Business Model Innovation

By this point, you have completed the prerequisites: Getting Started and the Strategic Assessment.  You’ve determined that a business model innovation initiative makes sense. Now we’ve come to the most important part of the Innovation@Work 3.0 course, in which you will take a hard look at your “as is” business model and, if necessary, design a more powerful “to be” business model to replace it. Changing your business model offers the greatest opportunity for transforming your company and ensur­ing a more profitable future.  In fact, most of the game-changing successes of the past 20 years didn’t come from product innovation, or even from service innovation.  Instead, they were the direct result of business model innovation. Consider Apple, which had suffered from a free-fall in market share in the computer busi­ness during the 1990s, dropping from 20 percent of the market to just 3 percent.  When Steve Jobs returned to the helm of the company he co-founded, he first rolled out product innovations in the form of new Apple computers. But his shrewdest move was the launch in 2001 of the iPod, which was more than a great new product.  In fact, as a device, it wasn’t much of an improvement over the Rio, an MP3 player that Diamond Media in­troduced three years earlier.  The iPod’s breakthrough was based on a superior business model. Instead of requiring users to search for music on a variety of peer-to-peer file-sharing Web sites that offered hundreds of low-quality versions of the same song, Apple linked the iPod to the iTunes store, which gave users easy, convenient access to the official versions of songs provided by the recording companies. We’ll take a closer look at the iPod/iTunes business model a bit later. For now, it should serve as proof that business model innovation offers enormous rewards. In fact, Apple’s market capitalization has soared from $2.6 billion at the end of 2002 to $300 billion today. Because of success stories like Apple’s, it’s becoming increasingly clear to many executives that business model innovation is the most effective way to accelerate a company’s growth and profitability.  Surveys by IBM and the Economist Intelligence Unit have found that more than 50 percent of executives believe that business model innovation will become even more critical for their companies’ success than product or service innovation. However, despite recognizing the importance of business model innovation, few business leaders are invest­ing the resources to make it a priority. In fact, an American Management Association study revealed that only 10 percent of global companies’ spending on innovation is devoted to creating new business models. How can your team create a business model you can use to compete effectively, whether your company is already an established player in an industry or a new entrant? You’re about to learn a process that begins with documenting your “as is” business model and ends with de­veloping all of the elements of your “to be” business model.