Business Model Innovation

Transcription

1 Business Model Innovation An Industry Catalyst White Paper By Dr John Kapeleris March 2013

2 BUSINESS MODEL INNOVATION Business model innovation can be simply defined as new ways that an organisation creates, captures and delivers value to its target market or customers. More specifically, business model innovation refers to the creation of a unique and differentiated business, or the reinvention of an existing business to enhance its value proposition, capture new market opportunities and achieve competitive advantage. Business model innovation is of particular relevance during times of economic turbulence and intense competition. For example, business survival during a downturn in the economy will require either consolidation, organisational innovation or the reinvention of the business. Changing market forces and changes in the external environment can also influence how a business delivers value to the market, and this has the potential to trigger the need for business model innovation. Osterwalder proposed and described the nine dimensions (orange boxes) of a business model as outlined in the diagram below: Figure 1 Osterwalder s nine dimensions of business model innovation 1 A brief description of each dimension of a business model is outlined below: 1. Core Capabilities An organisation s key activities in relation to its products and services. 2. Partner Network The business alliances and collaborations that an organisation establishes. 1 Osterwalder (2004) Business model design template: Nine building blocks and their relationships, sourced from: QMI Solutions Limited Page 2

3 3. Value Configuration The resources the organisation requires to deliver value to the customer. 4. Value Proposition The differentiated offer of products and services that an organisation provides to its target customers to deliver value. 5. Target Customer The group of customers targeted within a market segment. 6. Customer Relationship The links and relationships established between an organisation and its customers. 7. Distribution Channel The means by which an organisation delivers its products and services to the target market segment. 8. Cost Structure The costs associated with delivering products and services. 9. Revenue Stream The way an organisation generates a variety of income flows. Modifying one or more of the nine dimensions of the business model through implementing and recombining innovative approaches to increase value, can result in the reinvention of a business and thus a business model innovation. Amazon.com and Dell computers are two great case examples of how each company used business model innovation to differentiate its business. Amazon gave the world a new way, utilising the internet, to purchase books and other products, while Dell created a business model to quickly deliver made-to-order computers through customers placing orders via the internet. Australia is currently characterised as a high cost environment due to a number of factors, including increased labour costs, increased regulatory costs and the increased value of the Australian dollar. Many traditional businesses are struggling to survive in this competitive environment. For businesses to become more competitive and gain significant advantages in the current global environment, they must innovate their business models, not just focus on products and services. According to Osterwalder, a business model describes the value an organisation offers to various customers and portrays the capabilities and partners required for creating, marketing, and delivering this value and relationship capital with the goal of generating profitable and sustainable revenue streams. Business model innovation involves the design and management of innovation at the organisational and systems levels of businesses. It involves re-thinking the business approach, focusing on the unique offering, servicing clients, re-designing the business and creating value. Innovation requires constant thinking, planning, experimentation and learning by doing, to create new capabilities and to successfully implement a new business model. QMI Solutions Limited Page 3

4 IBM s global CEO study conducted in 2006 indicated that firms innovating their business model exceeded the growth of firms that were innovating their products, services, markets or operations. A summary of the results is outlined in the figure below: Figure 2 IBM s global CEO report 2006: business model innovation matters 2 A great example of how business model innovation repositioned a company in a changing and dynamic environment is Dell Computers. The computer hardware industry has become a highly competitive industry where a number of consolidations through mergers and acquisitions have occurred, but also divestment of existing businesses, such as IBM making the strategic decision to discontinue manufacturing and marketing desktop and laptop computers. Dell however was willing to rethink its business model and develop a new approach to remain competitive in a highly dynamic business environment. Dell s business model was redesigned, refined and modified by focusing on the following elements of the business: direct customer relationships direct sales customer segmentation for sales and service build-to-order production 2 Pohle, G., & Chapman, M., (2006) IBM s global CEO report 2006: business model innovation matters p39 sourced from: CEO%20report%202006%20business%20model%20innovation%20matters.pdf QMI Solutions Limited Page 4

5 The Dell business model was refined by removing the elements and activities that did not create value for Dell or its customers. The following diagram compares the Dell business model with the traditional personal computer distribution model. Figure 3 The Dell distribution model The business model innovation implemented by Dell has provided the following advantages for the company: increased market share for personal computers ability to deliver a made-to-order customised PC quickly to the customer increased client satisfaction reduced cost through minimising inventory increased profit by utilising a direct sales strategy Business model innovation offers businesses the opportunity to review their existing business models, redesign the elements of their business, and refine their business model to create competitive advantage, differentiation in the marketplace and deliver enhanced value to customers. QMI Solutions Limited Page 5

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