch, South Africa

(Received 9 October 2003; revised 1 February 2004) ABSTRACT In todays rapidly changing business landscape, new sources of sustainable competitive advantage can often only be attained from business model reinvention that is based on disruptive innovation and not on incremental change or continuous improvement. Extant literature indicates that business models and their reinvention have recently been the focus of scholarly investigations in the eld of strategic management, especially focusing on the search for new bases of building strategic competitive advantage, not only to outperform competitors but to especially leapfrog them into new areas of competitive advantage. While the available results indicate that progress is made on clarifying the nature and key dimensions of business models, relatively little guidance of how to reshape business models and its organizational tness dimensions have emerged. This article presents a systemic framework for business model reinvention, illustrates its key dimensions, and proposes a systemic operationalization process. Moreover, it provides a tool that helps organizations to evaluate both existing and proposed new business models. KEY WORDS : New business models, disruptive innovation, continuous improvement, sustainable competitive advantage

Introduction: relevance of business model thinking and change The extant literature in strategic management illustrates the increasing need of enterprises to achieve sustainable competitive advantage in the increasingly turbulent and unpredictable business landscapes of the 21st century. In addition, there are many analyses and discussions of how technology and the new economy have changed traditional business models in many industries, ranging from hi-tech to commodity industries (e.g. Tapscott, 1997; Kelly, 1998; Prahalad and Oosterveld, 1999; Evans and Wurster, 2000). However, there is little
Correspondence Address: Sven C. Voelpel, Harvard University, Harvard Business School, Soldiers Field, Boston, MA 02163, USA. Email: svoelpel@fas.harvard.edu 1469-7017 Print/1479-1811 Online/04/03025918 # 2004 Taylor & Francis Ltd DOI: 10.1080/1469701042000212669

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consensus of what new business models really mean, and especially how they are created, evaluated and sustained. It is evidently important to develop frameworks and guidelines in this regard to assist organizations in utilizing resources effectively for change and survival. Every organization has a business model, simply described as its way of doing business or its business concept (Hamel, 2000) so that it can sustain itself. The rapid-changing business environment of today has brought about numerous new business models in addition to the reinvention of existing ones. This creation and reinvention of new business models, and not just continuous improvement, are regarded as providing the disruptive competitive advantages necessary to survive and thrive in an environment where the rules of the game change quickly in almost all companies and industries. The challenge for companies is to develop frameworks to examine how new business models and new industries emerge, and therefore to enable managers to develop new business models and their accompanying organizational change and tness requirements. This article, rst, compares the various views of the concept of business models and identies their generic components; second, indicates the relevance of reinvented business models for competitive advantage and outlines the particular challenges some companies face in developing new business models; third, reviews eclectic approaches to developing new business models and provides a systemic framework for business model reinvention; and nally, proposes a tool for operationalizing and evaluating new business models. Generic denition of a business model and its key dimensions To understand the concept of new business models, it is important to comprehend exactly what a business model means and what its key features are. There are several comprehensive case examples and analyses of how traditional business models have changed, or need to be changed, due to changes in technology and globalization. However, despite a widespread intuitive understanding, an analysis by Schmid et al. (2001) reveals a confusing and incomplete picture of the dimensions, perspectives and core issues of business models. The results disclose that there are hardly any explicit references to business models, that an understanding of business models often remains unspecic and implicit and that consensus on the key elements of business models is lacking. It is evident that should a company have a comprehensive and cohesive understanding of a business model and its identied key elements, it can be a source of competitive advantage and assist managers in reinventing their company and/or industry. Timmers (1998) provides a denition of a business model as being: . an architecture for the product, service and information ows, including a description of the various business actors and their roles; . a description of the potential benets for the various business actors; and . a description of the sources of revenues. On the basis of a general understanding of what business models seem to be, what are the various components, dimensions, and frameworks of business models?

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Review and comparison of approaches to the concept of a business model An extant literature review by the authors identied a variety of business model denitions and their components. These denitions have been analysed and compared to arrive at the generic elements of business models. . Schmid et al. (2001) distinguish six generic elements of a business model: mission, structure, processes, revenues, legal issues and technology. When designing a business model and applying the framework, Schmid et al. emphasize that all six generic elements and the dynamics of the respective elements have to be considered. . According to Viscio and Paternack (1996), a rms business model comprises ve elements: global core (with ve key missions: identity, strategic leadership, capabilities, control mission and capital mission), business units, services, governance and linkages. This model denes the elements individually as well as collectively, indicating that the model must generate a system value in addition to the value from the individual parts. This system value establishes what should be inside and what should be outside the organization. It additionally assists in setting the standards for performance expectations from each of the elements. . Hamel (2000) states that the elements of a business concept and a business model are the same; a business model is simply a business concept that has been put into practice. A business concept comprises four major components: core strategy, strategic resources, customer interface and value network. Intermediating between the components are three elements (customer benets, conguration of competencies and company boundaries) that link and relate the major components. As evident from the above descriptions, there are overlapping and common elements among the components and dimensions of business models suggested by the various authors. The next section extracts the central theme from these denitions and proposes an integrated framework of a business model. Towards an integration of (generic) elements and denition of a business model Business models consist of many dimensions and there does not seem to be a single set of dimensions of a business model that applies to all companies and to all industries (Schmid et al., 2001). As indicated above, it seems to be generally accepted that the model should enable the creation of value for customers and the various participants in its value chain. Moreover, it must generate a total system value that is higher than the sum total value from its individual parts. From the above analysis of various generic elements of a business model, the term business model can be dened as (see gure 1): The particular business concept (or way of doing business) as reected by the businesss core value proposition(s) for customers; its congurated value network(s) to provide that value, consisting of own strategic capabilities as well as

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Figure 1. Key elements of a business model

other (e.g. outsourced/allianced) value networks and capabilities; and its leadership and governance enabling capabilities to continually sustain and reinvent itself to satisfy the multiple objectives of its various stakeholders (including shareholders). From this denition, the generic elements in business models are dened as: . new customer value proposition (which could also involve new customer base); . a value network (re)conguration for that value creation; and . leadership capabilities that ensure the satisfaction of relevant stakeholders. Organizations should be able to continuously revise their business models to ensure that their strategies are viable in an ever-changing competitive environment. Mainly driven by advanced technology, knowledge-networking and globalization, the resulting socio-techno-economic environment is one that challenges the essence of relatively stable business models that rms use to achieve their particular goals. The components of the business model are useful bases for developing evaluation dimensions and tools for new business models. These are illustrated as a systemic model (or framework) in the later section of this article. Relevance of business model reinvention for organizations Although the concept of business model is not a recent phenomenon, it is useful to recapitulate its relevance for organizations. Where the industrial eras environment was relatively stable and simple, todays companies are operating in a landscape of continuous and complex change. Hamel (2000) has termed it the age of revolutionwhere change is no longer additive, but discontinuous, abrupt, seditious. Prahalad and Oosterveld (1999) used the term competitive

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discontinuity and dened discontinuity as an abrupt change. These discontinuities have created a competitive landscape with substantial uncertainty and unpredictability. The major driving forces behind the rapid and unpredictable change in the business environment include deregulation and privatization, technological changes and globalization. Deregulation and privatization have allowed companies and industries to exploit global opportunities by collaborating with companies outside their home country to gain access to capital, technology, skills, innovative capabilities and other resources in industries that have been mostly local (Prahalad and Oosterveld, 1999). Technological advancements, in turn, have had, and continue to have, signicant improvements in the areas of communication and information technology, resulting in increased connectivity, facilitated transmission of large amounts of information and low cost in processing information. This has prompted a wide array of options for businesses in terms of how, where and when to nd and seize opportunities. As a result, technological innovations create new market opportunities (Viscio and Paternack, 1996). The effect of globalization has been in creating a mindset of the world as a single market. This has created substantial uncertainty in the competitive landscape by bringing about fundamental changes in the traditional boundaries of nations, industries and companies. And such changes continue to challenge the traditional rules of competition (Hitt et al., 2001). These driving forces have removed the certainty and stability in the economic environment from almost every industry. And consequently, the competitive landscape has undergone a fundamental change to produce a different type of marketplace and society often termed the new economy, knowledge economy, or networked economy (Tapscott, 1997). The discontinuities that differentiate the new economy from the old are numerous but to mention the prominent ones, these include: digitization of information (Viscio and Paternack, 1996; Tapscott, 1997); the virtual space where economic transactions are increasingly taking place (Kelly, 1998); relying more on knowledge and intellectual (intangible) assets (Sveiby, 1997; Davenport and Voelpel, 2001); industry convergence (Tapscott, 1997; Prahalad and Oosterveld, 1999); innovation as a main source of value (Hamel, 1998; Senge and Carstedt, 2001); employee mobility as accelerating and increasing knowledge, innovation and value creation (Voelpel, 2002, 2003); networking (Ashkenas, 1999); prosumerism (Gibbert et al., 2001); deconstruction and reformulation of traditional business structures of organizations and value chains (Evans and Wurster, 2000); and disintermediation and reintermediation (Kelly, 1998; Prahalad and Oosterveld, 1999; Evans and Wurster, 2000). These major shifts in the business environment have changed many traditional industry structures and sources of competitive advantage. These changes suggest that organizations have to adjust/transform their business models in order to sustain themselves in the new business landscape. From the above analysis of the driving forces and their resulting discontinuities it is evident that an organization, as part of a business system that operates across a variety of industries (Moore, 1993), should have a systemic perspective that is not restricted by traditional boundaries. This understanding implies

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organizations need to shift from traditional (existing industry focused, mechanistic thinking) approaches of strategic management to ones that are systemic (holistic, new value conguration focused) in nature. A company should, however, be oriented and capable of reinventing its strategy not when it is in the midst of a crisis, but continuously (Hamel, 2000). After all, no matter how successful and superior a companys current business model seems to be, it will be imitated, diluted and commoditized by others and challenged by new business models (Tucker, 2001). Additionally, major and unpredictable changes in the business environment, the increasing importance placed on innovation and knowledge as value-creating attributes, and the accelerating pace of the business environment create a challenge in sustaining the efcacy of existing business models (Viscio and Paternack, 1996; Hamel, 2000; Tucker, 2001). The signicance of changing the rules of the game in todays business landscape include being persistently innovative and imaginative in differentiating own and industry strategy/business model (Hamel, 1998, 2000; Govindarajan and Gupta, 2001; Youngblood, 2000); reinventing existing business models or creating new ones instead of merely improving or optimizing current business models (Beinhocker, 1997; Prahalad and Oosterveld, 1999; Fiorina, 2000); realizing the competitive advantage found in proactively restructuring the industrys environment through a rst-mover mindset (Kelly, 1998; Hitt et al., 2001) or at times the advantages of being a second mover in learning from prime movers early mistakes or becoming adept emulators (Bradley and Nolan, 1998; Bartlett and Ghoshal, 2000; Boulding and Christen, 2001); and experimenting with a portfolio of strategies, rather than having a singular focused strategy, to provide the exibility needed in the uncertain and unpredictable environment (Beinhocker, 1997, 1999). Possible challenges for industry incumbents Some large organizations resist disruptive change partly because the kind of change being required is radical and challenging. That is, what is needed is no longer a matter of incremental change, but realizing a discontinuous transformation in both organization and industry (Pascale and Millemann, 1997). Some of the difculties incumbents face include when a successful business encourages top management to focus organizational energies and resources on rening and extending the existing business model. Entrenched managerial routines and commitment to the existing business model often brings failure to the company when discontinuities occur in the business environment (Sull, 1999; Youngblood, 2000). Additionally, incumbents could easily become inept because of their reluctance to deconstruct their established business model (e.g. sales and distribution systems and long-term relationships with suppliers and customers), and this hesitation becomes the greatest competitive advantage for new competitors. For this reason, companies have to pre-emptively cannibalize their own businesses to remain competitive (Evans and Wurster, 2000). Allowing creative destruction (Schumpeter, 1943) entails the paradox, and a challenge for managers, of perfecting (improving, making efcient) products and services only to destroy

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(cannibalize, reinvent) them (Harari, 1996). Nevertheless, it is important to realize that if organizations are to defend themselves against competitors, they should play the role of creator and destroyer of their own business models. Another challenge is unlearning the past. Corporate managers may have excess of rationality (Useem, 1999) or widely established principles of good management (Christensen, 1997) that persuade them to disregard important new technologies and markets. And as a result changes in organizations often do not occur unless they are on the verge of collapsing, or when facing major disruptions. For organizations to learn how to survive and compete in the competitive landscape, they should signicantly unlearn their traditional strategy mindset, way of thinking and doing, and business models (Hamel, 2000). In general, traditional strategic management approaches involve a competitive orientation with companies mainly attempting to get better (or tter) to achieve unique positions in the existing industry. This is rooted in mechanistic, industry boundary-oriented thinking with companies striving to continuously improve themselves (running harder and harder). In todays more chaotic environment, organizations should rather strive to systematically reinvent themselves (run differently). In cases where there is reluctance and hesitation in organizations to let go of deep-rooted ways of doing their business, these rms tend to hang on to established patterns of thinking and working despite dramatic environmental changes. An example of how discontinuity in the environment can lead a company that is rooted in a traditional business model thinking to its downfall is suitably portrayed by Encyclopedia Britannica.

Encyclopedia Britannica Since 1768, Encyclopedia Britannica has evolved through 15 editions and to this day it is regarded as the worlds most comprehensive and authoritative encyclopedia. In the 1970s, Britannica grew into a serious commercial enterprise. The content was revised every four or ve years, and the company built one of the most aggressive and successful direct sales forces in the world. By 1990, sales of Britannicas multivolume sets had reached an all-time high of about US$650 million. Since 1990, however, sales of Britannica have collapsed by over 80 per cent. Britannica was under serious threat from a new competitor: the CD-ROM. The CD-ROM came from nowhere and destroyed the printed encyclopedia business. Whereas Britannica sells for US$15002000 per set, CD-ROM encyclopedias sell for US$50 $70 with the vast majority of copies given away for free to promote the sale of computers. While the marginal manufacturing cost of Britannica is about US$250 for production plus about US$500 600 for salespersons commission, the CD-ROMs marginal cost is US$1.50 per copy. Britannicas executives initially seemed to have viewed the CD-ROM encyclopedia as an irrelevance, but as revenues plunged, it became obvious regardless of the quality, CD-ROM encyclopedias were serious competition. As sales continued to plummet, the company eventually put together their own CD-ROM version of the encyclopedia.

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The CD-ROM version engendered yet another crisis: it could not possibly produce the US$500 600 sales commission its traditional counterpart produced. To avoid a revolt by the sales force, Britannica executives decided to bundle the printed product with its digital counterpart. The CD-ROM was given free to buyers of the multivolume set. Anyone who wanted to buy just the CD-ROM would have to pay US$1000. The decision appeased the sales force briey, but did nothing to stem the continuing collapse of sales. In 1995, the company was put up for sale, and after 18 months it was sold for less than half of the book value. In less than ve years, one of the greatest brand names in the English-speaking world, with a heritage of more than 200 years, was nearly destroyed by inexpensive, plastic disk (adapted from Evans and Wurster, 1997, 2000). A systemic framework for developing a new business model It is possible for organizations to reinvent themselves with systemic strategy approaches, i.e. value propositions for customers enabled by systemic new industry congurations, while still maintaining their existing business models if these are still valid and resulting in prots for the company. The latter is very important, as the old business model has to provide the necessary funding for the new business models experimentation and incubation, while it still has relevance to some (old) customers and value chains. In this section a review of selected approaches to developing a new business model is rst provided, and then a systemic integrated framework is proposed. Review of selected approaches in developing new business model Taking into consideration the challenges faced by organizations in cannibalizing their existing business models and operating in innovative ways, a number of authors have suggested ways to enable both new entrants and established companies to create new business models, or reinvent existing ones, in their organization and industry. Two prominent approaches are highlighted here. Extended value chain management According to Govindarajan and Gupta (2001) the business model involves the areas of customer denition, customer value identication and value chain process design. Accordingly, they have identied three highly interconnected arenas in which the rules of the game can be changed. These include the dramatic redesign of the end-to-end value chain architecture that has reduced costs and/or greatly enhanced value; transformation of the value customers receive by providing a comprehensive customer solution(s); and redenition of the customer base by discovering and serving previously hidden customer segment(s). Drivers of customer value creation Amit and Zott (2001) propose four sources of value creation that demand equal consideration and that enhance the value-creating potential of a business. These

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are: efciency of purchase (e.g. through increased information ows and reduced information asymmetries between buyers and sellers); offering complementary products/services as an integrated bundle of products/services; using lock-in incentives to create high switching costs for customers and strategic partners; and novelty of the product/service provided as unique and recognized to be pioneering, thus creating previously unrecognized value. Both approaches place emphasis on creating value for customers as a starting point, in developing new business models. This is the basis they use from which viable and successful business models can be created. Accomplishing this will enable new customer value propositions to develop, and this in turn intensies the rms ability to reinvent itself and its value chain. It is important to note, however, that it is essential to establish a suitable organizational environment, including appropriate managerial approaches and thinking, to enable new business models to arise. First, organizations should be able to make coherent creativity and innovation an outcome of a company-wide capability that combines a diverse and purposeful set of ideas and viewpoints from people throughout the organization, as well as amoung stakeholders (e.g. customers, suppliers, distributors) linked to the organization (Hamel, 1998; see also Roos and Victor, 1999 for the generation of new strategies though strategic imagination, and Lissack and Roos, 2001 for balancing vision and cohesiveness in strategy making). Second, organizations should also be able to create an environment in which the rm can coherently self-organize and remain competitive by establishing a shared vision/identity and values, creating acceptable degrees of disorder that stimulate creativity, and encourage selflearning and promoting risk taking (Youngblood, 1997; Pascale, 1999) Systemic strategy thinking as a prerequisite in networked value creation Having discussed the key components of business models and the need to create/ reinvent business models to remain competitive and to leapfrog competitors, how can organizations and managers develop new business models? Thus far in the paper, four aspects have become prominent for the purpose of developing new business models. These are: customers, technology, business infrastructure, and protability. As mentioned previously, technological advancements have greatly enhanced how organizations compete and technological innovations often create new opportunities (Viscio and Paternack, 1996). With computers and communication technology being utilized throughout the world, there is indication of a gradual displacement in the economy of materials by information (Kelly, 1998). That is, pervasive connectivity separates the ow of information from the ow of physical things, allowing each to follow its own economics (Evans and Wurster, 2000). This, in turn, has resulted in the deconstruction (breaking down) of traditional boundaries, where deconstructed pieces of organizations can fragment into multiple businesses that have separated sources of competitive advantage, or recombine to form new business structures (Evans and Wurster, 2000). With the advent of technology, customers have become more informed and powerful they are able to articulate and demand their needs and if they are not

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satised with what they get then they take their demand elsewhere, they are increasingly involved with organizations in the production/creation process (prosumption, co-creation), and they participate in communities (such as online communities) where they have a powerful voice that can make or break a companys reputation. Customers are no longer passive constituents of an industry but principal participants in creating and competing for value (Prahalad and Ramaswamy, 2000). The frameworks for developing new business models suggested in business literatureincluding that of Govindarajan and Gupta (2001) and Amit and Zott (2001) reviewed aboveconsider business models from an individual organizations perspective. Organizations do not operate in a vacuum and they do not have all the necessary resources they need to compete in the ever-shifting business environment. In order to capture opportunities that arise from discontinuities, rms should form a network (business infrastructure) where each participating member allocates its resources (knowledge, expertise, capital, etc.). Successful businesses are those that co-evolve rapidly and effectively by bringing together resources, partners, suppliers, customers and other agents to create cooperative networks. This implies that in a business ecosystem, companies work cooperatively and competitively to generate new products/ services, to satisfy customer needs, and to incorporate future innovations (Moore, 1993). From an ecosystem perspective, therefore, the strategy focus of an individual rm is to co-shape and co-perform with the other players in the business community and to build co-opted capabilities in the ecosystem (Leibold et al, 2002). Figure 2 provides a systemic framework for understanding this co-shaping of the development of new business models. Organizations, as ongoing concerns, have aspirations to attain a certain level of prot if they are to sustain themselves. Additionally, as previously discussed, a business model should have an economic feasibility to sustain the existing business model as well as to provide funds for experimenting with different models. Figure 2 indicates that a new business model arises not only from reconguring an organizations core business strategy and dynamic capabilities, but also from making sense of socio-cultural dynamics and opportunity gaps, reinventing of

Figure 2. A systemic perspective of developing new business models

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customer value proposition(s), and reconguring the business network and its value chains. This improves and sharpens managerial sense-making of sociocultural business system dynamics, for managers to guide, cultivate and shape self-organizing creative activities in the organization for the creation and building of new business models. Such systemic thinking therefore provides the basis for continuous radical innovation and adaptation to the changing environment through co-shaped customer value propositions. The wheel of business model reinvention: how to operationalize and measure the development of new business models Traditionally, the success or effectiveness of a business strategy could be evaluated in terms of how well it: ts the general external environment (political/ legal, socio-cultural, technological, economic, demographic, and global aspects of the outside world); ts the industry in question (Porters ve forces); considers environmental trends, identies success factors and deals with the ramications; and takes advantage of the rms current core competencies, or calls for the acquisition of core competencies, necessary for the strategy to succeed (Huffman, 2001). The tting concept of an organization was mostly used for existing business models and applied in an analytical context, and should not be confused with the concept of organizational tness, i.e. dynamic capabilities for systemic adaptive and reinventive activities. The challenge that arises is how to operationalize the dimensions of new model creation, as depicted in Figure 2, and how to evaluate proposed new business models within the uncertainty, unpredictability and rapid change in the business environment. Based on the four aspects of customers, technology, business infrastructure and protability, Figure 3 illustrates the four-dimensional tool of business reinvention by making sense of environmental changes and the relevance of possible new business models. The wheel of business model reinvention consists of the four dimensions (compare also with the seminal framework presented by Bradley and Nolan, 1998: 36): . Customer sensing (including new customer value propositions): refers to the relative ease of acceptance of a new value proposition. . Technology sensing: indicates the relative strength, direction and impact of technology on new customer value and the business network. . Business infrastructure sensing (organizational and business network infrastructure): refers to the relative responsiveness of the traditional business network to recongure, or to the relative ease of a new business network conguration. . Economic/protability sensing: indicates the relative economic feasibility and protability of the proposed model. The closer the results are to the outer limits of the gure, the more likely it is for business model reinvention. Whenever, for instance, new technologies emerge,

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Figure 3. Wheel of business model reinvention

new businesses are likely to be created, and competitive advantages could accrue to effective rst (prime) movers and/or early movers and close followers. The framework takes into account the dynamic nature of business models and, moreover, considers critical dimensions, such as customer value creation, economic feasibility and the impact of technology and business infrastructure. The wheel illustrates the interactive (systemic) ow from all four dimensions in business model reinvention. Organizations seek ways of creating customer value propositions with products/services that are innovative and that satisfy generic underlying needs. Suitable technology should be in place that can easily leverage efciency and the new customer value. The business system infrastructure, in turn, should be congured in such a way that would enhance the customer value that has been created and being offered. Finally, all the endeavours that have hitherto been undertaken should be economically feasible to benet all those involved in the reinvention process, as well as in newly congured value chains. Organizations

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should continuously attempt to reinvent themselves, hence, the wheel starts all over again with sensing customer needs and technology direction, and the potential for creating new customer value propositions and resumes with the rest of the frameworks dimensions. Application of the wheel Taking the instance of Encyclopedia Britannica, the wheel would have enabled the company to adopt the new CD-based business model if it had made the effort to appropriately sense the changes that were taking place in its industry. The rm had fatally overlooked the potential of the CD-ROM initially, perhaps assuming that it was a technology unrelated to its business. However, if Britannica had correctly sensed the direction and intensity of technology (such as, of computers and communication) and how existing and potential customers were becoming familiar, comfortable and savvy with sophisticated technology, the rm would have been in a position to be part of a new customer value proposition. Britannica had a powerful status of having the most comprehensive encyclopedia and the company could have used this valuable reputation to its advantage by creating a business network with members such as hi-tech companies. In such a network, Britannica would provide its compiled vast knowledge/information and other parties of the value system would supply their respective resources, resulting in a product that is low-cost, low priced, with quality and ease of use. The protability of such a business model would have for the members of the value system is clear: an innovative value for customers from which the rest of the business network would benet. And as the term wheel indicates, Britannica should not come to a halt with the new business model but strive to create yet new customer value proposition with participants of the existing network or recongure it according to changing market/environment needs and requirements. The wheel is not intended to give the impression that business model reinvention is a simple task. There are risks involved where a new business model might fail. Even with sharp sensing capabilities of the competitive environment, it could still be difcult for organizations to accurately make sense of the unpredictable environment. That is when having a number of possible strategies in the pipeline provides a cushion from unsuccessful ventures. In the case of Britannica, the organization held on to its single way of doing business until the threat from a new competitor, and then later attempted to combine a new strategy with its existing model. This created a clash that only aggravated its dilemma, one being overriding the power of its sales force. As discussed previously, one of the discontinuities in the environment is the deconstruction of organization structures. Britannica faltered in letting go of its sales staff that was part of the old business and that was hindering it from moving ahead to reinventing its business model that could offer a totally different customer value. There are numerous examples of organizations that have both reinvented themselves and their industry. Companies such as IKEA (Normann and Ramirez, 1993; Von Krogh and Cusumano, 2001) and Wal-Mart (Moore, 1993) have succeeded in changing the rules of the game and becoming drivers of their industries by discarding established ways of doing business. Dell is another

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popular example where the company redesigned its value creating activities so that it became efcient and effective in targeting its customers and enhancing customer value (Govindarajan and Gupta, 2001). Another case in point is BRL Hardy, as described below. BRL Hardys new business model in the global wine industry Among many companies in the global wine industry, one that took advantage of others inexibilities was BRL Hardy, an Australian wine company that deed many of the well-entrenched traditions of international wine production, trading and distributiondespite the fact that its home country produces only 2% of the worlds wine. From a 1991 base of US$31 million in export salesmuch of it bulk for private labels and the rest a potpourri of bottled products sold through distributorsHardy built its foreign sales to US$178 million in 1998, almost all of it directly marketed as branded products. The insight that triggered this turnaround was the realization that for a lot of historical reasons, the wine businessunlike the soft-drinks or packaged-foods industrieshad very few true multinational companies and therefore very few true global brands. This was a great opportunity waiting to be seized. The inexibility of the European practice could be attributed to labelling wines by region, subregion and even village. A vineyard could be further categorized according to its historical quality classication. The resulting complexity not only confuses consumers but also fragments producers, whose small scale prevents them from building brand strength or distribution capability. This created an opportunity for major retailers to overcome consumers confusion, and capture more value themselves, by buying in bulk and selling under the stores own label. For decades, BRL Hardys international business was caught in this trap. It distributed its Hardy label wines to retailers through local agents and sold bulk wine directly for private labels. But the companys insight, and its willingness to change the rules of the game on both the demand and supply sides, gave it a way out. First, new staff was appointed and new resources allocated to upgrade overseas sales ofces. Instead of simply supporting the sales activities of distributing agents, they took direct control of the full sales, distribution and marketing. Their primary objective was to establish Hardy as a viable global brand. The companys supply-side decision was even more signicant. In order to exploit the growing marketing expertise of these overseas units, Hardy encouraged them to supplement their Australian product line by sourcing wine from around the world. Not only did Hardy offset the vintage uncertainties and currency risks of sourcing from a single country, it also gained clout in its dealings with retailers. By breaking the tradition of selling only its own wine, Hardy was able to build the scale necessary for creating strong brands and negotiating with retail stores. The advantages have been clear and powerful. The companys range of wines from Australia as well as France, Italy and Chile responds to supermarket needs to deal with a few broad line suppliers. At the same time, the scale of operation has supported the brand development so vital to pulling products out of the commodity range. Results have been outstanding. In Europe, the volume of

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Hardys brands has increased 12-fold in seven years, making it the leading Australian wine brand in the huge UK market, and number two overall to Gallo in the UK. And branded products from other countries have grown to represent about a quarter of its European volume. Hardy has evolved from an Australian wine exporter to a truly global wine company (adapted from Bartlett and Ghoshal, 2000). BRL Hardys radical strategy of introducing a new competitive business model challenged the industrys established rules of competition by taking advantage of others inexibilities and deep-rooted traditions in international wine production, trading and distribution. With systemic sense making, and application of the wheel of business model reinvention, Hardy discovered new customer value by providing novel solutions for consumers, new value for small-scale wine producers, as well as for distributors and other partners. Its business system infrastructure was recongured to appoint new staff and to allocate new resources. In addition, the value system was reconstructed to enable the company build a strong brand image with the necessary marketing and distribution capabilities that supported the organization. Finally, Hardys protability from such an undertaking is obvious it became one of the worldwide leading wine brands. Conclusion Disruptive changes in the business landscape have brought about the deconstruction of traditional boundaries and relationships (organizational, industrial, national and global), creation of new industries and new business models, and has made knowledge, innovation and self-renewed change sources of sustainable competitive advantage. Despite these realities, many companies nd it difcult to escape organizational inertia caused by existing industry orthodoxy and conventional mindsets. The driving forces behind the changes and unpredictability of the business landscape challenge the traditional approaches to strategic management. What are required in the new environment are radically different solutions that test and challenge the fundamental make-up of conventional strategic management thinking and practices. The real challenge for most organizations is not whether the rules of the game will change (because they will); rather, will they make the necessary (appropriate) radical transformation required for future survival. The paradoxical situation of creating new business models while both beneting and cannibalizing existing models, may seem like destroying an organization that companies spend their resources on in perfecting. However, systemic strategic management does not mean a complete and/or instantaneous discarding of the existing organizational business model. It rather means to initiate, experiment with, and develop new business models alongside the management of a traditional business model a paradoxical and systemic mindset, with application of appropriate frameworks and tools. Disrupting and even discarding traditional means of doing business may seem risky for established companies. However, provided that organizations reinvent organizational business models and industry congurations that result in relevant new customer value propositions, as well as sensible value for all value chain

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stakeholders, companies can achieve new bases of sustainable competitive advantage in todays fast changing business environment until the next wave of business model reinvention. The latter indicates that the era of organizational comfort zone is nally over when at the peak of success there is the greatest danger for any organization. This implies that the search for business model reinvention in todays world is an important and continuous process. Managerial implications This article provides executives and managers with a systemic perspective of developing new business models in addition to a powerful tool the wheel of business model reinvention. With a systemic view of the environment (the business ecosystem perspective), organizations can co-shape new customer value creation and develop new business models together with other key players in the business community. The wheel of business model reinvention provides a logical, integrated means of making sense of the environment and of proposed business models. These include critical dimensions of new customer value propositions, technological innovation, reconguration of the value system and the economic feasibility of a new business model. It is also crucial to recognize that executives and mangers should be able to create a suitable organizational environment and mindset that enable new business models to arise. Enabling such an environment and thinking consist of ways that facilitate and enhance company-wide and cohesive creativity, innovativeness and imaginativeness that result in novel and unique customer value proposition(s). With a proper perspective and appropriate tool to reinvent business models, executives and managers can more readily discover ways for changing the basis of their organizations competitiveness, and for cultivating their organizations tness for continuous change and survival. Acknowledgements The authors wish to thank Michael Beer, Russell Eisenstat and the colleagues at the Center for Organizational Fitness for their helpful inspiration and insights. We are also thankful to Charles Baden-Fuller and Richard Whittington for their comments and to our colleagues at Harvard Business School since some of our thoughts have been further enlightened during various discussions when sparks ew with Dorothy Leonard, Morten Hansen, Alan MacCormack, as well as Heike Bruch, Georg von Krogh and Thomas Davenport. References
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Notes on contributors Sven C. Voelpel is a Professor of Business Administration teaching and researching at the Harvard Business School and the Graduate School of Arts and Sciences at Harvard University (USA), University of Groningen (Netherlands), Business School Netherlands International (Netherlands), University of St. Gallen (Switzerland), Stellenbosch University (South Africa), China Europe International Business School (China) and Tsinghua University (China). He was a former Visiting Professor at the Indian Institute of Management Bangalore (India) and Visiting Associate Professor at Hitotsubashi University (Japan) and is a Group Strategy Partner within Siemens (Germany). Marius Leibold is Professor in Strategic International Management at Stellenbosch University (SU), South Africa, and also Professor of Strategy at Business School Netherlands International. He holds visiting professorships in North America and Europe. Eden B. Tekie is a research associate in the Department of Business Management, Stellenbosch University, South Africa.