Many people are unconvinced that business model innovation
can revolutionize any business. Perhaps if we consider an
example from a tradition-bound business, you'll be
persuaded that the barriers have all fallen for creating
more powerful business models.
Let's consider the impact of business model innovation on
the geological thinking behind underground gold mining, an
industry that has had one of the most stable business
models in the world. Based on archeological records, it is
estimated that that business has been around for thousands
of years.
Until the industrial revolution, when power and explosives
could be applied in the mines and stratigraphic maps were
created, the business model and methods used were
essentially unchanged. You put more effort into wherever
you found some gold.
You drilled lots of holes to see what you could find, and
made three dimensional maps to suggest where the gold might
be found by extending the strata you knew to be gold
bearing. Then you drilled some more.
Until recently, the only innovation since then was the
development of futures markets for gold, so that miners
could sell their future production and inventories when
they wanted to reduce uncertainty or risk.
In March 2000, the gold-finding part of the business model
was laid to rest for all time by Goldcorp Inc. The company
issued a challenge to all of the world's geologists to find
more gold in its Red Lake Mine. That mine was already
tapping into one of the world's richest, highest-grade gold
deposits.
Everything the company knew about the mine was shared with
the geologists through the Internet. Substantial cash
prizes were offered for the best ideas. This occurred at a
time when gold prices were at a near-term low in constant
dollar terms.
As a result of having little else to do in the depressed
market, many of the world's best geologists participated.
Over 1400 prospectors registered for the challenge. A year
later, the company announced that the winning submissions
had located 6 million additional ounces of gold.
With further testing, that number may grow. The ultimate
revenue from mining that gold will exceed one billion
dollars and profits will probably be hundreds of millions
of dollars. The cost of the prizes was only $575,000. The
prices cost less than the unproductive exploratory drilling
that would otherwise have occurred.
To fully appreciate the power of this experience, you
should know that this is also a very long operating mine.
Most would assume that there was little more gold to be
found in it that has not already been identified.
To build on that success, the company launched its Global
Search Challenge in March 2001. That contest looks for
important mineral deposits worldwide over the following two
years, and offers two million dollars in prizes.
This amounts to a second model change in only one year.
This time, Goldcorp not only leveraged its own information,
it also leveraged that of everyone else as well as their
ability to interpret that information. Goldcorp will be
able to access every geologist who learned something that a
mining company is not yet exploiting.
And it can then simply go with the best ideas. The mining
industry can expect that the business model for finding
minerals will continue to rapidly change.
When other industries hear about Goldcorp's success, we can
expect to hear about similar challenges being offered for
new information and knowledge to solve problems and find
better opportunities. In time, this new model will
undoubtedly set off yet another new model.
Companies will acquire businesses and properties that have
had little information and knowledge applied to them,
following a similar contest to identify which ones are the
best to buy. Then there will be a worldwide contest to
decide which options for improving the businesses and
properties are the best ones.
Copyright 2008 Donald W. Mitchell, All Rights Reserved
----------------------------------------------------
Donald Mitchell is chairman of Mitchell and Company, a
strategy and financial consulting firm in Weston, MA. He is
coauthor of seven books including Adventures of an
Optimist, The Irresistible Growth Enterprise, and The
Ultimate Competitive Advantage. You can find free tips for
accomplishing 20 times more by registering at:
====> http://www.2000percentsolution.com .
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