What is business model innovation (BMI)?
BMI is about finding new ways to add value to a business in the face of rapidly changing circumstances – economic, social, environmental, technological and political, global, national and local. People have been devising innovative ways to do business for centuries. The explosion in the breadth, scope and power of communications and other technologies over the past decade, however, and in particular the emergence of the commercial Internet, has opened new business model possibilities which were previously unimaginable. This is so regardless of the nature of the core business.
BMI requires of business owners and managers not just a thorough understanding of the key players in their particular industry, but also a sophisticated appreciation of the likely impacts of emerging global, national and local trends and events. It is no longer enough to simply be aware of what the competition is doing. This is an outdated, reactive approach which completely misses the point that the global business environment is changing in ways, and at a pace, never before seen. It is businesses which properly understand this point which will be able to position themselves to take advantage of the most profitable opportunities these trends and events open up, and to avoid their most adverse consequences.
Why BMI is important
BMI is crucial not just for the sake of maintaining current profitability, but also because the valuation of an operating business is significantly affected by the level of future maintainable earnings. Because of this, any business owner with a future sale in mind must recognise that maintaining business model relevance in the face of rapidly changing circumstances is as crucial to future sale value as it is to current profitability.
BMI – the current view
In a recent edition of Fast Thinking magazine, the leader of Strategy and Change Consulting with IBM Global Business Services, Matt English, observed as follows:
… IBM’s Global CEO Study 2006, which surveyed over 750 CEOs worldwide, concluded that business model innovation is the key differentiator in an increasingly competitive and globalised market place. …
The study had examined three types of innovation which CEOs had identified as being crucial in driving growth in their organisations – products and services innovation, operational innovation and business model innovation. The study demonstrated that organisations with an emphasis on business model innovation generated a higher performance in profit margin. English went on:
… By understanding revenue, enterprise and industry model innovation, an organisation is able to make strategic changes to its business model to increase flexibility, reduce cost and open up new markets.
The message is clear that the business model is a key area for innovation in the way organisations shape their businesses and deploy their capabilities. The business model presents strong opportunity for growth, but also provides some challenges regarding collaboration, governance and people processes and technology. …
Langdon Morris, a Senior Practice Scholar at the Ackoff Center for the Advancement of Systems Approaches at the University of Pennsylvania, had this observation in his 2003 paper Business Model Warfare:
… As we examine industry after industry, we see that wherever there is an exemplar, a company that stands head and shoulders above the others, that company is almost always a business model innovator that is applying creativity in dimensions other than technology to become a market leader. … .
.. what’s happening continuously in the marketplace is competition between business models themselves. … What this means is the winners at business model warfare have generally applied innovation to create competitive advantages, building stronger relationships with customers by developing business models that fit closely with customer needs and preferences.
By: Greg J O'Connor
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