Reinvent yourself - or go under! Are you an entrepreneur and always facing a new beginning? Are you a manager and once again recognize the need to reinvent the business model for your company? Why is this the case and what is the best way to deal with it? If you're wondering this, you've come to the right place!
In an earlier post, I wrote in detail about the Basics of business models written. This article is a good start to prepare for the topic of business model innovation. The following is about exactly that: the innovation of business models.
The business model innovation approach
Business models are wonderful - especially when they work. However, they also harbor some risks. Because our world is not static. However, business models, especially functioning business models, usually do not "want" to change. Companies that want to survive in the long term must recognize this and find a way to continuously reinvent themselves. This is the business model approach Innovation. The aspect of continuous innovation thus delimits the concept of Business model innovation from the predecessor concept Business model from.
Especially in turbulent times, business model innovation holds enormous potential for profit and growth. However, business model innovation is much more than just offering a new service or developing a new product. Business model innovation is a holistic approach that affects the entire company and the entire organization. This makes business model innovation very challenging, probably more challenging than other innovation approaches such as product, service, process or management innovation.
In practice, it is often difficult to implement innovation in the business model in one's own organization. Unfortunately, this is why many attempts to reinvent business models fail. The best antidote: get all stakeholders on board with the business model innovation project right from the start! Sometimes it can also make sense to found a new, independent company (start-up) around the new business model. This makes sense, for example, if the new business model competes with the existing company.
For innovation in the business model to succeed, all stakeholders must be won over to the project from the outset. Without the support of the entire organization, business model innovation approaches have little chance of success. Sometimes it can also make sense to establish a new, independent company (start-up) around the new business model.
When is a business model actually new?
Innovation means renewal. But how can innovation take place in the business model? And what does new actually mean? There are at least two basic perspectives here: the degree of novelty of a business model; and how new the business model is in a given industry. In both cases, the challenge is that initial market and internal company resistance must be overcome.
More generally speaking, the innovation of a business model can either consist of inventing or introducing a completely new business model or adapting an existing business model. If an already established business model is tackled, it is to be expected that "the business model does not want to change". If this resistance is not overcome, the business model will sooner or later go under. This is precisely why Business Model Innovation seeks to continuously renew business models and help companies achieve sustainable success.
Business model innovation helps companies to continuously renew their business model in order to achieve sustainable success.
Business model Innovation as an innovation process
I see the innovation of business models as an innovation process. This process is either about accompanying the transformation from one business model to a new one or developing completely new business models. But be careful, innovation processes also change. In my opinion, classic, linear processes are not very suitable for business model innovation. Instead, the process of business model innovation should be thought of as iterative, continuous and networked.
Technology and business model innovation
I would like to pay particular attention to the fact that business model innovation and technology should usually be considered together. The concept of business models originates from the technology sector, which around the turn of the millennium made it necessary to find new ways of modeling complex business relationships. A key insight is that innovative technology without an associated business model is often doomed to failure.
Entrepreneurs who can combine new technology and can combine new business models, they can expect enormous success. The big tech entrepreneurs of our time are demonstrating this and, strictly speaking, are not technology innovators but business model innovators.
Entrepreneurs who can combine new technology and can combine new business models, they can expect enormous success. The big tech entrepreneurs of our time are demonstrating this and, strictly speaking, are not technology innovators but business model innovators.
Another aspect is that in today's age of communication, the wheel is starting to turn faster and faster. Established business models are failing in ever shorter periods of time and have to be changed, reinvented or abandoned earlier and earlier. Business model innovation is therefore not an optional extra for a company, but must be part of the compulsory program. The process of business model innovation must be carefully but clearly managed and accompanied. Decisions on technology development or the use of technology should always stem from a business model innovation approach.
Innovation in the business model
Following these basic considerations on the topic of business model innovation, I will now attempt to define business model innovation. In doing so, I will build on the definition of the business model from the previous post on. There I defined the business model as follows:
Business models can be defined as simplified but complete, holistic and dynamic representations of how a company operates, consisting of four value-oriented elements, namely: value proposition, value creation mechanism, profit formula and value network; which, when deployed at different levels of the organization, can act as a communication tool, a link between strategic objectives and technology and/or a source of competitive advantage.
Translated from Hagl and Duane, 2018
In more practical terms, the business model concept can be summarized as follows:
A business model is a simplified but complete representation of how a company works. This holistic approach consists of four value-based elements that are interlinked and interdependent (value proposition, value creation, profit formula, value network). The business model can act as a link between technology and strategy, as a source of competitive advantage, or as a communication tool.
Based on this summary, there are now three dimensions to the innovation of the business model:
- Innovation one of the four business model elements
- Innovation in the way business model elements are linked together
- Innovation of one of the business model functions
Innovation of business model elements
As stated in the definition, a business model consists of four value-based elements. The value proposition element describes the value the company offers or promises to fulfill to its customers. The value creation block is about how the company fulfills its value proposition. The Profit formula section is about the company's finances and how the company earns money. Last but not least, the Value Network section describes numerous other flows of value exchange that can have a positive or negative influence on a business model.
Innovation in the business model can therefore be achieved by making changes to one of the four business model elements. This could, for example, be a new cooperation partner for value creation or an innovative financing approach. The possibilities here are virtually endless.
Another way to innovate in the business model is to change the way in which business model elements are linked together or to respond to new requirements. The use of software (value creation element) has traditionally had a detrimental effect on financing requests (profit formula element), as banks usually do not see any security in software licenses. Nowadays, however, software often no longer has to be purchased, but can be rented as a service (cloud service). This provides liquidity and is one explanation for the enormous success of cloud services.
Innovation of business model functions
As described in the business model definition, business models fulfill various functions. Viewed holistically, business model innovation can therefore also mean how the function of the business model can be renewed ("innovated").
However, this topic is very industry- and company-specific. It is also, in my opinion, the least researched topic to date. It is therefore beyond the scope of this article to shed further light on it here. I intend to present further examples and approaches in future articles. However, initial thoughts on the topic of innovation of business model functions can be well guided by the following three aspects:
- Innovation of the business model function Link between technology and strategyWhat needs to change in my business model so that technology and strategy work hand in hand?
- Innovation of the business model function Competitive advantage: How can I change my business model to secure a competitive advantage? How do I need to change my business model in order to gain a competitive advantage?
- Innovation of the business model function Communication toolHow can I live business model innovation in order to communicate better, both within my company and externally?
Business model innovation defined
After these preliminary considerations, I would now like to attempt a definition. With a somewhat scientific approach, I define business model innovation as follows:
Business model innovation is the continuous process of creating new business models or the innovation of one of the business model elements (value proposition, value creation, profit formula, value network) or their interaction; or the innovation of one of the business model functions (link between technology and strategy, competitive advantage, communication tool).
Translated from Hagl and Duane, 2018
So much for the basics of business model innovation. I will look at how the whole thing can be applied in practice in further articles using examples and (theoretical) considerations.
Literature
Hagl, R. and Duane, A. (2018) Exploring the Impact of Augmented Reality and Virtual Reality Technologies on Business Model Innovation in Technology Companies in Germany. In: Australasian Conference on Information Systems. 2018, Sydney, Australia.