What is Business Model Innovation?

Business Model Innovation is the process through which an organization is re-inventing and transforming existing business model(s) or creating entirely new business model(s) (incl. through acquisition) to better satisfy the needs and demands of existing or new customers, incl. through improved experience. Changes to the value proposition could involve choosing a new target segment, offering, and/or revenue model. Changes in how the value proposition is delivered could involve a new cost model, a new position in the value chain, or the addition of new capabilities.

What are Business Model Innovation examples?

There are several Business Innovation examples. Nespresso elevated the traditional business model of coffee bean sales from commodity to a whole new user experience by reinventing coffee machines and the way coffee is prepared with easy-to-use machines and coffee pods. Southwest re-invented air travel by tapping into new customer segments who couldn’t afford flying before- offering flights that were “cheap, convenient, and easy to use.” Amazon turned an internal company asset (Amazon Web Services) into a highly profitable business model. Dollar Shave Club challenged the traditional & static business model of razor/blade dominated by Gillette by creating a new subscription model.

Why does Business Model Innovation create a compelling advantage?

Business Model Innovation creates a compelling advantage by providing organizations a way to break out of intense competition around products or processes that are easily imitated. By improving the value proposition, or the way you deliver that value to the consumer, you gain a competitive advantage. Paraphrasing Gary Hamel, “In the future, competition takes place not between products or services, but between business models.”

What are the main elements of Business Model?

The main elements of a Business Model include:

  • Customer – the intended users and buyers of this product
  • High-Value Customer Problem – the problem this product is solving for those customers
  • Value Proposition – why this product the most compelling solution to this customers’ problem- its compelling advantage
  • Value Capture – how the owner of this product (e.g., the corporation) will make money
  • Eco-system – others who need to participate for the owner of the product to deliver value proposition
  • Strategic control – sustainability or defensibility of this business
  • Scaling Path –
    • Customers – customer base and go-to-market channels the product owner needs to generate revenue
    • Capability – technologies, products, skills, and business models needed to deliver the value proposition
    • Capacity – assets to manage a business operating at increasing volumes, such as fulfilment, logistics, manufacturing, customer service, call centers