Business model innovation is shaping up to be one of the most challenging aspects of leadership of existing businesses and aspiring leaders do need to fully understand how to map out the business value.
The question today being faced by many is how to transform existing business models so as to avoid that race to commoditization and decreasing shareholder value and so to provide improved value.
Equally business model innovation increasingly needs to be able to reduce the threat of new competition that is constantly finding ways to undermine your present business. The Entrepreneur is snapping at your heels like never before.
Leaders need the tools, skills and experience to envision, test and implement new business models more than ever and certainly faster than ever.
The worrying aspect today it seems is that many leaders are still not knowing what it is within their existing business model that ‘combines’ to make the existing profit engine of the business, those ‘value points’ that really provide the innovation opportunity to sustain or challenge their existing business models.
So what is Business Model Innovation?
There are numerous definitions of a BMI- let me provide three that I trust build the understanding.
In Alexander Osterwalder’s & Yves Piqneur’s book “Business Model Innovation” they simply explain this as:
“creating value, for companies, customers and society, replacing outdated models that respond to emerging user needs and pressing environmental concerns. A business model describes the rationale of how an organisation creates, delivers and captures value”.
The authors offer nine basic building blocks that build up the complete logic of how a company intends to make money through a new BMI. It basically covers the four main areas of the business: customers, offer, infrastructure and financial viability.
They suggest you construct a business model canvas through exploring key partners, key activities, key resources, customer relationships, channels (to market), customer segments and the value proposition with cost structure and revenue streams.
In Mark Johnson’s book “Seizing the White Space”, he firstly starts with White space as defined as “the range of potential activities not defined or addressed by the current business model, beyond its core and adjacencies that require a different business model to exploit”.
He sees a BMI to have four parts requiring a clear, strong customer value proposition (CVP), secondly the show me the money part- a profit formula that defines how and where the company will capture value for a given set of customers at a given price.
The third and fourth element of this framework is key resources and key processes as the means by which the company delivers the value to the customer and itself.
Thirdly, Boston Consulting Group argues a business model consists of two essential elements- the value proposition and the operating model. Within the value proposition, you need to be explicit on your target segments, product or service offering and revenue model.
In the operating part you need to address three critical parts- the value chain, cost model and organization.
So in summary:
Business model innovation is really all about game-changing moves, partly dependent on the industry and the circumstances. BMI should be seen as a proactive need for all to explore new avenues of growth and opportunity before others steal in and take the space from right under you.
Understanding your value-added points is essential
Articulating the (existing) business model as a first step leads to exploring ways to add further value. Customers want to be served in increasingly different, more exciting ways that often need lower cost delivery, greater convenience or improved functionality or are genuinely novel to the world.
Knowing these value points is vital.
The role of the business model is capturing that value from new innovative insight. Increasingly this is coming from articulating your purpose more than the product or service and discovering the value promise that will gain customers attention and then delivering on it through your redesigned business model.
You need to be really clear on the scope of your business and be ready to outsource the rest to others who specialise in that part more efficiently than you can do. This might be in the area of supply chain, technology platforms, research and development, warehousing and storage, support services etc.
The Catalysts of Change needed for a new Business Model Innovation.
The starting point of a new Business Model is to know what the customer is trying to do that they cannot do as effectively as they would wish today.
These are regarded as jobs-to-be-done or knowing the unmet needs and often not unarticulated as they have not been recognised or even appreciated as needed when you ask. You can recognise these more often through deeper observation to discover the opportunities that are presently not being served correctly.
So the execution of the task or job is becoming increasingly more important to focus upon and today I feel less attention should be given to (existing) known product or services that often over-serve the real need of the customer.
The critical aspect here though is that it must be delivering something the consumer wants resolving not what you might just think from your own internal perspective, it needs identifying and then validating. If you can correctly identify these then you have a potential innovation match that might need a new business model to support this.
For me, there are four powerful drivers that can galvanise BMI- increased visibility, reducing complexity, providing a different effect than the present and altering the perception with significant impact on today’s understanding.
The reason for today’s emphasis on Business Model Innovation
The challenge is to unravel the (increasing) complexities of a business.
There is a consistent need to beat back intensifying competition, not just coming from the normal competition but from emerging entrants that have spotted these breaking opportunities or seen an unmet job that need to be changed and resolve a customer’s needs.
They can quickly translate this into a viable business alternative and scale rapidly to disrupt the existing business providers. This ‘disruptive process’ is happening across all sectors of the manufacturing industry and service and has given rise in these times of increased uncertainty, accelerating global competition and increasingly more choice for the buyer.
As a consequence, it is getting harder to not evolve constantly and this is increasingly coming through a closer ongoing review that Business Model Innovation provides.
To summarize why you need a clear understanding of BMI
Business Model Innovation is becoming essential to understand and explore. Luckily there is numerous references available to refer too, to draw down examples and to gain encouragement to experiment.
It is not something that I would suggest you push away or delegate to others, BMI offers a powerful concept to change the existing ways and to help you identify the present unknowns that can offer new value and growth paths for you and your future business.
- A business model defines a broad competitive approach to business and you need to articulate this
- A successful business model needs to ‘earn’ some sort of competitive advantage to the extent it changes the existing offerings available in worthwhile ways, for the consumer to ‘do something better than what is presently available.
- Having a comprehensive understanding on the focus of competition must also mean a greater focus on innovation, as the relentless changing conditions ensure any business and its model must evolve.
Today you simply cannot afford to stand still, you need to innovate your business model consistently.
In your interesting posting, you write, for example: “The starting point of a new Business Model is to know what the customer is trying to do that they cannot do as effectively as they would wish today”.
Reflecting on this sentence, I came to think about people, who ride their bicycles through cities. I also thought about / did some research on how to make cities more bicycle friendly / improve the experience for people who want to go from A to B. Here are some inputs: http://www.docstoc.com/docs/40354001/Bicycle-Friendly-Cities
BMI – An interesting and important subject and one companies see as being a lot more difficult to tackle than product or service innovation.
I have witnessed companies developing exciting, valuable product solutions, only to throw the value away by sending it through an existing business model. Even worse, I have seen projects killed by business teams building financial models for innovative products, where their reluctance to modify their delivery model (which might upset existing supply chain partners), resulted in excessive distribution costs that reduced margins and made the potentially lucrative product/service “non viable”.
Had they reviewed your article, they would have discovered many ways to explore BMI to take the concept to market in a more friendly and economical way and achieve the level of customer value that could really be deemed “an innovation”
Thank you for sharing this!
KW
Kevin, Thank you for your comments. Your observations about this lack of Business Model understanding and understanding the value points is one of the main causes of failure. There are many ways to ‘think’ BMI and this is clearly something rapidly coming up the Business Leaders agenda to know and understand so they can articulate there value points and equally spot new opportunities. The question is, will they change their existing business model to accomodate this or try, often without luck, to bend it into their existing shape of doing business and that will clearly fail.
Paul, you touch upon several different and highly important aspects in this post and it will be interesting to follow you exploring the issues further. I would not say that “business model innovation is really all about game-changing moves” but fully agree with you about the need for continuous evolution and improvement of a company’s business model. In order to do so an organization needs to learn, to develop new assets and capabilities, to reconfigure the network of actors providing supporting and complementary assets and capabilities, to identify and exploit new opportunities and so on. Given this constant change it is not obvious that companies can be “really clear on the scope of your business and be ready to outsource the rest to others” as it is constantly changing and not obvious how to set up the relationships with “others” when there is a great need to be agile and be able to quickly rearrange the actors around a business. Given that “others” in some cases quickly can become competitors, it is a constant battle on where to be open and transparent, where to be proprietary and keep secrets, where to promote open standards and where to develop strong IPR positions, where to have long-term relationships and where to have temporary ones, where to provide assets and capabilities for suppliers, partners, and other stakeholders. The three business model definitions/concepts you mention are rather similar and perhaps not fully covering these questions.
In the discussion with Mark Johnson, after my critical review of Seizing the White Space, I argued that he missed important aspects in the business model of Project Better Place as he (and Christensen) perhaps focus too much on the customers jobs-to-be-done, as many business models are non-linear with more “customers” than the obvious ones. The jobs-to-be-done concept is really valuable to understand customer-driven opportunities, but I wouldn’t say it’s the given starting point for designing a new business model. I am interested to hear more about the powerful drivers that you have identified, and look forward to read more about it.
Keep up the good work!
//Anders
The Business Model Database (tbmdb.com)
Anders,
Thank you for your wishes and equally for your thoughts on BMI. I think we agree it is a continuous search for BMI improvements, your evolution but we need to look at this from different perspectives- the present occupier of a given space, known competition and new entrants. Each will see BMI differently but why I feel the ‘game-changing’ still stands is in each case it means a departure from the existing and that always means change, sometimes more readical than others but each changes the ‘rules of the game’ by providing a new BMI.
Organizations do need to learn about all the aspects of BMI and you touch on a considerble few of these to raise the difficulties around any BMI change. Thanks for these.
I still tend to disagree with you over the ‘jobs-to-be-done’ as being potentially overstated, I believe it is among the right starting points, far better than general brainstorming for instance. You need context, you need to observe and sense potential opportunity to begin to clarify what your BMI can do that is different from the existing offering. I think jobs-to-be-done is one tag, along with ‘desired outcomes’ or outcome-driven innovation. Each seek to identify the task, the job, the frustration, the opportunity and surely this is a really important point to clarify before you climb into the actual BMI?
I also feel Mark Johnson’s book ‘seizing the white space’ makes a good contribution. I offered a view in a recent book review (www.innovationmanagement.se with the link http://bit.ly/bwKNkS ) of this book alongside Business model generation this view: “Mark states it is hard work with an incredible amount of uncertainty (any BMI). The risk from just reading this one book might be it just freezes you and that is partly why you need the other part of the book equation- “Business Model Generation” to help unfreeze you. It is their combination that gives you the best chance of refreezing a new business model innovation by thoroughly working through both- they do complement each other.
I do think Mark does a good job of providing consistent warnings and ends with his appeal to leaders: embrace and communicate the necessity of business model innovation to get safely past the ones that guard these gates to the future. I like that.
Keep in touch and thanks for your commenty
Do you have any video of that? I’d want to find out more details.|