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LEAD Innovation Blog

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

Date: 04-Oct-2018
Posted by: Franz Emprechtinger

3 reasons why companies have to deal with business model innovations

 

Business model innovations are becoming increasingly popular and important. An innovation purely at product or process level does not have the same effect on success as a business model innovation. There is a lot of potential behind this in order to create inspiring customer benefits and effective unique selling propositions. Read here why companies have to deal with business model innovations.

What is a business model?

A business model is the logic of a company. It describes how a company works and what success is based on. Basically it can be described with four elements:

1. Who are the target customers?

A business model is based on knowledge of the needs and problems of customers.

2. What benefits and value does a company bring to its customers?

In concrete terms, it is a question of which problems are solved, which needs are satisfied and what benefits the customers have in the end. In this context, we are talking about the value generated by a company for customers.

3. How is the value created for the customer?

With this element everything revolves around the type of value creation. It is about the processes and activities, but also available resources or partners and includes how the value is delivered to the customer.

4. How does a company make money?

After all, this is about the cost and earnings model and what a company ultimately lives on.

Case Study Business Model Innovation

Finally, the business model also gives rise to success factors and unique selling points that can affect the product and its benefits on the one hand, but can also be based on the way in which it is used.

 

What is business model innovation?

A business model innovation is therefore a positive change, improvement or renewal of the business model.

Innovation always involves several types of innovation, such as product innovation, marketing innovation and process innovation. The business model innovation has a broader impact on the company as it works on several dimensions. For example, in contrast to this, a product innovation usually "only" has a new product, but it does not have a direct and positive change in the way of sales or profit logic.

Examples of business model innovations are:

  • Ikea extends the workbench to the customer. The customer receives only a package of wooden panels, screws and instructions for construction, but in return he pays less than other furniture dealers or carpenters.
  • Hilti has copied fleet management from the automotive industry. Customers no longer buy individual devices, but receive a fixed fleet for which they pay a lump sum. Hilti ensures that functioning products are always available. For example, if a machine is defective, it is simply replaced.
  • Apple has launched the hundredth mp3 player on the market with the iPod. But the big difference was that Apple had a business model behind it, iTunes.
  • A machine manufacturer changes its business model from sale to rental, which means that it is possible to address a broader customer base since customers no longer need to invest heavily.
  • Even the printer manufacturer no longer sells its devices, but the customer pays per copy. Paper and toner are delivered automatically.

These are many examples that demonstrate that the customer's benefit is not only generated by the product itself, but also, for example, by the type of service provided or the price model. This again generates additional customer value and thus creates important and effective unique selling points and differentiation features.

 

3 reasons for business model innovations

There are many convincing reasons to deal with your own business model and, as a result, with business model innovations. In many companies, however, courage is often lacking because this kind of innovation has a very broad and deep impact on the company. The methodology for finding and developing new business models is not the challenge. But a business model innovation usually requires a fundamental change in the THEN, the way an organization functions and thinks. For many, this transformation process is a major challenge or even an obstacle. But companies have to jump over this obstacle, because business model innovation has extraordinarily high potential to sustainably enhance competitiveness and success.

 

1. New technologies and products require new business models or have the potential to do so

The trigger for a new business model is often a new product or technology. In particular, digitization brings with it many potentials for business model innovations. Digitisation creates new products, new customer benefits or new data as a basis for new business models.

For example, a car manufacturer receives precise weather data from its vehicles, specifically the standard temperature gauge, rain sensors on the windscreen and the navigation system. Data is power and with this data, the automaker can develop a completely new business model.

For this reason, every company should start a creative process when developing new products or processes in parallel, whether it can also be used to develop a business model innovation. In this way, a company can bring much more far-reaching and radical innovations to market.

 

2. Potential for radical and disruptive innovations through new business models

Business model innovations have the potential for radical, completely new and disruptive innovations. Uber and Airbnb have proven it and turned entire industries upside down with their new business models. Within a few years, they have become companies worth billions. Business model innovations have a very high innovative power and offer many opportunities for unique differentiation and unique selling points.

In many industries the products are already very exhausted and there is little potential for innovation. Due to the new and changed business model, however, it is still possible to extend one's reach far uphill and have many levers for innovation in hand, such as alternative sales opportunities, new value-added chains, etc., for example.

 

3. Differentiation from the competition

If you look at some markets, all players have the same or a very similar business model, the only difference is in products, services and positioning. But in principle, they all tick the same way. But business model innovations can generate a real difference and competitive advantage. This can also make it possible to create completely new markets. Ryanair, Apple, Nespresso and Cirque du Soleil have successfully demonstrated this. New business models have what it takes to revolutionize existing industries or create completely new markets.

 

Conclusion: 3 reasons why companies have to deal with business model innovations

In the future, it will no longer suffice to deal only with new products or new processes in isolation. It is always necessary to deal with the innovation of the business model. Every change and innovation in the company has the potential for a business model innovation. It is only by changing the business model that a true differentiation from the masses and a competitive advantage and lead can be generated. Business model innovation must be at the top of the innovators' agenda.

LEAD User Method

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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