Here is a brief excerpt from an article written by Marc de Jong and Menno van Dijk for the McKinsey Quarterly, published by McKinsey & Company. They explain how and why, in a disruptive age, established business models are under attack. They then suggest how incumbent companies can reframe them. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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Let’s face it: business models are less durable than they used to be.

The basic rules of the game for creating and capturing economic value were once fixed in place for years, even decades, as companies tried to execute the same business models better than their competitors did. But now, business models are subject to rapid displacement, disruption, and, in extreme cases, outright destruction. Consider a few examples:

o Bitcoin bypasses traditional banks and clearinghouses with blockchain technology.
o Coursera and edX, among others, threaten business schools with massive open online courses (MOOCs).
o Tencent outcompetes in Internet services through microtransactions.
o Uber sidesteps the license system that protects taxicab franchises in cities around the world.

The examples are numerous—and familiar. But what’s less familiar is how, exactly, new entrants achieve their disruptive power. What enables them to skirt constraints and exploit unseen possibilities? In short, what’s the process of business-model innovation?

For incumbents, this kind of innovation is notoriously hard. Some struggle merely to recognize the possibilities. Others shrink from cannibalizing profit streams. Still others tinker and tweak—but rarely change—the rules of the game. Should it be so difficult for established companies to innovate in their business models? What approach would allow incumbents to overturn the conventions of their industries before others do? Our work with companies in telecommunications, maritime shipping, financial services, and hospitality, among other sectors, suggests that established players can disrupt traditional ways of doing business by reframing the constraining beliefs that underlie the prevailing modes of value creation. This article shows how.

Reframing beliefs

Every industry is built around long-standing, often implicit, beliefs about how to make money. In retail, for example, it’s believed that purchasing power and format determine the bottom line. In telecommunications, customer retention and average revenue per user are seen as fundamental. Success in pharmaceuticals is believed to depend on the time needed to obtain approval from the US Food and Drug Administration. Assets and regulations define returns in oil and gas. In the media industry, hits drive profitability. And so on.

These governing beliefs reflect widely shared notions about customer preferences, the role of technology, regulation, cost drivers, and the basis of competition and differentiation. They are often considered inviolable—until someone comes along to violate them. Almost always, it’s an attacker from outside the industry. But while new entrants capture the headlines, industry insiders, who often have a clear sense of what drives profitability, are well positioned to play this game, too.

How can incumbents do so? In a nutshell, the process begins with identifying an industry’s foremost belief about value creation and then articulating the notions that support this belief. By turning one of these underlying notions on its head—reframing it—incumbents can look for new forms and mechanisms to create value. When this approach works, it’s like toppling a stool by pulling one of the legs.

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They then discuss the fuller process and the questions to ask along the way, four places to reframe, innovating in customer relationships (from loyalty to empowerment), innovating in activities (from efficient to intelligent), and innovating in resources (from ownership to access). To read the complete article, here is a direct link.

Marc de Jong is a principal in McKinsey’s Amsterdam office, and Menno van Dijk is the cofounder and managing director of the THNK School of Creative Leadership and a former director in the Amsterdam office.

The authors wish to thank Karim Benammar, Berend-Jan Hilberts, and Saskia Rotshuizen for their contributions to this article.