The Risk-Driven Business Model: Four Questions That Will Define Your Company

Professors at the international graduate business school INSEAD, Girotra and Netessine identify two new types of risk created by an organization’s business model: information risk, which requires decision making without sufficient information; and incentive-alignment risk, which leads to actions that clash with the interests of a value chain. The authors stress that being mindful of these risks and making small modifications to an existing business model can create significant competitive differences. To that end, they present the four W’s for designing better business models, which examine what decisions are made, when they are made, who makes them, and why they are made. Girotra and Netessine also explore the decisions that constitute a business, what a business is about, and its attitude about risk. They provide numerous examples of corporations that have made minor changes and garnered significant results, such as Diapers.com, Minute Clinic, Kickstarter, and Benetton. In addition, they follow a startup venture called Terrapass from rough idea through emerging concept and experimentation to early success and eventual evolution, to demonstrate a business model in action. Executives seeking to maximize opportunities while minimizing risk will find substantive ideas. (July)