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. Osterwalder and Pigneur in their book Business Model Generation discuss nine key elements of a business model. They are:
- Customer Segments – defines the different groups or organisations an business aims to reach and serve.
- Value Proposition – describes the bundle of products and services that create value for a specific customer segment.
- Channels – describe how a business communicates with and reaches its customer segments to deliver a value proposition.
- Customer Relationships – describes the types of relationships a business establishes with specific customer segments.
- Revenue Streams – represents the cash a company generates from customer segment.
- Key Resources – describes the most important assets required to make a business model work.
- Key Activities – describes the most important things a company must do to make its business model work.
- Key Partnerships – describes the network of suppliers and partners that make the business model work.
- Cost Structure – describes all costs incurred to operate a business model.
Osterwalder and Pigneur have developed a tool which incorporates the nine elements of a business model. The tool is referred to as the business model canvas which allows people to paint a picture of new or existing business models. For more detail refer to the Business Model Generation website: http://www.businessmodelgeneration.com/index.php
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
- 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.