Business Model Innovation

Business Model Innovation

A business model is a conceptual framework that encompasses a company's processes for creating value and delivering that value to its customers. On the other hand, business model innovation is the name given to creating brand new ways of doing business or to strategically diversifying your business in a way that will be found valuable by customers and earn you more money.

Business model innovation is a type of innovation that aims to gain advantage and create value by making simultaneous and mutually supportive changes both in the value proposition offered by a company to its customers and in the business model implemented by the company for its products or services.

At the value proposition level, these changes can be addressed as target segment, choice of revenue model, product or service proposition. At the business model level, the focus is on decisions about how to deliver the value proposition, how to drive competitive advantage and create value.

Technology has made it easier than ever to effectively adopt a variety of new business models. At the same time, the increasing pace of innovation and global competition has made differentiation more important than ever. In this context, large companies may also need to periodically innovate in their business models.

"What kind of business model innovation should we implement to achieve maximum performance?"
"What business model innovations can we make without jeopardizing our core business?"
"How can we improve our ability to develop, rapidly test, and scale new business models?"

On the other hand, business model innovation is also critical to business transformation. Many companies have common concerns as above. Here are the steps to follow in response to these concerns:

  1. Holistic consideration of how companies create value for their customers and themselves
  2. Evaluation of existing business models
  3. Making existing business models changeable

Let's look at examples of companies implementing business model innovation.

  • Shortly after its founding, Dell changed its business model to offer PCs directly to the end customer without a retail intermediary. Unlike many of its competitors, the company has focused on structuring its supply chain and distribution to best meet market expectations, without having to deal with retailers. Their business model innovation has made the company one of the largest global players in the computer industry.
  • Unlike other furniture manufacturers in the market, IKEA has achieved significant savings in supply chain management costs by stocking the furniture disassembled and selling it to customers as such. With this savings being reflected to the end consumer as a price advantage, it made the "do it yourself" model accepted all over the world and achieved greater profits by implementing a different business model innovation than its competitors in the market.