Business Model Innovation

"A disruptive innovation is a technologically simple innovation in the form of a product, service, or business model that takes root in a tier of the market that is unattractive to the established leaders in an industry." Clayton M. Christensen

HOW TO SUCCEED AT BUSINESS MODEL INNOVATION

Business model innovation is perhaps the most exciting element in the arsenal of business innovation tools. You do not need pioneering technologies and incredible IP to succeed with business model innovation..In fact, since the start of the internet this has been the case for companies such as Ebay and more recently Airbnb and Uber. The key question to ask is how to spot sensible business models that can financially succeed? We believe the answer lies in a combination of constituting elements:  identifying a job to be done that could be served with capabilities that already exist within the organization, understanding or somewhat determining the level of pain (it could be as simple as a discomfort with price), identifying competing alternatives and comprehend the mind of the ecosystem. In other words there has to be a reason why Airbnb works and a start up that tries to connect commuters does not.

“Fact is, inventing an innovative business model is often mostly a matter of serendipity.”  Gary Hamel

We believe business model innovation can be achieved with various approaches, but it in part it remains a matter of serendipity. To this extend we describe here some of the type of business model innovation that have emerged over the time.

Disintermediation, this is the successful business model adopted in the early stage from some of the most successful internet start ups such as Ebay, Amazon and most recently Airbnb and Uber. The model is clear, the internet or mobile service is used to connect people in the execution of a job they already do, bypassing the existent ecosystem of intermediaries. What make this a success is the identification of early adopters in the case of Ebay and the identification of untapped capacity such as part time taxi drivers for Airbnb and part time bnbers for Airbnb.

Integrated and extended services, This is a subtle but effective type of business model innovation. It consists on identifying a service extension of a product and service you already provide. For example an automotive sit providers extend is service by offering sit design and sit integration design services to the automotive producer. The key at succeeding in this type of innovation is to understand deeply the economics and dynamics of the existing customers and identify a spot in which the customer would gain from outsource. The enabler of this business model is strong reputation and credibility  by the customer.

Spin off of internal capabilities and resources, this business model innovation approach consists in targeting new markets, especially niche markets, with a product or service that derives from internal know how. For example a highly skilled carbon fiber manufacture has developed a set of software tools for controlling precisely manufacturing processes. What if it can spin off a software company that provides software for precisely controlling certain manufacturing processes? The challenge with this approach is the motivation of the actors involved in establishing and launching the new venture. Ideally an entrepreneurial effort should be lead by highly motivated founders and the mother company should bake them. Too much of support though, would inherently decrease the founders’ push for survival and therefore hamper their pretension to innovate, survive and thrive in the new business model.

Unified platform strategies, the simplest yet at time most effective business model innovation strategy we have analyzed. In a variety of industries and particularly in the internet and mobile based businesses users of services and technologies in the execution of their jobs utilize multiple products or services. Unified platforms reduce the friction at the interfaces between products and expand capabilities for users. Examples include the current trends in voice over ip and unified communication, but also document processing software such as the NitroPDF of the world that attempt to unify document editing, collaboration, document conversion, document signing and document report into one single platform. These strategies are successful when the user truly gain in saved time, reduced costs and easy of use. The enabler of this business model innovation strategy is technology and service maturity, the single pieces of of the integrated service or product needs to be well developed and reliable to integrate.

Pricing business model innovation is a domain where lot of new interesting models have emerged in the recent years. The raise of options in finance has been for many years confined to the real of financial trading and. However, we now see the emergency of business models such as Groupon that have applied some elements of options pricing to a large yet untapped consumer market. Perhaps of all pricing related business model innovation, Amazon dynamic pricing is the one  that has gather our attention the most. Price discrimination is the marketing holy grail of any company. If you only could price a product at the right price a customer is willing to pay… Amazon in part succeeds on this by changing price based on location, time of the day and competitors pricing. They also tried to price based on customer preferences but this tactics raised public concern and was discontinued. In our university section you will find some of the analysis we have done in this realm.