Business model innovation is probably the most challenging type of innovation because it requires an organization to implement major changes. Often, the very capabilities or processes that have made a company successful become the targets for transformation. In some cases, these changes can threaten a company’s identity and conflict with the brand promise.
What is Business Model Innovation?
A business model is a simplified representation of how the business makes money. Using our decision-making model, it is the fundamental set of decisions that form the business and allow for its continued profitability. When it comes to starting business, model generation includes choices for these strategic decisions:
- Identity — Mission, vision, core values and brand identity; how the business wants to be known to its customers.
- Core Resources — Main competencies, processes and strategic partners that allow realization of business opportunities and the value proposition.
- Target Customers/Markets — Focuses on offers to specific customers or market segments that can make best use of the business’s products or services.
- Channel Strategy — ”Path” to reaching the customer and choices for managing customer relationships.
- Customer Offers – Identifies products or services that create value for the customer by solving problems and meeting specific needs or desires and also includes shaping the customer experience.
- Supply Chain Strategy – How will the product or service be created and delivered to customers, and at what cost?
A start-up’s business plan essentially documents these key decisions and also includes information that supports the alternatives chosen. Viability occurs when revenues from customers exceed the cost to provide the products and/or services.
After showing viability, the business must identify how it will fare against competitors. Choosing a competitive advantage strategy typically identifies the areas where the company should focus its innovation efforts (or investments) to maintain or increase the value it provides to customers.
Business model innovation looks for “change opportunity” in making the six foundational decisions briefly described. For long-established businesses, these fundamental decisions may have become embedded in the culture, creating significant resistance to change.
What is your experience with business model innovation?