Disrupting industry with business model strategies

While technology has reshaped civilisation, credit to non-tech often goes unnoticed. A CUHK expert provides perspective on these overlooked aspects

By Putro Harnowo, Senior Content Manager, China Business Knowledge @ CUHK

Technology has become the buzzword of the century, and the buzz is getting louder nowadays with major media propagating blockchain, artificial intelligence, and quantum computing. The advancement of modern businesses has been unquestionably propelled by science and engineering, but other elements are often overlooked.

“People overemphasise technology-driven business disruption these days,” says Dominic Chan, Associate Professor of Practice in Entrepreneurship at the Department of Decisions, Operations and Technology at the Chinese University of Hong Kong (CUHK) Business School. “Technology plays a huge part but business model-driven seems neglected despite being equally important and, in some cases, even more powerful than technology.”

In a masterclass for the School’s EMBA programme titled Beyond Tech: How business models disrupt industries in October 2024, Professor Chan explained how modern industries and businesses have been shaped by many disruptions and at this point, no company can escape from being disrupted.

Uber is an example of business and technology-driven evolution as it utilises the internet to connect moving vehicles and passengers simultaneously. Amazon is another case of a business model and technology-driven company. Jeff Bezos started with a bookshop, but he envisioned an online store that could not be replicated offline.

However, not all modern businesses have to implement cutting-edge technology. Besides taking lots of time and resources, technology can be hard to catch up with. Business models may be something that every company should consider to focus on.

Take Airbnb as an example. Many tourists are reluctant to spend money on expensive hotels, yet many spare rooms, flats, or houses are available, so Airbnb connects the dots. “Technology was helpful but the core of the idea is Airbnb’s business model. The idea itself doesn’t need a lot of technology and someone is bound to think about it,” Professor Chan adds.

Another perfect yet familiar example is budget airlines. Low-cost carriers and a jet engine maker have changed the landscape of the aviation industry. Although the industry is fueled by technological advancement, the fundamental business model has given these carriers the ability to fly higher.

How budget airlines make everyone happy

Budget airlines are everywhere nowadays, making it possible and affordable to travel to almost all destinations worldwide, from Pacific Southwest in the US, RyanAir and EasyJet in Europe, to AirAsia, Hong Kong Express, and JetBlue in Asia Pacific, to name a few.

As many probably know, low-cost carriers cut costs by providing basic services with limited baggage without loyalty clubs and only fly to lower-cost airports like Luton and Standsted in London instead of Gatwick or Heathrow. However, there are other inconspicuous tactics these airlines use.

“Although technology development is vital, business models deserve merit. At the very core of our ability to disrupt with business models is our understanding of customer needs and value creation.”

Professor Dominc Chan

As safety is paramount, airlines must ensure their pilots and staff are trained to deal with all types of planes seamlessly. Using just one type of aircraft will make all the training easier and save maintenance costs. Budget airlines also fly short-haul, around four to five hours, to generate more revenue per passenger per hour. The staff can fly and return on the same day, which means no hotel cost and more time with family at home.

“The core business is very disruptive but mostly business-driven, not technology-driven,” says Professor Chan. “It’s a win-win because the passengers pay less for tickets, and airlines can make money. To be sustainable, the business model has to be win-win.”

Such business strategies never come overnight. Many cases have shown budget airlines went bankrupt because the management had no idea how to put up with the nitty-gritty of cutting costs while ensuring a win-win strategy.

Jet maker boosts the industry reforms

At the heart of the aircraft is the engine. Rolls-Royce has made such machines for many aircraft, including the Boeing 777, 787, and Airbus A330, A340, A350, and A380, among others. To hold more than half of the global market share for jumbo jet engines, Rolls-Royce had to disrupt the market.

Airlines conventionally own the planes. Manufacturers and other companies provide repair and support services, but airlines are the ones responsible for the maintenance. “Airlines don’t like that,” says Professor Chan. “These days, if you talk about finance, many companies prefer operating expenses over capital expenditures as they are more steady.”

Rolls-Royce changed its business model and no longer merely sold jet engines. Instead, they came up with a subscription model named “power by the hour”.  “They’re not selling the engine but hot air. As long as hot air comes from the jet engines, the clients pay for those,” Professor Chan adds.

The market welcomes this approach. For Rolls-Royce, this method can generate a steady revenue rather than a one-off deal as they also prefer operating expenses. It also makes Rolls-Royce more customer-focused as it becomes even more dedicated to ensuring its engines work and are aligned with the client’s interests.

When it comes to maintenance, modern jet engines are quite sophisticated. Their sensors can spot problems earlier and notify the system of any damages or when to run a special checkup. Rolls-Royce calls it the TotalCare programme and claims that 80 per cent of the new customers are now up for this.

Recreating and finding business models

Professor Chan notes that the well-known Blue Ocean strategy has actionable methods with keywords like eliminate, create, raise, and reduce. Some aspects of the business model may be unnecessary, and eliminating them will create better value, i.e., removing confusing or costly items that don’t add value to the customers. Raising aspects that are currently undervalued or underperforming will make it easier to identify opportunities to improve the company’s value proposition. Additionally, the company needs to reduce or minimise over-designed elements for efficiency.

“You first need to understand the existing model because you can’t go somewhere if you don’t know how to start with,” Professor Chan says. “You also need to know the market trend because you’re not just disrupting the model for today but looking at the future. What will the future customers like after you disrupt the industry?”

After learning the existing models and the market trends, Professor Chan urges, engaging the customer is a must. Not all firms know their customer, and they will be the last to be surprised when the customers leave. Before succeeding in disrupting, the market will judge the business models so firms can measure the outcome and continue to improve.

“Business models can significantly revolutionise the industry,” Professor Chan adds. “Although technology development is vital, business models deserve merit. At the very core of our ability to disrupt with business models is our understanding of customer needs and value creation.”