Responding to Threats and Opportunities with Business Model Innovation

by Kamal Hassan

Responding to Threats and Opportunities with Business Model InnovationNo company today can afford to rest on its laurels. Most industries are very competitive, and if you are one of the few in an industry without much competition you are likely to be disrupted by someone entering your market at a lower price point or with an equally damaging competitive stance.

If you offer a high-end product or service that not many people can afford, when (not if) low-end disruptors enter the market and start taking your customers, business model innovation may be the only way to compete. Airlines, for example, used to be a mode of transportation reserved for the rich – everybody else took the train, or drove, or stayed home. Then a few airlines like Southwest, Air Arabia and Ryanair disrupted the market by capitalizing on operational efficiency and eliminating the “luxury” aspects of air travel. Eventually the whole industry was forced to change its business model in terms of who its customers were and how it served them.

Companies in commoditized industries, such as telecom, have been also been forced to innovate their business models because they can no longer compete on price. Telecoms that once offered simple voice and Internet access services are now offering online games, Internet television, videoconferencing and other value-added services that aim to distinguish them from the competition.

In addition to these and other possible threats to your business model, you may find that examining your business model brings to light new opportunities. FedEx, for instance, recognized a business model opportunity in the form of guaranteed overnight package delivery. It was the first delivery company to offer this service, and as such it was able to go beyond price competition and provide a solution for a “job to be done.” People needed quick, guaranteed shipments (the “job”) and the FedEx business model provided the answer – and shaped an entire industry in the process.

Or you may find an opportunity to serve a large market that is unable to access existing solutions due to price or other constraints. One example is the so-called “$100 laptop,” a computer designed for children in developing countries. The manufacturer uses existing technology in an innovative configuration to make the computer affordable but also durable. In this case, a new company was founded on the business model innovation of making reliable computers inexpensive enough that the poorest countries could afford them for their children.

The Tata Nano is another example, only this is an existing company reinventing its business model to provide inexpensive cars to the masses in India. Business model innovations such as this enable established organizations to open up new markets by appealing to the “base of the pyramid” (the poorest socio-economic group) with value propositions that are new to this segment of the market. (Existing offering + new market still = business model innovation.)

Perhaps the greatest opportunity that argues for business model innovation is return on investment. Statistics show that business model innovators see operational margin growth of more than five times that of competitors who only practice product or service innovation. If your company’s revenues are down or stagnant, innovating your business model could bring significant ROI and put you back on the path to profitability.

A recent PricewaterhouseCoopers survey of CEOs worldwide reported that the majority of companies are shifting their growth strategies away from existing markets and are instead focusing on creating new products and services aimed at different markets. These companies are looking for ways to diversify their offerings and appeal to new markets because they know there is too much competition to simply rely on price changes, deals or feature-focused incremental innovations. To appeal to new markets they need to innovate their business model.

You can think of business model innovation as “the search for newness.” Many past business model innovations leveraged new technologies. But today the rapid pace of technology has made it possible for companies to be innovative without waiting for a new technology to arrive – they simply find new ways to use existing technology to deliver a better value proposition.

Of course, there is inherent risk associated with business model innovation (as with any significant strategic change). But along with great risk comes great rewards – and you can minimize the risk using tools for business model design and innovation.

The first step is to fully understand your current business model, using a proven framework for analyzing your entire value chain. Although a business model is meant to have more longevity than a strategic plan, that doesn’t mean it will remain relevant and optimized forever. Companies should ask questions such as “Who are our customers? What value do we offer to them? How do we do this?” If the answers are different than before it may be time for business model innovation.

You must also spend time analyzing your market, your competitors, potential competitors (which may come from outside your industry), and your customers’ (or potential customers’) needs (e.g., jobs to be done). With this in mind, you can revisit your business model and consider the changes you might make to better serve your customers or expand into a new market.

There are many companies who have breathed new life into their offerings, their revenue streams and their organizations using business model innovation. Let us learn from these examples and apply the tools of business model innovation to leverage new technology, enter new markets and create new value propositions.

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Kamal HassanKamal Hassan is President and CEO of Innovation 360 Institute, an innovation management and operation advisory group based in Dubai. Mr. Hassan works with both public and private organizations on business model innovation, innovation strategy, innovation project execution and organizational change. In July and August, Mr. Hassan will be leading workshops on Business Model Innovation and Design in Istanbul, Turkey and Denver, CO (USA). For more information, visit www.i360institute.com.

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  1. I liked the shared thought about innovation in telecoms… I found another very interesting article on this topic:
    http://wp.me/p2npg5-3B

  2. The greatest threat to humanity is the power of big business. Above all, they are the ones who stifle innovation and the drive towards a sustainable human experience in perpetuity. Indeed the concept of humanity is at threat due to these power groups insatiable lust for profit and where according to Forbes a mere 2,000 companies control 51% of the global economic turnover of the world. Some of the few great humanitarian breakthroughs where I am personally aware of that big business has suppressed and destroyed are, 1. The humane non-addictive cure for hard drug addiction based on plants, where it detoxified long-term addicts in 72 hours with no ‘cold turkey’ or human side effects. The reason, it would kill tens of billions of drug sales and where this suppression because of the constant quest for profit, rises above even human life itself. 2. The introduction of a global strategy to prevent pandemics happening that worked in Hong Kong in 1997 and the only one ever to do so and stop the human-to-human killer virus in its tracks. The reason again, there are not the tens of billions in drug sales. Indeed when it comes and where Margaret Chan of the WHO only says that it is a matter of time not when, it will totally decimate the global economy and make the financial meltdown look like a storm in a teacup. But far worse it is estimated that it will kill over 300 million due to the rapid transit systems that we have now unlike 1918 when the Spanish Flu took up to 100 million lives worldwide, and where no family in the world will be unaffected through the loss of a loved one. Again where vast profits rise above human life itself and where such things are of crimes against humanity. 3. The introduction into Africa of PCR low-cost testing kits (the only one costing a few dollars that can determine HIV/AIDS in new born babies and where cheap remedies would then eradicate the diseases for life) that would save hundreds of millions from the scourge of HIV/AIDS and eventually eradicate HIV/AIDS globally by introducing into all nations throughout the world. The reason, big business and charities have a monopoly on the present testing kits that even make money for so-called international charities. 4. Where big business is and has constantly been buying up new patents that can benefit human sustainability but where because they hit the giant corporate’s ‘bottom-line’, they are shelved. We know this as our fellows tell us so and where they advise the largest corporate concerns in the world. Many of these are the answers to sustainability and the ways of sustaining the ‘human experience’ itself. But because they would knock the profits severely of current products, they are supressed. These and other major cover-ups and pure disenabling on the alter of vast corporate profits are the reasons why humankind does not find solutions. But the irony of all this that is constantly going on behind the scenes is that it will eventually even kill off the giant corporates themselves. Therefore the motto seems to be, bleed the system dry of monetary gain at the expense of everything, even human life itself. Can we be so stupid as a species to allow this as the Royal Society and MIT scientists have both independently predicted that by around 2032, the world will simply disintegrate in both social and economic terms under the dictates of the present global system. Innovation is therefore without doubt being destroyed on a daily basis by the avaricious appetite of the global corporate giant’s quest for vast profits and wealth of the very few – including politicians and the so-called corporate spin-off philanthropic organizations around the world who make billions out of humanitarian work without paying any corporation tax whatsoever. Dr David Hill World Innovation Foundation – See more at: http://www.innovationexcellence.com/blog/2013/03/21/innovation-so-much-accomplished-but-so-far-short-of-full-potential/#sthash.qlWGCNX0.dpuf

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