Innovation is at the heart of the work done by many of today's most successful businesses. These businesses adopt innovative solutions across their value chain. And so their processes, products, and services turn out with superior quality that is hot in the markets.
For these businesses, innovation is a way of life, a strategic approach entrenched in their operational model. This leads us to the concept of the business innovation model. Read on to find out what this model means for the average business and how to use it.
What is it?
Business model innovation (BMI) refers to the creative and dynamic ways a business creates, disperses, and gains value. It covers all the strategic changes and additions to a business's value proposition, both to its customers and in its value-chain management.
In business model innovation, the organization builds the capacity to respond adequately to all market conditions and changes. And this helps to develop an operational capability that can become a source of competitive advantage for the organization.
In more practical terms, BMI is the ability to create those systems, processes, products, and services that provide value creatively, uniquely, and efficiently.
When do we use it?
Business leaders use this strategy for the following purposes:
To enter new markets
The demands of a new market may call for revamping existing business strategies or a complete shift. But with a business model innovation strategy, you can easily adapt to the new market conditions and find creative ways to make headway.
To meet changing customer needs
The customer's taste can swing in several different directions at any point. And you must be willing to adjust to whatever changes are required to stay in touch. An innovative business model can deliver the goods in whatever shape the customer needs them to be.
To build brand recognition
The ability to deploy innovative solutions to business problems is a key feature of some of the best-performing brands in today's markets.
To increase profit potential
The most innovative products will always command the highest prices in the market. And so, a business model innovation strategy can help you broaden your profit horizon.
What business questions is it helping us to answer?
How can I build an improved value chain?
A business model innovation approach can have wide-ranging positive impacts across a business's value chain. The possibilities are endless, from creating more efficient processes and much-improved products to launching successful marketing campaigns.
How can I improve the existing cost and pricing profile?
The prevailing economic conditions around a market may affect the customer's purchasing power. So you must be able to control all relevant value-creating forces to maintain reasonable prices for your products.
Is my organizational structure well set up?
An innovation-centered business model can help you with all the tools and resources needed to achieve your organizational goals. Whether you're set up to realize profits, provide as much value as possible, or do both, this model will help to set the wheels in motion.
How can I key into growth opportunities?
Innovation in business breeds growth and progress. And one way to foster growth is to adopt an innovative business model.
How do we use it?
1. Define the target market
Defining the target market helps you identify the customer and what levers to pull to meet their needs. It helps you align your company's goals, resources, and operations to create, modify, and distribute value. In doing so, you'll need to answer the following questions.
What does the customer want or need?
What are the obstacles to meeting those needs?
How have these needs been previously met?
How does the customer know that the need has been met?
2. Identify your strengths
Building on your strengths puts you in a strong bargaining position. It offers a take-off point from which you can offer some value and refine, advance, and promote the same value. Your strengths could be your core competencies, a source of competitive advantage, or anything that stands you out.
3. Identify your objectives for the business
Identifying your objectives helps you create the right perspectives about your work. This is so that you can coordinate efforts toward achieving your goals and settle for the right innovative approach. Whether your objectives are long-term growth, tenure profits, or value-creation, state them clearly and pass them across to everyone on board.
4. Study leading innovators
Look out for the market leaders and the top performers in your industry to know what makes them tick. Observe their methods and their innovative approaches to product development.
5. Put it all together
You can now gather all the inputs from the above steps to create the innovative business model in question. With the information gathered from the market and the resources at your disposal, effect the strategic changes to your system as required.
Initiate all the necessary workflows, processes, and organizational-wide changes to deliver the requested customer value. And then validate the changes to ensure they fit the intended purpose.
Practical Example
We look at the most important innovative advance experienced in the movie rental industry and how it has impacted the markets. We've moved from the DVD era and its late fees problem to the more efficient and convenient streaming era.
Companies like Netflix and Amazon have adopted the subscription-based business model to provide premium movie-watching services to their customers. And it is an innovative approach that has revolutionized the movie industry.
Nowadays, the customer only has to pay a fixed service fee to grant them access to the platform for a period. Not only has this model provided value to the customer, but it has also increased the profit potential for the companies and created a new industry out of it.
Advantages
It creates competitive advantages
Innovation is one of the main promoters of competitive advantage across industry lines. And any business that's set up to be consistent in its pursuit of innovation will compete favorably in the market.
It creates room for growth and expansion
The ability to adapt to any economic condition is a key feature of an innovative business model. And this confers on any company the corresponding capacity to grow and evolve.
It enables process and product efficiency
Business model innovation paves the way for more efficient and productive output across a business's value chain. It allows for more efficient processes/operations that yield crucial value-creating products and services.
It enables positive brand image positioning
Many of today's most visible brands are known to be heavily invested in innovation. And a business model innovation approach can help build such type of reputation.
Disadvantages
It does not come cheap
The expenses of adopting a business model Innovation strategy may be too much for smaller businesses. And if the profit does not match the efforts, it may be unsustainable in the long run.
It is time-consuming
The time it takes to effect strategic and innovative solutions in the workplace may be too much to ask for some businesses. This is often true for big businesses with frequent turnovers and complex value chains.
It comes with some associated risk factors
Real change is not always easy to effect under any circumstances. And the risks that come with adopting new (albeit innovative) business strategies may prove too steep at times.
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