This could be the second most important question you ever ask about your business. Here”s how to answer it.
One enduring change in the management lexicon brought about by the dot-com revolution was the term business model — how a company makes money.1 The concept had been in existence for decades, but the competition between “old” and “new” economy companies, with very different business models, helped to demonstrate its importance as a way of thinking about the basic choices companies make when it comes to their sources of revenue, their cost structure and their make-or-buy options.
In the post-dot-com era, companies have continued to experiment with new business models, with some success — think, for example, of MinuteClinic, a Minneapolis-based division of CVS Corp. that is a pioneer in low-cost retail health care that treats everyday ailments inside a drugstore, or Joost.com, an innovator in Web-based TV operated by Joost Technologies B.V. of the Netherlands. But genuinely new business models are hard to come by, and they aren’t as easily defended as they once were because competitors have become more adept at responding to such innovations quickly.
The leading question
How might a company’s management model offer a path to competitive advantage, just as its business model can?
- Asking “What is your management model?” may be as key as asking “What business are you really in?”
- Companies are often unaware of the management models they’re using.
- There is no one best management model. Rather, there are deliberate choices to be made, based on many factors unique to each company.
Companies are therefore on the lookout for new forms of competitive advantage, sources of distinctiveness that are enduring, hard to copy and valuable in the marketplace.
One emerging and intriguing possibility is the idea that a company’s management model can become a source of advantage.2 In fact, asking “What is your management model?” may end up being as important as asking “What business are you really in?” — the most fundamental question there is in the corporate world.
That question, of course, is how most business leaders (correctly) paraphrase Peter Drucker’s analysis of a company’s business model. Drucker wrote that the “theory of the business” has three parts: assumptions about the environment of the organization, the specific mission of the organization and the core competencies needed to accomplish the organization’s mission.