Business Model Innovation: Avoiding the 'Official Future' Trap
By Teresa Di Cairano |
Business model innovation differs from traditional product and service innovation. It focuses on creating a new value proposition, which, at times, can also become a game changer. This positions organizations proactively and creates a sustainable advantage. Often more than a snappy new product design, it brings a fundamental shift in how the organization (and sometimes the sector) operates. Because of this, business model innovation hits the heart and soul of the organization.
Now part of business legend, everyone is of course familiar with Apple’s business model innovation. While not the first to the market to offer digital music players, other companies focused more on product innovation (i.e. the device) rather than the more comprehensive business model. Examples of business model innovations can also be found in other sectors such as with retail discounters like Wal-Mart and Target. Major airlines that scrambled from their high cost models to respond to the threat of low cost carriers have also had to adjust their business models.
When disruption hits, the knee-jerk reaction is to rationalize operations and increase product cycle development. However, business model innovations are complex and often need to address many aspects of the organization.
In 2010, Alexander Osterwalder and Yves Pigneur co-authored Business Model Generation – A Handbook for Visionaries, Game Changers, and Challengers. In this unconventional business book, the authors propose a business model prototyping tool named “The Business Model Canvas.” It provides a shared language for describing, visualizing, assessing and changing business models.
The Canvas walks stakeholders through key aspects of the business model including, customer segments, value propositions, channels, customer relationships, revenue streams, cost structures and key resources, activities and partnerships. This offers a more complete perspective on the business. In the past, business models have mostly focused on determining how to capture value with a revenue model.
This is a good team tool for front-end business model design - the stage when ideas of the new model are still essentially fuzzy. It allows for a high conceptual level sketch of business models and the ability to model their impact horizontally across the organization. In addition, the visual approach allows teams to rapidly iterate several scenarios before focusing the business model strategy on a given configuration.
Visual methods have some recent history with mind maps that allow for a conceptual and semantic expression of ideas. Scenario planning introduced the notion of considering multiple possible futures. Consistent with aspects of design thinking, visual approaches to business model innovation allow for accelerated learning and for a more holistic perspective. This matters most with radical and disruptive innovation, which can be complex. Conventional business plans often include more analysis, which makes them great for incremental innovation.
Finally, generative visual tools allow for more experimentation and prototyping and can avoid some of the fixedness of business plans. As we are often dealing with hypotheses about the future when innovating, we may benefit from less prescriptive approaches that locks managers into an ‘official future’ in favor of more discovery-driven innovation and leadership.
If your organization is looking for new ways to create breakthrough innovation and business models, learn more about our on-site Innovation Boot Camp and online Innovation Cultures Executive Program.
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