That’s the lesson presented in an HBR Blog network post this month by Karan Girotra and Serguei Netessine, “When Business Models Trump Technology.” It’s a story about a new spin on an old technology, drip irrigation, or micro-irrigation, and how an Israeli firm decided to change its business model in order to make that innovative technology feasible both for itself and for those who need it.
The company, Netafim today controls more than one-third of the micro-irrigation equipment market.
But it wasn’t easy for Netafim to get to that point. Why? In the 1990’s Netafim introduced modern electronic control technology, including sophisticated sensor arrays that help fine-tune water application to respond to water content, salinity, fertilizer and meteorological data, the post explains. “By Netafim’s measures, such a contemporary drip irrigation system increases crop yields by 300-500% and is a very lucrative investment,” the authors state.
Despite those exceptional economics, the system didn’t catch on mainly because Netfim was not properly aligned with its target customers—farmers—who it turns out were reluctant adopters due to concerns about investment and ROI risks. And as we know from experience with companies adopting the Vested business model, alignment is a priority. It’s tough to innovate, or make a go of a new idea if a company and its target customers are not on the same page.
So Netafim backtracked and innovated its own thinking along some basic Vested principles to achieve alignment and reduce the investment risks to end users. It provided a new product offering that packaged the entire system—design, hardware, installation, servicing, etc.—but the farmers did not have to buy it. The system would be installed at Netafim’s expense, and Netafim would get paid on the outcomes: farmers’ increases in crop yields.
With its own skin in the crop-yield game, Netafim “was now incentivized to modify service, and adapt and maintain the equipment to get the best possible outcome,” the HBR post says. By changing its business model to take on more risk and collaborate with its customers, Netafim created and shared value while aligning with its customers for the long haul. A win-win!
Hmmm – skin in the game, collaboration, alignment, incentives, changing the business model to create value and produce desired outcomes for all, win-win: sound familiar?
Vested is a new business model that employs those very concepts to in, essence, reinvent the parties’ joint business model and establish a long-term partnership. My new book, Vested: How P&G, McDonald’s and Microsoft are Redefining Winning in Business Relationships, has real stories of companies doing just that — embracing and succeeding with Vested.
So when considering ways to innovate, the first, most basic and best innovation of all might just involve your business model.
Image: Innovation by Seth1492 via Flickr cc