The Growing Trend of Business Model Innovation
Creating value through Business Model Innovation
In today’s highly competitive and fast-moving technology advanced market space, much of the innovations and cost savings that could be achieved have already been achieved. As our economy continues to put companies under resource scarcity, managers are hesitant to make any big changes where the potential value is accompanied by a degree of risk. A recent piece of research by Raphael Amit and Christoph Zott (Sloan Review, March 2012) uncovered how companies are focusing more on complementing their product or process innovations through business model innovation.
The value of using Business Model Innovation can be seen by looking at today’s market leaders, for instance Apple, who has created such a competitive advantage with their business model that even if someone comes up with a better MP3 player, a very small proportion of Apple’s hundreds of millions of consumers will be open to switching brands. However, the way Apple developed their business model was a great success because it was appropriate for their situation. This is critical for companies who wish to embrace Business Model Innovation to understand.
How much an organisation changes should be driven by what result they want to achieve, i.e. subtle and incremental improvements or the creation of new markets and exploitation of new opportunities. Whatever the desired outcome, a company’s model can be changed by targeting one or more of the three main business model design elements: content (the selection of activities to be performed), structure (how the activities are linked and in what sequence) and governance (who performs the activities).
Manages will know if embracing Business Model Innovation is the right move by considering their company’s uniqueness in the context of the networks and ecosystems in which they operate. Six questions have been created to help managers achieve this level of understanding:
- What perceived needs can be satisfied through the new model design?
- What novel activities are needed to satisfy these perceived needs?
- How could the required activities be linked to each other in novel ways?
- Who should perform each of the activities that are part of the business model?
- How is value created through the novel business model for each of the participants?
- What revenue model fits with the company’s business model is appropriate part of the total value it helps create?
Focusing innovation efforts on the business model will provide a company with an important source of innovation and enable them to look beyond its traditional set of partners, competitors and customers. The message from this research is powerful and executives should take the following into consideration when considering how and where to innovate: look at the forest, not the trees – and get the overall design of your activity system right before optimising the details.
To read Raphael Amit and Christoph Zott’s article in full:
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