Can companies afford not to innovate their business model?
Business Model Innovation (BMI) is one of the critical tools in the innovator toolbox to improve corporate performance. Studies consistently show that corporations that engage on business model innovation are likely to obtain corporate return premiums of 8% versus companies not engaged in innovation.
Business model innovation takes a holistic view of your business. In a similar way that innovation ecosystem thinking looks at market and technology simultaneously. BMI allows us to quickly visualize the complete operation while looking for gaps in the business model. BMI makes possible to substantially outperform the competition even on sub-performing or unattractive markets.
In the past few years BMI has become an essential tool for high-performance companies as such, multiple frameworks have been developed to support the implementation of this capability in the corporation. One of the most popular frameworks is the Business Model Canvas developed by Alexander Osterwalder. His model is widely used by companies, technology accelerators and thought at business schools worldwide.
This framework allows companies to prototype and test business models and corporate value propositions to de-risk market deployment of products and services. The canvas lets business innovation teams map the revenue and operational models of the company into one document, following the process below;
We visualize the revenue model by identifying the needs of the market.
(1) Market segments. Which space does the firm want to serve?
(2) Value proposition. What is the firm differentiation, and what are the solutions for market needs?
(3) Customer relation. What type of relationship is required with the customer?
(4) Customer channels. How do we reach out to the market?
(5) Revenue Streams. What revenue options are possible and at what levels?
Then the team can map the operational model by identifying the needs of the business to execute on the revenue model.
(6) Activities. Which functions in the organization are critical?
(7) Resources. What type of people and equipment is required to deliver that value proposition the customer?
(8) Partners. Which partners (suppliers, co-developers, research institutions) are critical for the business?
(9) Cost Structure. What is cost of delivering the value to the customer?
The canvas visualizes the complete business and provides a simple way to assess and innovate your business model. It helps the firm identify gaps, strength and weaknesses in the different areas of the canvas. Further iterative scenario planning with different business models provides a quick and simple way to prototype different approaches to market development.
BMI has helped multiple customers analyze their business models and their approach to new markets and current market evolution. Here are some examples;
An industrial automation firm entering a new market realized that their revenue model was not aligned with the new market requirements. The firm was using their low margin automotive metrics and other traditional process into a new higher margin industry. Minor changes to their business model allowed them to double margins and capture additional value from IP generated and their global capability.
An imaging equipment company whose revenue and margin kept slightly eroding throughout the years needed to identify the cause of these issues. After a BMI workshop we assed that they had 3 different business models created as a response to evolving market conditions. Their operational models was not optimized to anyone of the new revenue models they created. The firm lacked critical activities and areas of expertise and their resources were inappropriately allocated to support the different business models, making impossible for the firm to be profitable.
A Business Model Innovation workshop where multiple business models are prototyped and tested can deliver tremendous value providing alternatives to current business practices.
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