One secret to maintaining a thriving business is recognizing when it needs a fundamental change.
50 Harvard Business Review
Reinventing Y our by Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann
IN 2003, APPLE INTRODUCED THE IPOD WITH THE ITUNES STORE,
revolutionizing portable entertainment, creating a new market, and transforming the company. In just three years, the iPod/iTunes combination became a nearly $10 billion product, accounting for almost 50% of Apple’s revenue. Apple’s market capitalization catapulted from around $1 billion in early 2003 to over $150 billion by late 2007. This success story is well known; what’s less well known is
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Understand your existing unattractive to internal and external ware, software, and service. This apmodel at a granular level, so that stakeholders – at the outset. To see proach worked like Gillette’s famous you are in position to reinvent it. past the borders of what is and into blades-and-razor model in reverse: Ap2. Come up with a great way the land of the new, companies need ple essentially gave away the “blades” to help people get an important a road map. (low-margin iTunes music) to lock in job done. Ours consists of three simple steps. purchase of the “razor” (the high-margin The ﬁrst is to realize that success starts iPod). That model deﬁned value in a by not thinking about business models new way and provided game-changing at all. It starts with thinking about the convenience to the consumer. opportunity to satisfy a real customer who needs a job done. Business model innovations have reshaped entire industries The second step is to construct a blueprint laying out how and redistributed billions of dollars of value. Retail discountyour company will fulﬁll that need at a proﬁt. In our model, ers such as Wal-Mart and Target, which entered the market that plan has four elements. The third is to compare that with pioneering business models, now account for 75% of the model to your existing model to see how much you’d have to total valuation of the retail sector. Low-cost U.S.