Business Model
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Leaders frequently define their business in terms of the products and services they deliver and so focus on these for innovation. However with technological advances and globalisation presenting so many new opportunities, and threats, leaders are now looking to gain a competitive advantage through innovative business models. Business model innovations have the power to transform businesses and reshape entire industries.
Business model innovation is about being different – really different. And you can be different in ANY industry.
The business model is the way(s) that businesses make money out of their ideas, resources and technologies. Every company has a business model, whether it is documented or not. Key elements of your business model are1:
- Customer value proposition. How you create value for customers by helping solve an important problem or meet an important need that alternative offerings don’t address.
- Profit formula. How you generate value for your business through revenue, cost structure, margins and inventory turnover.
- Key resources and processes. The people, technology, products, facilities, equipment, and brand required to deliver the value proposition to your target customers.
To determine whether you should change your business model consider:
- What makes your existing business model successful? For example, what customer problem does it solve? How does it make money for you?
- Are there signals that your model needs changing such as tough new competitors?
- Is reinventing your business model worth the effort? Will it result in a significant competitive advantage for your business?
There are significant opportunities to transform your business through moving to an open business model, through new revenue streams and a reduction in costs. The most common business model innovations include2:
- Organisation structure changes
- Major strategic partnerships
- Shared services
- Alternative financing/investment vehicles
- Divestitures/spin-offs
- Use of third-party operating utility
1 Johnson, M., Christensen, C., and Kagermann, H. Reinventing Your Business Model. Harvard Business Review. 2008.
2 Expanding the Innovation Horizon. The Global CEO Study 2006. IBM Global Business Services, 2006.
Links to subsections of this topic
Leadership and Culture
Build the right team
Plan for Growth
Business Model
Monitor Performance
Uptake Technology
Programs and Services