The tune of Business Model Innovation is a lovely one to my ears. Some people may think that it’s another buzzword, but it’s not, and I will explain why.
Besides being a musician, I am also one of these two-headed creatures: I have an engineering background in the high tech and telecom industry but I have also evolved in marketing functions for over 20 years in different industry sectors. In these two positions, I have experienced the miscommunication between these two profiles, which came with its lot of frustration and sometimes an impression of schizophrenia.
Starting to get involved with Business Model Innovation for some time now, it appears to me that this approach can be a way to orchestrate different parts of an organization around a common theme, with a common score, where everybody will bring their specific instruments virtuosity.
Before composing and interpreting, let’s set the scene
In this era of hypermodernity, comes its lot of innovation and challenges which are disrupting our business environment. To name but a few: the evolution towards a digital world and therefore a digital enterprise from product, customers, partners, employees, to distribution channels and business processes. The other one which corresponds to a real shift in the economy is the advent of a more collaborative model. Among the main challenges for a company to overcome, we can name low end disruptors, new technologies creating data profusion, and clearly the economic situation and political decisions such as deregulatory laws that the enterprise has to comply with.
So what type of strategy can companies devise in response to all these drivers, and more importantly how to execute on it?
Two major strategies can be put forward or hopefully combined:
- lower the costs either to protect the core business and survive through this turmoil, or even to increase the bottom-line
- develop new revenue streams expanding the core with peripheral offerings, exploring new markets whether industrial or geographical, or even disrupt the whole core model for a real growth strategy.
So what should be the role of the different lines of business within the company to ideate, formalize, and execute on this strategy and on the new business model which will emerge from this initiative? Should IT work on its side on driving down the cost and innovating on the processes, development innovate on the product, finance and human resources to come up with an innovative organization structure to optimize the margin, while marketing and strategy innovate on new revenue streams? Trust and confidence – usually built through collaboration – are missing from this whole process and it’s not a symphony which will finally be accomplished, but parallel tunes leading to cacophony.
Business Model Innovation: An innovation framework for an “employee-sourcing” strategy
So this is what Business Model Innovation should help solve: not only a way to catalyze everybody’s creativity to compose this common theme which will please the ear of our public -customers, partners and shareholders -, but also ensuring that everyone executes it according to their instrumental skills, with a single conductor directing.
How to compose this masterpiece?
In order to go on this journey with this company, let’s give it a name and call it Symphony.
At first, Symphony should nail down the main challenges that it is currently going through: is it threatened by low end disruptors, does it have to implement some new regulations, is it suffering from an economic downturn, are its current solutions becoming a commodity because of new emerging technologies and buying behavior?
Once the challenges are defined, the company will need to define what type of business strategy it would like to put in place, based on its primary motivation of protecting its business versus growing it, and on the other hand its primary focus of sticking to the core or rather focusing on peripheral products?
In a nutshell, once Symphony has chosen a business position, then this will result in an iterative journey going through different business model initiatives: Symphony might decide to renovate the operational and business processes at first, or yet go into phases of services and products or new markets exploration. Symphony might also go for total disruption.
Boston Consulting Group, 2009, the Business Model Initiatives
Once Symphony has decided where it wants to move on this quadrant, then the first thing that it has to consider is the creation of value within its business model. How to do this?
- Work on the value proposition for creating a unique and distinctive offering. This can be done by adding peripheral services to enhance the core business, for instance packaging maintenance and consulting services around the existing product. It might also be creating a brand new value proposition to answer a “job to be done”, either because this job is not currently properly done or even not done at all, which means detecting a white
space. Sometimes we have to realize that customers don’t value the product as much as they value getting the job done!
Let’s take the car example: are you more interested in the product itself or by the function it delivers, which is going from point A to point B?
- Another complementary way to increase revenue is to explore some new markets. These markets can be new segments, such as B2B vs B2C, or even targeting a specific demographic. It can be investigating new industries, such as the telecom providers squinting at the huge Internet of
Things market and wondering how to address these new verticals or even conquering emerging markets.
- These changes may impact the Go To Market initiatives of Symphony who might pose the following questions:
- Should I change my channels, such as going online, or/and through distributors and resellers or should I go direct?
- What type of customer relationship strategy do I want to put in place?
- Do I want to create a relation of trust and confidence, and empower my customer by proposing that they co-innovate with me?
Business Model Innovation Canvas: Value Creation, Value Delivery and Value Capture
Once the value creation has been determined, then the next phase is to review the delivery of this value.
- This company will have to review if it has the necessary key activities and resources in place to support this new value: are the production and operational processes adapted, such as the supply chain and logistics? Does it have the right infrastructure to engage with the customer according to this new value proposition? Can it bill and invoice the customer properly?
- In order to get this new job done, Symphony might need to find partners to deliver some parts of the value, and create a new eco-system of partners that it will have to interact with and cultivate.
Finally Symphony needs to think about capturing the value
- Working on the profitability model, Symphony might decide to lower its cost model by streamlining some of its operational and business processes and/or re-orchestrate at the same time its revenue model, to find an innovative way of capturing this new value.
A well thought out business model should obviously set up a pre-defined list of key performance indicators which will allow Symphony to evaluate the success of its initiative. So now that Symphony has written down the whole score, it needs to play it… We will see in a future article on how to set the tone, pay the piper and avoid false notes!