The Forgotten Merits Of Business Model Innovation26 September, 2016 / Articles
Which business model to use is one of the most fundamental strategic choices that entrepreneurs, CEOs and general managers can make. When we think of innovation, we usually think of creating or refining new products, but innovation can occur at every level of business. In fact, a less publicized form of innovation, that which focuses on the business model, may actually lead to the most profound results.
But how should business models be innovated? The relative neglect these innovations receive has led me and Raphael Amit of Wharton to work on a generalizable process.
We looked at design theory and practice for inspiration. After all designers, like innovators, deal with ill-defined problems and attempt to find new and desirable solutions. In creating a process for business model innovation, we also drew on a process used by the design firm IDEO, based in Palo Alto, California. While its original purpose was to help IDEO develop new products, it has also been used for services and entirely new businesses.
There are five stages that make up the design process:
- How do customers use products and services? Observation means going to the source, not to market research experts. In business model innovation, this stage is broader and more complex. All business model stakeholders, not just end-users, need to be taken into consideration.
- Synthesize. Take stock, share and make sense of the data received in the observation stage. In regards to innovating your business model, this means gaining a holistic understanding of the challenges to and influences on the design process.
- Generate. Create potential design solutions; brainstorm. This may involve modifying an existing business model in novel ways or creating an entirely new business model.
- Refine. Evaluate and concept-test the various proposed solutions. Experiment on a small scale to make sure the innovation is moving in the right direction.
- Implement. Select the design that is the best fit. Once the new or modified business plan has been chosen, the firm must make necessary organizational and strategic adaptations.
Think Systemically, Think Mindfully
Of course, not every change in a business model counts as business model innovation. Designs may provide new angles in terms of a firm’s content, structure or governance, but to qualify as business model innovation, this novelty has to manifest itself at the system level, and it must be “new to the world.”
This five-stage business model design process, once codified (as within IDEO), can be considered a firm-level capability.
As such, it could become an invaluable tool to help CEOs, entrepreneurs and general managers think more proactively about the way their firm is doing business.