Now that we’ve established some guidelines regarding the concept of Business Model Innovation, here are some more insights on this exciting and constantly evolving trend.
Business model innovation essentially encompasses decisively different ways in which a tangible product is marketed, delivered to customers, or enhanced with services. One interesting point I’ve read several times and noticed with a number of companies is that Business Model innovation is often not technology driven. Sometimes it’s less about product innovation through technical breakthroughs or the creation of a brand-new market. Essentially, a BMI opportunity delivers existing products based on existing technologies to existing markets. Companies may alter their business models by altering what decisions are made, when they are made, who makes them and why they are made.
The What – Every business oriented organization exists to create value for its customers and extract value in return. Companies like Amazon create value by being relentlessly customer centric in terms of how they serve their customers. Other companies focus on product quality, variety, services. An organizations business model is based on key choices made about how to create value, what type of value to create and ultimately – success will be determined by the longevity or sustainability of the business models value proposition.
What an organization chooses to offer – a product, a service, both – how it chooses to deliver the offering, is key. (e.g. diapers.com, amazon.com – and other companies which started out offering a very specific product offering through clearly defined channels). Other examples are Blockbuster, Redbox & Netflix. Organizations can evolve their “What”” through Focus. Determining what decisions to select when defining a Business Model, could significantly impact an organizations level of risk and exposure to inefficiencies. It’s also important to balance focus with some level of flexibility.
The When – If you can modify your business model by changing when decisions are made, you will have reduced information risk and inefficiencies it creates. (e.g. companies which invite customers to provide some sort of indication of what products or services they like – before actually committing time and resources to creating the products or services. In this case “The When” – a product is created is driven in large part by the customers indication of preference for certain types of product offerings.
Rather then guess what the demand might be at an earlier point in the business process, this model allows THE WHEN of deciding on the assortment and style of goods to wait until clear evidence of customer preferences is available. In business, timing often plays a key role in an organizations success. When a particular product is created and made available to customers, is key. At Zara, the key to changing the wen of the business model is to identify the organizations key decisions and understand when information adequate to make them becomes available at acceptably low risk.
The Who – A particular person, or customer persona – an employee, subject matter expert, government regulator, committee of leaders, customer service representatives, industry watchers or some key set of individuals make the key decisions regarding what product offering is created. Ideally, the decision maker relies on the best available information so as to maximize the value created by the decision. Obviously, the choice of decision makers affects the success of the organization – so it’s important that the individuals decisions are made based on specific, informed insights. An example is the buying process at Zara…. And Amazon’s delegating the decision as to what books to carry to a network of wholesalers, in its early days.
Walmart made a decision to allow Procter & Gamble to own replenishment of its store shelves because it saw that P&G was best positioned to optimize the entire value chain – production and transportation logistics. Often times, business models designate the wrong parties to make key decisions. This often results in business inefficiencies and increases business risks. One of the things that makes Amazon great is it’s continuous re-evaluation of the “Who” of it’s business model. Clearly “The What” of it’s model has grown significantly over the years. The “How” – it creates value – distribution channels, ease of use, value added offerings and upselling, using Business Intelligence – all great business model innovations on how – which further strengthen the what.
The Why – In this case, the design of a business model typically imposes certain goals and incentives on decision makers. Ultimately, decision makers must create value – incentives have to be adjusted so that the parties can pursue their objectives without damaging the value chain. The why of every key decision has dramatic implications for every organization, in terms of business impact. What incentives to decision makers have to do certain things – to make certain decisions. Are all BDM’s aligned regarding why certain decisions are made? Are all BDMs and their teams incented in consistent ways? Are there “incentive-alignment” risks?
Ultimately though – It’s all about the money. Every business owner or for profit organization has to care about
- How much money is generated – Revenue
- How much money is being spent in order to generate the revenue – Costs/Expenses
- How much profit is generated – based on the value created vs. the value captured
Aspiring Entrepreneurs, Business Leaders & Consumers can all benefit from learning more about BMI – two key publications which offer many of the insights I’ve shared in my posts are “The Risk Driven Business Model” & “Business Model Generation”. Both are great resources for anyone looking to learn more about why and how Business Models evolve.
So, as you examine your spending habits, start looking out for different types of business models. Which organizations are offering you tangible value at compelling price points? You may find that you have more options than you thought……