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. Success in pharmaceuticals is believed to depend on the time needed to obtain approval from the US Food and Drug Administration. 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? McKinsey introduces a framework to think differently about established business models. 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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