For a term with over 88,000 Google results, “business model innovation” remains a remarkably opaque concept. It is used to describe everyday cost-cutting initiatives (perhaps as a euphemism) as well as fundamentally new ideas like Groupon or microinsurance.
In new research with the global consulting firm Monitor, I have co-written with Geoff Tuff an article on what this concept means, how two simple tools can point to the highest potential areas for business model innovation, and how companies can get started on such a seemingly amorphous challenge. The article also profiles 20 types of business models that can be applied by analogy to a wide range of industries.
One key finding is that business model innovation must be linked to a profound re-thinking of customer experience. Done right, this can make target customers embrace the new business model even if it lowers a company’s costs. Without taking a customer-centric view of a new business model, a firm risks alienating key partners, causing internal dislocation, and losing its competitive differentiation.
Research on over 5,000 companies shows that business model innovation should also involve at least 6 of 10 types of innovation that Monitor’s Doblin unit has defined in previous work. This thorough approach helps to ensure that a new business concept is not embedded in an old business model, and it makes the idea tough for competitors to mimic.
Business model innovation is seldom easy. Yet there are clear ways to start without taking undue risks. The imperative is to get moving, because the quickening pace of change in most industries means that companies have to re-examine their business models to defend against asymmetric threats while reaping the upside of change.
Story by Steve Wunker.