4 Lessons to Learn from Declining Business Models

Tips for HR professionals savvy in Business Acumen

By Lindsay Northon, MA, SHRM-SCP Feb 7, 2017

​After 146 years in entertainment, Ringling Bros. and Barnum & Bailey circus, "The Greatest Show on Earth," will perform for the last time in May. For those with fond memories of the circus, mixed emotions arise: sadness, surprise, confusion. Meanwhile, others, including animal rights activists, rejoice. From a business point of view, what lessons can HR professionals learn when a business model becomes obsolete?

Ringling Bros. and Barnum & Bailey executives have offered several explanations, including high operating costs, declining ticket sales and individuals' decreasing attention spans. One spokesman said the circus was "not a viable business model." For the Business Acumen-savvy, this means that the circus had reached the decline phase of the business life cycle.

That life cycle is defined by the intersection of revenue and time. A business proceeds from introduction to growth, then maturity, and finally to its decline. The maturity stage is where optimal market awareness and saturation are achieved and the peak point of revenue is reached. To avoid moving into the decline stage, a business must introduce new products or services and change its business model.

Various businesses have fallen victim to remaining stuck in an outdated model, and the reasons vary. We used to head to Blockbuster for the latest movie on video, snacking on Funyuns and Push-Ups, remembering to rewind the tape before driving back to return it within 48 hours. Redbox and Netflix disrupted that brick-and-mortar model, and Blockbuster failed to adapt to changes in technology. Now we stream movies over the Internet as we sit on the couch and eat kale chips.

Competition can also threaten a business model. Borders Books was outwitted by its direct competitor, Barnes & Noble, which, after identifying Amazon.com and other online retailers as a threat, recognized the need for e-books and e-commerce and adapted its model to those markets. It developed its own e-reader (the Nook), put Starbucks cafes in its stores, and eschewed store locations not in or near large cities.

What can HR professionals do to prevent their organization's business model from reaching the decline phase? Here are a few tips:

  • Understand the business life cycle and the industry forces that command each of its phases. Harvard Business School professor Michael E. Porter's Five Forces Framework is a great place to start.
  • Use analysis tools to better understand the potential of your business. To determine its best product or service advantage, consider a value chain analysis; to define its competitive advantage, use tools for examining market growth rate relative to market share, such as Boston Consulting Group's growth share matrix.
  • Avoid complacency with success. Even currently profitable Netflix has had its challenges. It first succeeded with DVDs by mail, but rather than maintain that successful status quo, Netflix expanded to streaming content to maintain a sustainable business model. It grew the business because it understood the budding social landscape.
  • Acknowledge all stakeholders; more importantly, recognize that each stakeholder perceives value differently—as financial success, convenience, reputation, security, etc. Consider all stakeholder groups and appropriately prioritize the top values of each before delving into business model changes.
Avoiding extinction requires adjusting the business model, plain and simple. It can be scary for a business to step outside of its comfort zone. There is uncertainty, yes, but also enhanced opportunity. Because HR plays a major role in guiding the overall strategic direction of the organization, invoke your Business Acumen to understand its operations and the external environment. Then when you're told "We've been doing it this way for the last 30 years," reply "Perhaps that's long enough."

Lindsay Northon, MA, SHRM-SCP (@SHRMLindsay), is HR competencies specialist at SHRM. 

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