The ultimate competitive advantage of continuing business model innovation.

Football, basketball and soccer may often witness an agile offensive player with the ball faking movement in one direction, then quickly shifting actual movement to a different direct on. The defender usually either moves towards the faked direction or stands frozen into inaction, not knowing how to react to the quick movements. With either reaction, the offensive player quickly runs around the defender, moving the ball towards the goal. If the defender stays with the offensive player after the first fake, using another offensive fake to create an unexpected shift in direction will probably succeed. The offensive player is likely to try to use faking movements to outmaneuver the next defender as well. If the ground is slippery, these quick shifts are even more successful as defenders often fall down while reacting. When the offensive player makes these directional shifts successfully with all the goal defenders, a score follows.

Continuing business model innovation provides a parallel way to outperform the competition. When you improve your business model by redirecting its focus, some competitors will continue to follow your old direction, like a fake in sports, and will be left choking in your dust as you speed off in a better direction. Others will be overwhelmed or confused by what you are doing and will react neither to your old nor to your new business model. In either case, you have got the competitors just where you want them ... out of position and unable to respond effectively. You are using their inertia to take them in the wrong direction. Whenever they do follow, your lead will be difficult to overcome before you secure and build successful relationships with new customers. When business conditions are rapidly shifting and difficult, those tricky conditions may also cause your competitors to stumble independently of your own actions. Your business model shifts will make those stumbles more likely by making your competitors' positions more tenuous. Struggling competitors often thrash about ineffectively in frustration, further wasting scarce resources.

In 1992, we began annually identifying the 100 public companies above a minimum size whose stock prices had grown the fastest during the prior three years under the same CEO. Then, we asked the CEOs what they felt accounted for their success and what they planned to use to extend that success. We watched what happened next to see what worked and what did not. We paid particular attention to those companies that were most successful in sustaining a position in our study group. By 1995, it was clear that the perennial top performers were frequently making fundamental improvements in several dimensions (the "who", "what", "when", "why", "where", "how" and "how much" of delivering value to customers and getting paid for it) of their business models at once for serving their customers, end users and other important stakeholders (such as employees, partners, suppliers, distributors, lenders, shareholders and the communities the company serves). The most effective companies were making these multidimensional business model shifts every two to four years.

Strategic competitive advantages and business model innovations, replacements and improvements

Most companies use one of four strategies to outperform the competition:

1. lower prices based on cost advantages (Wal-Mart);

2. more desirable products and services (Tiffany);

3. more choices and information (Amazon.com); and

4. close personal relationships (Avon).

Any of these strategies, either alone or combined, may become more effective through business model improvements. In thinking about business models, we need to separate out strategies (plans and actions being emphasized to use a company's resources to create or sustain a competitive advantage) from the potential to use business model improvements, replacements and innovations to support those strategies and make them work better.

Some companies use the same strategy and business model for decades (Southwest Airlines). Others change strategies frequently and keep the same business model (Ford). The most successful companies are able to combine ongoing, …