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What is business model innovation? Written on . Posted in Innovation.

What is business model innovation?
Summary : Companies will only survive in global competition if they manage to be successful with business model innovations. Learn the basics and how to approach business model innovation.

Content

1. Definition of business model innovation
2. Value Proposition
3. Revenue Logic
4. Value Creation Logic
5. Diffusion Logic
6. How to Make Business Model Innovation
7. How to increase the systematics for business model innovation
8. The Digital and Sustainable Outlook

1 Definition of business model innovation

Maybe you feel the same way as most. You have one idea of the term, but your colleagues have another. Business model innovations are one of the three types of innovation types outside of incremental product or process improvements.

So new product models or an extended functionality of a product are not a business model innovation. Also an improved process. A new business model only emerges when you change at least one element of the value creation or delivery method. A new sales channel, a new market segment, a new service offering could represent a business model innovation for you.

business model innovation is the successful introduction of a new or changed business model of organizations.

Business model innovations can be very effective if they compete with models established in the industry.

Unlike product or process improvements, it carries a higher risk because it affects multiple parts of the way an organization creates value and delivers it to customers.

The term assumes that you know what innovations and a business model are.

An innovation is something new that creates value for customers. The new can be anything from the customer's point of view. It doesn't necessarily have to be new. A new combination of old things is also enough. Value for the customer can also be seen from the customer's point of view and is therefore often subjective.

A business model is a description of how an organization makes money. It describes the benefits, the way they are generated and delivered to the customer and how the activity stands on economically sound feet.

You can map business models in different ways. The best-known representation is probably the "Business model canvas" after Alexander Osterwalder and Yves Pigneur. It containes nine areas (revenues, expenses, customer benefits, customer segments, customer channels, customer relationships, key activities, key partners and key resources). In this model, aspects of the supply chain come into their own, but this is a prerequisite for incorporating sustainability into the business model. Business model canvas after Osterwalder and Pigneur

business model canvas according to A Osterwalder, Y Pigneur

Another representation is the St. Gallen model. It focuses on the target customer, the value chain and the revenue mechanics.

St. Gallen business model according to Gassmann, Frankenberger, Czik

St. Gallen business model according to Gassmann, Frankenberger, Czik

However, the illustrations are usually a simplification that does not reflect the full complexity. Therefore, it is advantageous to have an understanding of the four basic logics. These allow a description of how different aspects of the business model work and, if necessary, how your own business model competes with others.

basic logics of a business model; each of the four quadrants can be an advantage over the competition.

2 Value Proposition

The description of the customer benefit, the tasks that a product solves for the customer, the journey that you enable for the customer with your product (from A to B), how the offer is valuable from the customer's point of view and different from the competition, these are parts of the value logic. Some approaches have established themselves here, such as Design Thinking, Blue Ocean or Jobs to be done.

Unfortunately, you only know whether a value logic works when the customer puts money on the table.

3 Yield logic

The model has to pay off. A business model that only makes losses cannot be maintained for a long time. What is the revenue? That is, how is monetization done? What is the basic economic unit (piece, month, generated value) around which everything revolves? What are the costs of generating value?

4 Value Creation Logic

What is purchased? What do you make yourself? Where does this happen? Which standards should the value generation meet?

5 Diffusion logic

How do you deliver value to customers? How do you distribute the products? Do you use distributors, or do you rely on retailers or key account managers? Or exclusively online? Can you exploit network effects? Can you use existing platforms to quickly distribute your product to many customers?

The four logics are coupled with each other. If you change one part, then it has an impact on another. The best solution can only be found by playing through many variants or by iteration.

The four logics can contain strategically important elements. For example, if you base the business model on something rare (such as customer data, patents), then a stronger (less vulnerable) model is created than without. Network effects or the clever use of complementary products also play a role. These can be enabled in "ecosystems".

This means, a business model is not isolated. It is embedded in many other business models. Risks and opportunities for your business model are also determined, for example, by those of your suppliers, your customers or your development partners.

Another lever is the internal structure of the many components of value creation. Think of Ikea. They have products as flat and immediately available packages with a catalog as a replacement for sales personnel. These are aspects that other furniture stores can copy in themselves. However, very few furniture stores will be able or willing to build large exhibitions with an attached warehouse and few staff quickly. The coupling of the different value proposition (immediate availability and self-assembly) and the internal structure has given Ikea a good market position in recent decades. Added to this is size and thus cost efficiency. Printing for sustainable and durable products and organizing the global supply chain can now be a challenge for Ikea.

Every innovation needs a business model.

Even if you only make small improvements to existing products or processes, these innovations are also linked to a business model. In this respect, the innovation is limited exclusively to a small part. Because your existing business model has already proven itself, these innovations will involve less risk than if you set up a new business model.

Long-term you need business model innovations

With gradual improvement of products and processes, you can achieve a lot. Think of the trendsetters in Japan who conquered entire markets in the 70s with strong quality management and continuous improvement. However, if you rely solely on this low-risk type of innovation, you run the risk of new entrants delivering the value proposition to your customers in a new way. Usually there are new participants who initially do not have your customers as a target group and offer a good and stripped product at a lower cost. They have other customers in mind. Some of your customers still jump off because the simple products are enough. The products of the new supplier get better over time and so your position in the market becomes weaker and weaker. There comes a point where the size and the associated fixed costs become a disadvantage.

Archetypes of business models

Even though they are not a blueprint, there are archetypes that can serve as inspiration for your business model innovation. For example, renting instead of buying from car sharing. Online marketplaces, complementary products in the AppStore. It's worth knowing the archetypes It might be that you can use some aspects.

Business models based on future trends

Even if innovations should fit the here and now, because you can't predict the future, it's also worth considering what a future business model might look like if trends arrive as predicted. A change in a business model takes some time, so you do well to think about possible options. This increases the space of possibilities and will make you react faster when the time is right.

6 How to Make Business Model Innovation

You see, business model innovation can be a bit complex. However, you can do a lot that favors innovation.

1 Open yourself and your organization to business model innovation

This point is important. The self-image and identity that result from the existing model are deeply rooted in the DNA of your organization. Jumping from one business model to another is not an easy one. Communicate the need to continuously engage with it and keep an eye on others. This is the only way to maintain competitiveness. A good example is perhaps Fuji Film. The core business has collapsed due to technological change. However, based on existing technologies, knowledge and skills, new products have been created for new markets.

2 Involve a lot of people in the innovation process

The more employees, customers, competitors or other interested parties bring in their perspective, the more likely you are to create something that is accepted and at the same time novel. You will not use all wishes or ideas, but you will consciously decide for or against something. This is the prerequisite for a good strategy. From this, assumptions are derived, which you confirm over time, or on the basis of which you can adjust accordingly.

Openness allows you to consider more relevant things. This reduces the risk and the resulting selection or focus increases the speed of implementation.

3 Give interested employees training in business models

If you or employees are stuck in the hamster wheel of an existing business model, you will have little training in business model innovation. Give your employees the opportunity to train and set some tasks for practice or further development of your own model.

4 Scan the environment

Changes in the environment, i.e. in your customers, partners or competitors, happen continuously. There are also influencing factors in the environment, such as technologies, trends and regulatory changes. You should follow the changes closely and evaluate them continuously for your own business model,

Below are four ways to get started with business model innovation.

5 Play through variants

Use well-known variants of business models and see if they can use something for your own. For example, if you have very durable and high-priced products, you could try to offer them to customers through a rental and service model. This will have major consequences in the organization, which will have to adapt to freeing the customer from worries and problems even more than before. You can try to design an analog one based on other business models, or you can use others to outline opportunities for a strong new competitor.

6 Entry 1: The nasty competitor

Imagine that a new competitor comes into play, without history, without legacy. How could he take customers away from you?

7 Entry 2: The nasty trends

Imagine that all the trends that make your life difficult come together. Your supply chains are disrupted, your suppliers are not able to implement the requirements for sustainability or human rights as well as you can. The topic of sustainability causes costs to skyrocket. What would an adapted model look like that is robust enough to lead to growth even under these circumstances?

8 Entry 3: The Nice Trends

Imagine there are trends that make your life easier. Maybe they do the same for competitors? How could they use them more?

9 Entry 4: The Reduction

What are the core elements of your industry? In the hotel industry, it has been the hotels. AirBnB has shown how to organize overnight stays without high fixed costs. Take away a core element and see how you can still make your customers happy. Maybe you take away one that entails high costs.

7 How to increase the system for business model innovation

The outlined entry opportunities are often already good enough to come up with ad hoc ideas. However, you can increase the quality if you continuously collect and review ideas, information and trends. Often, barriers to business model innovation are not recognized. It starts with an awareness that it makes sense to deal with other industries, trends or business models.

The active search for ways to further develop business models and the capture of ideas in a system are rare. The transparent listing of possibilities, the application of logics and the involvement of different interested parties will help you to create a culture, not only to improve the existing business model, but also to complement it, partially or completely replace it with a new one.

In addition, you can encourage behaviors that make innovation more likely:

  • Collaboration: Promote the cooperative behaviors needed to solve real organizational problems,
  • Customer centricity Customer centricity helps to eliminate problems and leverage potential. Also look at non-customers or fast-customers,
  • Curiosity Encourage curiosity to challenge the status quo and explore opportunities,
  • Imagination Promote imagination to arrive at new combinations and solutions, Empower your people with training, tools, and a little resources to develop, test, and implement ideas.

8 The digital and sustainable outlook

The technologies of the digital age have dramatically changed the way companies work and provide services to customers. Digitalization has accelerated many things, including the life cycles of business models. The life expectancy of business models is decreasing, making business model innovation a must for most organizations. They are the key to financial success in the market.

At the same time, customers are increasingly demanding sustainable or climate-neutral solutions. You want to make your contribution to sustainability. More and more governments are introducing laws that force companies to operate consistently and sustainably. This includes the own added value but also that of the supply chain.

Companies will only survive in global competition if they manage to be successful with innovations of the business model. Be a winner!

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