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LEAD Innovation Blog

Read our latest articles on innovation management and innovation in a wide range of industries.

Date: 03-Oct-2018
Posted by: Franz Emprechtinger

Business model innovation: obstacles and success factors

 

Successful companies have always changed fundamentally in order to remain successful - rigid companies have failed. In this blog post you will learn which barriers prevent business model innovation and which factors lead to success.

Mental barriers prevent business model innovation

Innovative products alone are no longer a guarantee for the survival of a company. The decline of formerly very successful companies such as Kodak, Brockhaus, AEG, Grundig, Agfa, Quelle or Triumph clearly shows this. This development was not due to the lack of innovative products, but rather to the failure to adapt the business model to changing conditions.

Kodak, for example, recognized the potential of digital photography very early on and initiated a cooperation with Microsoft in the 1990s to conquer this new business field. However, the switch to digital photography was very half-hearted. When the first digital cameras were introduced to the market in 1999, Kodak assumed that the market share for digital cameras would amount to five percent in the next ten years. In 2009, however, reality showed the exact opposite picture: Only five percent of the market share remained for analogue cameras. When Kodak realized this mistake, however, it was already too late to save the sinking ship by switching to a new business model.

Case Study Business Model Innovation

 

If one examines the background to the failure of established companies, mental barriers often become apparent that block the path to innovative ideas and business models. It is not easy to think outside the box. On the one hand, many managers do not see why they should leave the comfort zone as long as profits are made. On the other hand, the "Not invented here syndrome" can often be observed, which completely rejects external knowledge.

According to a study by Costas Markides (2000), the following factors are primarily responsible for the failure of breakthrough innovations:

  • Inflexible corporate cultures and a lack of willingness to change a "recipe for success
  • Rigid processes, structures and company standards
  • Unquestioned convictions and the "holy cows" of the company
  • Unreflected adherence to processes, habits and values
  • Conservatism and the fear of losing profits
  • Self-interests and political power games
  • Self-satisfaction and complacency
  • Exaggerated self-confidence and arrogance of management
  • Blind confidence in successful strategies of the past
  • Passive, uncritical thinking and rejection of ideas that conflict with the current perspective.

 

Success factors on the way to the new business model

When developing new business models, it is particularly important to overcome thought patterns and the resulting barriers through a systematic and structured approach. This requires in particular a clearly defined and lean innovation process, an innovation-promoting corporate culture and the commitment of top management.

 

Business model innovation must start at several levels

Brockhaus anticipated the trend towards digitization and released a CD and app. However, the cost of the digital Brockhaus version was still around 1,000 euros, as editors still had to be employed to research the content. Instead of turning the entire business model, Brockhaus merely changed the product. Further levels in the sense of the 4-dimensional concept such as "How do I make the content available" or "How do I earn money" were not taken into account. Brockhaus was subsequently replaced by Wikipedia as the most widely used reference work. Business model innovation therefore always requires a change of several factors or dimensions; a new product alone is not enough.

 

Interdisciplinary, cross-functional teams

Open-minded, innovatively thinking employees from various departments should be involved in the innovation process. Outsiders such as LEAD users as part of the team help to overcome thinking barriers and bring new impulses to the company.

 

Overcoming the dominant corporate logic

Ways of thinking such as "That has always been the case" can prevent new business models. One example is the company Würth, which wanted to include branded screws in its product range and made corresponding inquiries to screw manufacturers. None of the manufacturers was prepared to produce for Würth because they wanted to keep the margin to themselves. Würth then developed its own screw brand, which in the meantime outperforms the products of the premium manufacturers in terms of quality and thus represents a strong competitor. From today's perspective, a cooperation with Würth would have made a lot of sense for the premium manufacturers. A popular method in the initial phase of developing a new business model is therefore e.g. the eulogy. The question to the team members "Why did the company die" helps to overcome the past and create space for innovative ideas.

 

Use of structured methods

Business model innovation in itself is nothing new. What is new, however, is the view that new business models can and should be developed in a conscious and structured manner.

Systematic methods in the development of a new business model, such as business model pattern cards, working with analogies, lean innovation and prototype testing are indispensable for a successful innovation process. Read more in our blog entry "Business model innovation: Which method is the right one?"

 

Integration of the customer

Discovery Driven Learning through the early involvement of customers through customer discussions, testing of prototypes and working with customer experience design is becoming an increasingly important topic against the background of a feared shortage of resources in terms of staff, budget and time. According to the motto "A prototype says more than 1000 words", the involvement of the customer in the decision for or against an idea must be seen as one of the key success factors of a new business model. The risk is minimized, valuable resources can be saved and used profitably elsewhere.

 

Intra-industry and cross-industry exchange

Companies that are constantly in an intensive exchange of ideas with companies in the same industry have noticeably better chances of successful innovations. A regular exchange of ideas with companies in other industries as well as with universities and institutes is also worthwhile. In addition, these partners can also increase success in the implementation and control of innovations.

Innovation culture in the company

The corporate culture is decisive for the innovative ability and strength of a company. Although innovation is seen by most companies as a central success factor, when it comes to implementation, many step on the brakes.

This is also shown by the study "Success factor innovation culture", in which 200 innovation and top managers were asked about innovation culture beyond the glossy brochures. The survey revealed, among other things: Innovation is only part of daily business in one in three companies. 70 percent leave it at announcements or pursue innovations half-heartedly. And more than 80 percent of companies paralyze themselves and their employees through long decision-making processes. On the other hand, there is not even one in six companies with a real doer culture - an environment that provides a framework for creative minds but otherwise lets them do it. And in three out of four companies, innovation is only promoted for as long as it costs nothing. Innovation budgets, with which employees can quickly implement convincing ideas, are found in just one in four companies.

The integration of an efficient innovation culture supported by top management is therefore an essential factor for the successful implementation of innovation projects. A culture of openness is needed, which may also call into question the "holy cows" of the company and in which mistakes are permitted in order to learn more quickly. Difficult innovation processes and traditional management thinking are suitable for stable times, but not for times of rapid change. Read more about innovation culture in our blog "How to create positive innovation culture?"

 

Conclusion: Balance between external knowledge and internal organization

Business model innovation is not a product of chance, but can be achieved through a systematically managed innovation process. In view of the often difficult to break through thinking barriers, a successful approach to developing innovative business models must strike a balance between the integration of external knowledge and the creation of innovation-promoting framework conditions and processes within the company.

You have to organize a company in such a way that the structure allows for as many experiments as possible at the same time." Amazon founder Jeff Bezos

Business Model Innovation

Franz Emprechtinger

Born in Ried im Innkreis. As former Head of Innovation, he was responsible for the entire project management and specializes in the areas of fuzzy front end and business model innovation.

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