New is something that does not exist so far. It is to be created for it to be a reality in the future. We are talking about new business models that will exist in the future and be successful. The business model will be successful when it delivers value as perceived by the customers plus it makes profits and achieves all other outcomes the business targets.
As Alexander Osterwalder & Yves Pigneur discuss in their book "Business Model Generation", the primary challenge in creating a new business model in an organisation is that there is nobody assigned to do this job. Although organisations spend lots of money in Research & Development, they are all for the products. A great product alone cannot make a business successful. You need a great business model too. More so in this time of digital disruption when consumers expect the same core product and service in an innovative way that leverages the advantages of emerging technologies that they are experiencing all across. These consumers have already transformed and are using technology in a myriad of ways for almost everything in their lives.
In the same book, they also discuss that the people who are often tasked with this responsibility to innovate business models are the ones whose job is to run the business as per an established business model. If these people are tasked to create new business models, they will end up coming up with another business plan as they see business models from the perspective of execution. However, before you can go to the level of execution, you will need to actually, design a business model that will work. The business model is a representation of the different aspects of your business and how they will together enable you to do business as intended. So how can we innovate business models?
How innovation happens in general?
Before we further talk about innovation in business models let us explore a bit more on what do we mean by innovation? We all would agree that innovation happens with the birth of an idea in someone’s mind. It is like a seed, a tiny one. You might have wondered looking at a seed, how it can someday grow into a giant tree - a tree so big that it can provide shade to hundreds of us at a time. Innovation big or small starts with an idea that glows in someone’s mind one day. The journey starting from the birth of that idea to its destination where it transforms into a full blown new creation is called innovation. Innovation is not a process. There is no process; that can guarantee an innovation. Then what is it? It is simply a journey into the unknown. In a journey into the unknown, you will only know the why or the vision for that. You won't know how and when and where the journey will stop. It will stop when that ‘why' is fulfilled or the vision turns into the reality. Innovation is exactly that.
How can you innovate business model?
Innovating a business model is just like any other innovation. You won’t know what is your idea, when you will stop and how you are going to design that desired business model that will make your business successful. A picture of the future and an idea will be the first goal of this journey. The idea that you can book a cab on your phone and you will have one at your doorstep in the quickest time at a reasonable price and with great service was merely an idea. We have seen this idea turning into a successful business model that changed the way people commute today. It all started with someone thinking of a value proposition, and the rest is history. There are numerous examples today where new businesses are taking birth or old ones transforming in the most innovative way, and all of these starting with an idea.
The business models you will innovate will exist in the future and future is increasingly volatile, uncertain, complex and ambiguous. For the business model to be successful in the future, the most important thing will be to imagine how the future might look like. The current changes we are experiencing is not in any one particular area but across every aspect of our lives - the way we live, work and connect with each other. Technology has changed things massively and the entire ecosystem in which business functions today is undergoing disruptive change.
As a result, the very first question to be
answered in business model innovation will be
to know, what could be the picture of the
To do so, you will need to put significant effort into soaking and learning about the environment in which business is running today. You will spend the time to understand the strengths, weaknesses, opportunities and threats that your business is facing. You will also study where the change is leading to and what might be different in the future. Having studied the environment in which business models exists today, and all the trends and new possibilities you see all around, you will get ideas to paint a picture of the future. This imaginative picture of the future will give you all the clues about what might be the needs, values & beliefs and aspirations of the consumers in the future and how elegantly business can make it happen. A focus on sustainable future will work in everyone’s favour. In Lincoln’s words:
“The best way to predict the future is to create it.”
- Abraham Lincoln
You are at a time when this revolution is taking place, and you will be in a position to paint the picture of the future.
Once you have done this, you will have ideas about what could be your new value proposition or exactly which part of the business model can become the epicentre for innovating your business model. As you would agree, the primary product or service is not going to change, but the way you will execute it in the future will be highly peppered with technology. Thus the epicentre of change in your business model could be anywhere - customer segment, channels, key activities, key resources, partnerships, anywhere. Through your imagination individually as well as collectively you will be able to generate these ideas. With a lot of interaction and collaboration, you will be able to synergise and create that collective wisdom. You will be able to synthesise these inputs and narrow down to a few ideas to innovate your business model more accurately.
The idea will be like an epicentre because to make that idea happen; your entire business model will need to adapt. In fact, there may be one or multiple such epicentres that you will identify. Innovation is about a step change and not small incremental change. Hence your idea should not be limited by what is possible and what is seemingly not possible. It should be just the best fit for that future whose picture you have painted. Having that in place, it will be the challenge to come up with a business model with nine building blocks as in a business model canvas. These elements will need to fit together seamlessly to enable execution of your business and achieve desired results.
Coming up with the business model around an idea to be successful in the future, will be the next part of the innovation journey.
Reference: "Business Model Generation" book by Alexander Osterwalder and Yves Pigneur, 2010.