What is business model innovation?
Traditional, product-oriented business models no longer work in the age of digitalisation. Many previously successful companies fail again and again for the simple reason that they do not adapt their business model to the ongoing changes. In the meantime, there are various new and digital business models. The special feature of a digital business model is that it describes an exchange of a service and a service in return via digital technologies.
The innovation of a business model in general is defined by two aspects. On the one hand, through a change in the value proposition and, on the other hand, through the adaptation of the underlying business model. With regard to the value proposition, changes can concern the choice of the target segment, the product or service offering and the payment model. With regard to the business model, the focus is on how profitability, competitive advantage and value creation can be increased by delivering the value proposition.
A current and highly popular topic
As digitalisation has received a big boost from the pandemic, the topic of business model innovation has become more present. But if we look more closely, we see that the topic has always been on our minds. In terms of technology and digitalisation, Google, Microsoft, Amazon and Apple are probably the best examples of business model innovation. With the rise of Spotify and podcasts and social media, many new or adapted business models have emerged, most of which are digital. Start ups in particular are also known for shaking up industries or discovering exciting business models, but more and more established companies are also seeing the young competition and becoming active: for example, in the shared economy, such as Car2Go by Mercedes and BMW.
All these business model innovations have as a common driver that they are responding to the declining competitiveness of companies. This is due to the increasing volatility of the market and growing customer segments. Because this makes business models age even faster these days – and if new opportunities are not explored, companies are left behind. Especially in dynamic times like these, companies need to react proactively. This also means that the old business models are slowly dying out.
Prerequisites of a business model innovation
Transformation does not simply mean implementing a new technology or making a simple change in the business. First of all, leadership must embrace the idea of business model innovation and let go of the past. Once a transformative mindset is in place, it must be transferred to the entire leadership team and then to the employees. After all, innovation and the associated mindset should, at best, be embedded throughout the entire company. As already described in the article Frugal innovation and innovation without a budget, companies do not necessarily need a huge budget for innovation. Business model innovations do not need this either and can also be scaled very quickly and easily. Moreover, many business model innovations have emerged from start-ups that also had less budget available.
How can a business model innovation be created?
From a methodological perspective, there are countless concepts and models for creating a business model innovation. The Business Model Canvas by Alexander Osterwalder and the Business Model Navigator by the University of St. Gallen are presented here.
Business Model Navigator of the University of St. Gallen
Here a business model consists of 4 dimensions. If at least two dimensions are changed in a coordinated way, one can speak of a business model innovation.
1 The customer: (Who) is the target customer and what are their needs,
2 The value proposition: (What) is the value proposition and with which benefits (products or services) do we offer it,
3 The value chain: (How) is the value proposition delivered or how is the service produced,
4 The revenue mechanics: (Why) is the business model profitable?
Business Model Canvas by Alexander Osterwalder
Here a business model is structured in 9 parts:
Key partners, Key activities, Key resources, Value Proposition, Channels, Customers, Customer Relationships, Costs, Revenue.
Each of the 9 parts is examined individually and all thoughts on them are recorded in writing so that a harmonious business model emerges at the end. This can be done digitally as well as by crafting and with Post-Its. The method is extremely transparent, comprehensible and flexible and pays particular attention to the customer experience.
Business Model and Open Innovation
It is often the case that business models are developed or transformed by the management level. However, it is employees, customers, partners and research that offer valuable input. By opening up, a differentiated view of the problem emerges. The creation of a network could also create the opportunity to develop a business model together with a partner. Using the open innovation approach with ideation, co-creation and intrapreneurship to develop a business model innovation offers great potential, and AnyIdea is happy to be your platform.