Business Model Innovation and What's Really Missing in Renewables
The surest way to develop successful new businesses—especially in transforming industries—is to focus carefully on an unmet market need and tailor a business model to meet it. This sounds straightforward but in practice it is devilishly hard because established, successful companies so often let structure (read: organizational baggage) drive strategy, rather than making strategy—choices about where to play and how to win—dictate the right structure.
Consider a certain segment of the home-furnishings industry. Grad students and young couples have long had a clear need for cheap, attractive furniture that can quickly fill up a temporary space. They don’t need massive sets made of solid wood: They probably can’t afford “real furniture,” and they’ll likely be moving from dorms to temporary apartments to first homes to dream houses over the years ahead, so lugging complete dining room sets around would be a hassle. What’s more, not many young folks want their stuff to look like their parents’ houses; they’re looking for hip, cheap, nearly disposable furniture to do the job for a few years before they settle down.
So where do they turn when this need presents itself? The obvious choice, and the category leader, is Ikea, where furniture is much cheaper than in traditional stores, and much more stylish than at discounters. Ikea has thrived for years because its business is custom designed, from the ground up, to give young furniture buyers what they want.
An Ikea couch, fully assembled at a warehouse and shipped to a traditional retail outlet, wouldn’t be nearly as cheap as it is within the company’s tightly integrated system. Beneath each store’s famously meandering display floor lies a highly efficient logistics facility in which furniture is stored in modular, easily transportable units, that, once bought, are then cost-effectively assembled at home by the customer. Furniture designs, store layouts, and store perks like subsidized cafeterias reinforce the value proposition. Competitors are not nearly as focused on serving this particular segment and are therefore continually playing catch-up.
Is there an analog in renewable energy?