This past week I've heard the words 'business model innovation' several times. So now I'm curious to know whether this is a passing fad or a more sustained interest in the topic. Four different things all took me to the business model innovation place:
First, an HBR Idea Cast, Finding Profits in a World of Free, interviews Saul Berman of IBM who is just about to publish (February 17 according to Amazon), a new book Not for Free: Revenue Strategies for a New World. The puff on the book says:
It used to be only dotcom start-ups lacked workable business models. But now the ubiquity of cheap communications and computing is deeply wounding business models across the board. …
What can you do to ensure that you have a business model that will work today and in the future? Create new revenue models, advises Saul J. Berman in Not for Free. The most important strategy now is wringing new income streams from existing assets, physical and digital, by exploiting new segments, new uses and new value additions.
And in the podcast Berman discusses this. It's worth the 15 minutes or so of listening and whets the appetite for reading the book.
Second I discussed the learning session that I've been asked to facilitate at the Association of Professional Design Firms' Annual Meeting and Exchange in San Francisco in May this year. The topic I'm working with the group on is on business models, but it takes a step back from how to innovate them tackling more earthy questions like:
• How safe is it to assume that you know what your business model is?
• What is a business model is and why is it important?
• What makes a business model more or less effective (and how do you define effectiveness)?
• How can you make your business model more effective?
One of the pre-reads for this is the HBR article How to Design a Winning Business Model, Harvard Business Review, January-February 2011. The article opens boldly, stating that
Strategy has been the primary building block of competitiveness over the past three decades, but in the future, the quest for sustainable advantage may well begin with the business model. While the convergence of information and communication technologies in the 1990s resulted in a short-lived fascination with business models, forces such as deregulation, technological change, globalization, and sustainability have rekindled interest in the concept today.
Third – on the Innovation Management website I read a book review of another new book on business models: "Seizing the White Space- Business Model Innovation for Growth and Renewal", by Mark. W Johnson, published by Harvard Business Press.
Reviewer Paul Hobcrafts says "It is emphazised throughout the … that before you venture into any new business model you do need to ensure you have a deep understanding of … your current business model."
(Now I've written so far, I notice a small theme. All three items are Harvard Business publications. So, I'm wondering if Harvard Business is ahead of the trend, setting the trend, and/or has a vested interest in the trend – but that is a side thought.)
As one manager asked: How is it that companies with radically different cultures can be massively successful, and yet companies in the same industry with similar cultures – for example HSBC and Barclays – may have different levels of success? And how come some companies can expand successfully internationally and others can only be successful in their home markets?
The answer to such questions lies in the business model – the "what and how" of a business. A company's business model is a simplified representation of its business logic.
And I continue by explaining that:
The business model is the terrain of the organisation. It is analogous to the topography (mountains, plains, and so on), which is one of the factors that affect the climate in a particular zone. As the topography informs the climate (and vice versa) so the business model informs the culture. Although two companies, for example two banks, may be in the same industry, compete in similar markets and appear to have similar cultures, they are almost certain to have different business models.
Even if you know that you need to Innovate or change your business model this is not done easily as the example of someone I talked with recently illustrates. Their company developed a specialized technology and was the innovation leader in the field. Over time other companies entered the space with more successful innovations. At this point the company is considering changing its business model – veering away from innovation towards commoditization. The spokesperson noted the inherent tensions in this:
What comes with this business model change is mainly a structural change but with some process changes. Alongside these we are pushing for significant cost cutting. At the moment customers expect a bespoke response. But we can't afford to do this across the board some areas of the markets we want to serve will be more commoditization which will enable cost efficiencies. As we change course though we have to be aware of the impact on the culture – people come to us and stay because we are known for innovation. We can't sacrifice our talent in going for commoditization – and we have to stay innovative for our many of our customers if we are to keep our market position by challenging and exciting people.