In today’s dynamic world it is imperative for companies to continually realize growth through a sustainable competitive advantage. The trouble is that every innovation is just one new innovation away from becoming obsolete. How do proactive companies stay one step ahead?
It is difficult to stay ahead for long if your focus is solely on process improvement or product innovation. The key is to imbed these offerings in an ironclad business model. Business model innovation is a less expensive complement to product or process innovation and often yields a longer competitive advantage. Business model innovation enables companies reach markets that in the past were difficult to commercialize yet have market creating potential, and defend against threats in the low-end of their business.
It is classic business strategy – where to play and how to win in the market.
Many of our clients reference the Business Model Canvas, popularized in the book “Business Model Generation” by Alexander Osterwalder and Yves Pigneur. A company’s business model is a system of interconnected and interdependent activities that determines the way the company does business with its customers, partners and vendors. These activities and frameworks are how a company satisfies the needs of the market. Consider what Apple did with the iPod, the strategic move was not the really the MP3 player itself, but rather the iTunes platform. It was the platform that gave them a strategic advantage for the launch of iPhone and later iPad.
Leading innovation author, Mark Johnson identified that business model innovation is common to companies that succeed big. Between 1997 and 2007, Johnson found that more than half of the companies that made it on to the lists of the biggest publicly traded companies in America were business model innovators, companies like Starbucks, Amazon.com, and AutoNation.
A recent global survey of more than 4,000 senior managers by the Economist Intelligence Unit found that the majority (54 percent) favored new business models over new products and services as a source of future competitive advantage. EIU analysts concluded that “the overall message is clear: how companies do business will often be as, or more, important than what they do.”
Business model innovation is an untapped growth lever that requires management teams to leverage what they know about the market but also to look at their market in new ways. The idea is to change up the way that products and services are delivered to the end user that both delivers incremental value for the customer and competitive advantage for the company.
Study the market to better understand where the pain points are. Spend some time thinking about whether there are new sales channels or platforms, revenue models and/or pricing structures. Perhaps there is opportunity for vertical integration or product bundling that greatly enhances the value to the end user. Remember to keep your ear to the ground and your eye on the customer- ultimately the innovation must be designed for their benefit.
Business model innovation is about changing the playing field to gain a competitive advantage. The worn out adage still sheds some light: if you can’t win, change the game.
Jocelyn Atkinson and Michael Graber run the Southern Growth Studio, a strategic growth firm based in Memphis. Visit www.southerngrowthstudio.com to learn more.