Global Business Model Innovation

By M. Isi Eromosele

The greater frequency of disruption and dislocation in many industries is shortening business model lifecycles. New global competitors are emerging. Assets and activities are migrating to low-cost countries.

Systemic risk is growing as global business becomes increasingly interconnected. Social and ecological constraints on corporate action are emerging. All these factors require businesses to bolster and accelerate innovation.

Business Model Innovation offers a fresh way for companies to think about renewing competitive advantage and reigniting growth in the current global market environment. For a company to achieve a reliable competitive advantage, Business Model Innovation (BMI) must be systematically implemented, sufficiently supported and openly managed.

Defining Business Model Innovation

A business model consists of two essential elements; the value proposition and the operating model, each of which has three sub-elements.

The value proposition answers the question, “What are your offerings and who is your target audience? It reflects explicit choices along the following three dimensions:

Target Segment(s). Which customers have you chosen to serve? Which of their needs are you seeking to meet?

Product or Service Offering. What are you offering the customers to satisfy their needs.

Revenue Model. What is your pricing model for your offerings?

The operating model answers the question; How do you profitably deliver your offerings. It captures the business’s choices in the following three critical areas:

Value Chain. Operationally, how are you structured to deliver on customer demand?

Cost Model. How have you structured your assets and costs to deliver on your value proposition profitably?

Organization. How do you deploy and develop your staff to sustain and enhance your competitive advantage?

Innovation in a business model is more than a mere product, service or technological innovation. It goes beyond single-function strategies, such as enhancing the sourcing approach or the sales model.

Innovation becomes BMI when two or more elements of a business model are reinvented to deliver value in a new way. Because it involves a multidimensional and coordinated set of activities, BMI is both challenging to execute and difficult to imitate.

Today’s Relevancy Of Business Model Innovation

Business model innovation is especially valuable in times of economic instability, as is the case today. BMI can provide companies with a way to break out of intense competition, under which product or process innovations are easily imitated, competitors’strategies are converging and sustained advantage is elusive.

It can help address disruptions such as regulatory or technological shifts that demand fundamentally new competitive approaches. BMI can also help address downturn specific opportunities, for example, enabling companies to lower prices or reduce the risks and costs of ownership for customers.

The companies that flourish during economic downturns frequently do so by leveraging the crisis to reinvent themselves, rather than by simply deploying defensive financial and operational tactics.

Implementing Business Model Innovation

Becoming good at BMI is much like developing any other competitive capability. Companies should assess the opportunities open to them and identify the most promising projects, prepare the organization to pilot the projects and select the best one for scaling up.

Within these steps however, a few activities are particularly important when striving for BMI.

Uncovering Opportunities

Before looking for new opportunities, it is important for a company to analyze its current business model to understand its limitations. They should look closely at each element of their business model and test how the choice aligns with industry trends, evolving customer preferences and its relative advantage or disadvantage over competitors.

Once a company understands its business model choice, it is better positioned to brainstorm new opportunities. To give momentum and depth to this exercise, it useful to apply successful BMI patterns from other industries.

An important choice that incumbent companies must make is whether to embed a new business model in the core business or establish it separately. The benefits of common assets, customers and capabilities argue in favor of integration. But a significant disruption to the current model argues for a separate approach.

Most new business models are inherently disruptive and can incur significant internal resistance. Business Model Innovation requires a distinct set of processes and capabilities to overcome an organization’s short-term focus and also to sustain a BMI advantage on a

continuous basis.

Implementing Business Model Innovation

A company should begin BMI implementation by assessing its current business context, the needs of its customers and the models of its competitors. These steps should be completed with sufficient clarity and honesty to reveal what is currently working, what is not and what might constitute a better value proposition.

To that end, finding answers to the following questions is imperative in seeking to create a shared awareness of threats and opportunities.

• What compromises does your current business model force customers to make?
• Why are nonusers or defectors dissatisfied with your offering?
• Do you offer customers a better value proposition than that of the competition?
• What alternative models are gaining share at the edges of your industry?
• If you were an industry outsider, what would you do to take advantage of the gaps or weaknesses in your business model?
• Do you have a plan for identifying potential business models, implementing them, and embedding BMI capabilities within the organization?
• What do you need to change in our organization and operations to implement a new business model?
• What information would you need to make a commitment to a new business model?
• How urgent is the perceived need for change in your organization?
• How would your ideas should be championed?

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

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