We tend to think of finding growth opportunities through an innovation in a product or service. As success builds, you can typically build revenue through geographic growth or by penetrating adjacent markets with a minor tweak to a core offering. However, sometimes even this is not enough. There is another dimension to innovation that can be equally as important; Business Model Innovation.
What is a Business Model and Why Should it be Innovated?
If I had asked you 10 years ago whether you would pay €80 per kilo for your coffee, what would have been your answer? Well, that’s the cost of coffee with Nespresso. And Nespresso has deployed a tried and trusted business model that we refer to as the Razor & Blade business model. This model was first pioneered by Gillette who, to this day, sell you a razor at a very low cost but then charge a premium for the blades once they have you locked into their system! Nestle adapted this model to the coffee business and created a hugely successful new business in the process. What few people know is that the ‘new’ product has been in existence for over 30 years. But the success that we know today only arose when Nespresso implemented its unique business model about 15 years ago.
55 Models – 90% of the Best Businesses
At Nuevo we apply the BMI Lab methodology to Business Model Innovation. We have identified 55 Business Models that account for 90% of the world’s most successful companies.
What is your Business Model and how can you analyse it?
There are four central dimensions that you should consider:
Who: Who is your target customer segment?
What: What do you offer to your customer?
How: How is the value proposition created?
Why: Why is it profitable?
As a general guideline, Business Model Innovation differs from product or process innovation insofar as it affects at least two of these four dimensions.
The biggest challenge to Managers who want to tackle Business Model Innovation are:
- Thinking outside of one’s own dominant industry logic
- The difficulty in thinking in terms of business models rather product or service innovation
- A lack of systematic tools and processes
Your starting point should always be built on a deep understanding of the customer. It is important to understand that real success can only be achieved by creating a reinforcing business model – i.e. getting the Who, What, How and Why all working together to capture substantial value for your company. By definition, new opportunities take companies out of their comfort zone and into areas where they have little experience. Navigating this alone can be difficult and often results in higher cost, greater risk and longer time to market. The good news is that there are tried and tested approaches to developing these opportunities that avoid the common pitfalls and that don’t require the establishment of expensive internal innovation departments. The key is not to outsource to some “black box” but to harness the best of your internal capabilities in a creative collaboration with trusted external advisors.
What is your business model? When is the last time that you reviewed it? Is it delivering long term sustainable competitive advantage? Have you a planning & review process that incorporates Business Model Innovation? If not then I would refer you to the following statement from a recent Harvard Business Review online piece “Ultimately, all businesses are transitional — we just can’t predict precisely when or how. Businesses focused on optimizing what has worked for years at the expense of the future will create ever-greater risk for their owners, employees, and customers.”
About David O'Leary
David O’Leary, Partner, BMI Lab, has been helping businesses develop unique value propositions to grow revenue for over 20 years. BMI Lab is a consultancy that helps businesses unlock powerful new growth through innovation and digital strategy. We use leading edge tools such as Design Thinking, Business Model Innovation and Hidden Needs Analysis, to cost-effectively create and deliver new value for your customers while establishing innovative business models that capture sustainable value for your company.
David has worked with many successful brands & companies over the years including; EY, Bank of Ireland, Aon, United Nations, RTÉ, Bulmers & Jameson.
David’s focus has always been to deliver sustainable growth grounded in innovative thinking. He believes that he understands the ups and downs of both large organisations and start-ups based on his own experiences as Founder & CEO with companies such as Ripple Platform - an EI HPSU Technology Start-up - and 8020 - a leading digital marketing agency.