Business model innovation
In the previous article I looked at the concept of selling innovation to the business, i.e. getting buy in for innovation and changing behaviours in order to innovate. I made the case that an established organisation is designed to execute a repeatable and scalable business model as efficiently as possible. Every large organisation, whether it can articulate it or not, is executing a proven business model. However, competition and change are relentless, so business models become obsolete, e.g. the cassette tape player was replaced by the cd player, which was replaced by the iPod, which is being replaced by mobile phones. It is not always product and technology related though, how you employ technology and provide services are equally vulnerable to change, the obvious example being the Internet and how you can buy and sell almost anything online these days. So that is why I want to look into business model innovation and how established organisations can approach it.
Business model innovation
The term “business model” is one of the terms that has different meanings to different people and this has led to some confusion (and probably frustration) with regard to what it actually means. My interpretation is that a business model is an organisation’s plan for creating value, making a profit and differentiating itself from the competition. It guides an organisation to create and deliver products/services and make money from them. It describes the product/service, who is it for, what channel sells/delivers it, how demand is created and how does the business make profit.
Let me give a well-known example: Challenging brick-and-mortar bookstores, Amazon’s business model is that it is an Internet company that sells a wider collection of books than stores could carry. Amazon originally started off with selling books, but the business (and business model) evolved and Amazon is now selling almost every consumer article conceivable, and has a range of other services that make consumers’ lives easier, from reading devices to online data storage. It has become one of the top brands in the world.
Although a business model is meant to have more longevity than a strategic plan, that doesn’t mean it will remain relevant and optimised forever. Organisations should periodically ask questions such as “Who are our customers? What value do we offer to them? How do we do this?” If the answers are different than before, it may be time for business model innovation. You can think of business model innovation as “the search for newness.” Innovating your business model helps you find new customers and new markets, create new offerings and, ultimately, create new value. It can also help you discover new ways of doing business.
Today, the rapid pace of technology today has made it possible for companies to innovate their business model without waiting for a new technology to arrive – they simply need to look for new ways to use existing technology to deliver a better value proposition. This includes better, faster, cheaper value to current customers, as well as new value that serve a segment of the market that was previously neglected.
So how does business model innovation work? There are some established methods as well as one or two excellent books covering the topic. However, I am of opinion that a proper understanding of your current business model is the first step to reinventing it using business model innovation. From there it is a matter of investigating the opportunities, imagining future scenarios and generating ideas on how to get there.
Closely associated with business model innovation is “disruption”, a term coined by Clayton Christensen, referring to the occurrence where industries are basically made obsolete through an innovation that creates a new market and value network, displacing an earlier technology. Think of film cameras almost disappearing overnight when digital cameras came into the market. Yes, it can happen in Namibia as well, so next time I will look more into this phenomenon. I conclude with a quote from Demosthenes: “Small opportunities are often the beginning of great enterprises”.
Hassan, K. 2011. Reinventing Your Value Proposition with Business Model Innovation. Online: http://i360institute.com