Reinvent yourself - or go under! You are an entrepreneur and are always faced with a new start? You are a manager and recognize the need to reinvent the business model for your company again and again? Why is this so?; and what is the best way to deal with it? If you are asking yourself these questions, you have come to the right place!
In an earlier post I talked in detail about the Business model basics written. This post is a good start to prepare for the topic of business model innovation. The following is now about just that: business model innovation.
The approach of Business Model Innovation
Business models are wonderful ? especially when they work. However, they also harbor some risks. After all, our world is not static. Business models, however, especially functioning business models, usually do not "want" to change. This is precisely what companies that want to survive in the long term must recognize and find a way to continuously reinvent themselves. This is the approach of Business Model 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 profit and growth potential. 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 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 the innovation in the business model in one's own organization. For this reason, many attempts to reinvent business models unfortunately fail. The best remedy is to win over all stakeholders for the innovation project in the business model right from the start! Sometimes it can also make sense to establish an independent, new company (startup) around the new business model. This makes sense, for example, if the new business model competes with the existing company.
For business model innovation to succeed, all stakeholders must be won over to the project right from the start. Without the support of the entire organization, business model innovation approaches have little chance of success. Sometimes it can also make sense to establish an independent new company (startup) 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 newness 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, business model innovation can either consist of inventing or introducing a completely new business model; or of 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 perish. This is precisely why Business Model Innovation seeks to continuously innovate business models and help companies achieve sustainable success.
Business Model Innovation helps companies to continuously innovate their business model in order to achieve sustainable success.
Business model Innovation as an innovation process
I view 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 about developing completely new business models. But beware, 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 draw 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 to model 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 new business models face enormous successes opportunities. The great tech entrepreneurs of our time demonstrate this and are, strictly speaking, not technology innovators, but business model innovators.
Entrepreneurs who can combine new technology and new business models face enormous successes opportunities. The great tech entrepreneurs of our time demonstrate this and are, strictly speaking, not technology innovators, but business model innovators.
Another aspect is that in today's communication age, 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 at an ever earlier stage. Business model innovation is therefore not the free skate of a company, but must be part of the mandatory program. The process of business model innovation must be managed and accompanied carefully but clearly. Decisions on technology development or technology deployment should always stem from a business model innovation approach.
Innovation in the business model
After these basic considerations on the topic of business model innovation, I will now venture a definition of 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, comprised of four value-orientated elements namely: value proposition, value network, value creation mechanism, and value capture and finances; which when deployed at different firm levels can act in a business function capacity as a communication tool, a mediator between strategic objectives and technology, and/or a source of competitive advantage.
Hagl and Duane, 2018
In more practical terms, the concept of a business model 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 interrelated 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, three dimensions now suggest themselves for business model innovation:
- 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 what value the company offers or promises to deliver to its customers. The value creation block is about how the company fulfills its value proposition. The Profit Formula element 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 positively or negatively influence a business model.
Innovation in the business model can therefore take place by making changes in one of the four business model elements. This could be, for example, 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 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 security in software licenses. However, nowadays software often does not have 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. In addition, I believe it is the least researched topic to date. It is beyond the scope of this article to go into it further here. I plan to present more examples and approaches in upcoming posts. However, initial considerations on the topic of innovation of business model functions can be well guided by the following three aspects:
- Innovation of business model function Link between technology and strategy: What needs to change in my business model to make technology and strategy work hand in hand?
- Innovation of business model function Competitive advantage: How can I change my business model to secure a competitive advantage? How must my business model be changed to become a competitive advantage itself?
- Innovation of business model function Communication tool: how can I live business model innovation to communicate better; both within my company and externally?
Business model innovation defined
After these preliminary considerations, I will now venture a definition. With some scientific pretension, I define business model innovation as follows:
Business model innovation is the continuous process of creating new business models or innovating any of the business models components or their interplay namely: value proposition, value network, value creation mechanism, value capture and finances; or innovating its business function capacity as a communication tool, mediator between strategic objectives and technology, and/or as a source of competitive advantage.
Hagl and Duane, 2018
So much for the basics of business model innovation. In further articles, I will look at how the whole thing can be applied in concrete terms 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.