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What is Business Model Innovation

Business Model Innovation is simply the process of defining or modifying a firm's business model, which involves making specific choices in each one of the nine core elements. Business Model Innovation does not focus on the definition of the product or service offered;  it focuses on how the value the product offers is delivered to the customer, and/or how the firm appropriates value from the customer offering.  This include what internal resources and processes are used, what external partnerships are required, how the customer is reached, what type of customer relationships are established, and how that overall process is monetized.  
Business Model Innovation has emerged as a new category of innovation, distinct and separate from other established and well know innovation types.
  • Product Innovation: This involves the development of a new product or service or improvement in the performance or features of an existing product.  Apple’s continued iteration of its iPhone is an example of this.

  • Market Innovation:This involves finding a new application or market segment for an existing offering.  It may also include changes in the channel used to reach the target customer.

  • Process Innovation: Process innovation is the implementation of new or improved production and delivery methods in an effort to increase a company’s production levels and reduce costs. One of the most notable examples of this is when Ford Motor Company introduced the first moving assembly line reducing the assembly time for a single vehicle down from 12 hours to roughly 90 minutes.

  • Business Model Innovation:  Is the introduction of a new way of creating value for customers, the way the value is delivered, and/or the way the firm appropriates value from the customer offering through changes in any of the . 
Business model design or modification can be applied to a firm's business model on multiple levels: it can be applied to the entire business, or just to an individual product or service offering.  Design changes can involve a single element such as the value proposition, value creation and delivery,  and value capture elements, or it can involve the alignment between these elements.

Who should use Business Model Innovation and why

Business model differentiation has become the new way for companies to stand out from competitors and protect their margins.  Changes in the business model can have a stronger impact on profit margins than product and service innovations and can create strong competitive advantage.  The older static competitive forces based on size, scale, and product features are being replaced by new forces based on speed, agility, and new approaches to business. Thus, business model differentiation is defining a new competitive playing field and has become the new basis for competitive differentiation and advantage.
While most firms adjust their offerings through new products and services, they often do so without changing how they conduct their business. As a result, established business models tend to remain fixed.  This results in firms providing offerings that yield less value then they might otherwise and leaves the business open to disruption by a more innovative competitor.
New business models are being enabled by the new capabilities of disruptive technologies such as ultra-fast Internet everywhere, mobile systems, and artificial intelligence. Failure to consider the impact these technologies can have on your business model can leave your business exposed to diminishing margins and increased competitive pressure.
For these reasons, every company should review their business model and apply the techniques of Business Model Innovation.  This applies to business situations ranging from start-ups and new ventures looking to create their initial business model to exiting businesses seeking opportunities for transformation, or confirmation that have an appropriately competitive business model.  In the future, it will no longer suffice to deal only with new products or new processes in isolation. It is always necessary to deal with the innovation of the business model.  Every change and innovation in the company has the potential for a business model innovation. It is only by changing the business model that a true differentiation from the masses and a competitive advantage and lead can be generated.  Business model innovation must be at the top of the innovators' agenda.
Benefits of using the methodologies of business model innovation cut across all levels of an organization.
  • Innovation Units - Create new business models and value propositions to build new growth engines.

  • Product Managers - Utilize a clear, customer-oriented approach to designing new value propositions and bringing them to the market, or improving existing products.

  • Sales Teams - Better understand the business model and how to sell their value propositions to various customer segments.

  • HR Divisions -To enable understanding of business models among all employees and foster innovative thinking.

  • Corporate Development -Clarify and create a shared language around a business model, for strategic reorientation, or for more effective internal corporate reorganizations.

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