What Is Business Model Innovation?

A business model describes how a business creates value for customers.

There are many different business models, the simplest of which is setting up a shop and selling products for cash. This is sometimes called the ‘shopkeeper’ business model.

Historically, the same business model was often used by all the major players in any given industry sector. 

In the last twenty years companies have increased their interest in innovation in business models. Some people attribute this to the growth in service industries - generally there is more scope to innovate the business model in service industries.

However, business model innovation has also increased in manufacturing companies in recent years. This may be because, as manufactured products have become more technologically complex, there is increasing need and scope to ‘wrap’ the product in a supporting service of some type. For instance a maintenance contract to cover a piece of complex equipment.

This ‘product surround’ has increased the opportunities for business model innovation in manufacturing sectors. The company is no longer just dealing with a one-off transaction with its customers. Instead there is the potential future revenue stream from the supporting service - in the example above, the annual maintenance contract. Through business model innovation the company can seek to maximise the return they get from the customer.

New technologies have also enabled radical changes in business models. A notable example is music retailing. When the medium for music was the CD or vinyl, then the ‘shopkeeper’ business model prevailed.

However, digital music can be distributed in many more legal and illegal ways, and new business models have emerged.

Managers will usually have an overview of their company’s business model in their head. However, in order to innovate in a business model it is often necessary to map the business model in some detail. This would involve identifying all the key aspects of the business.

Business model innovation or business model refinement can be seen as part of the developing strategy process. Indeed, the aspects of the business that need to be analysed for business model innovation are the same as those that would be considered in a strategy development process. These might include:-

  • What are the products and services the company offers?
  • Who are the customers and how are they segmented?
  • What types of relationships does the company have with its customers?
  • What are the revenue streams?
  • What is the cost structure?
  • How does the company distribute products and services?
  • Who are the company’s suppliers and partners and what type of relationships does it have with them?
  • What strategic assets does the company have?

During this process some companies find that people have different views on what their company’s business model looks like. Going through the process can enable the team to establish a shared view.

As a strategic process, business model innovation should be seen in the context of the SWOT analysis. This means that any changes to the business model should exploits strengths further, and address weaknesses. For example, a business might consider outsourcing parts of the business that it cannot run profitably.

Business Model Innovation: Business Benefits.

  • Business model innovation can improve profitability.
  • Business model innovation can help differentiate your business from your competition – particularly if your new business model appeals to the way customers want to buy from you. E.g. Budget airlines providing very low cost flights to those who book a long time in advance.

Why Choose Anatellô for Business Model Innovation?

To innovate your business model successfully, you need to first analyse and understand your current business model. Then you need a good process for business model innovation.  A good process for business model innovation is multi-staged as outlined above. A good process will also involve understanding what customers want. It should also involve creative thinking at the appropriate stages.

Anatellô’s consultancy help with business model innovation will enable you to:-

  • Get a shared group perspective of your current business model, which will make the innovation process more efficient, and increase the chances of having shared buy-in to the output.
  • Understand what customers want and what unmet needs they have. A business model which considers customer needs has a greater chance of success.
  • Generate ideas and new approaches to build into your business model innovation. This will help you can gain competitive advantage by moving your thinking beyond established practice and norms for business models in your sector.
  • Designing, testing and implementation of your new model business model, which will enable you to move the new model from concept to launch, so you get to reap the benefits of your business model innovation.