Business Model Innovation

Summary

The video script discusses why successful companies like Nokia and Kodak lost their edge, attributing it to missing the moment for radical innovation due to being too focused on current operations. It debunks myths about innovation, emphasizing that it often involves learning from others and reimagining business models rather than creating entirely new technologies. The script outlines a four-step process for business model innovation: initiation, ideation, integration, and implementation, highlighting the importance of challenging industry assumptions and learning from patterns across different industries.

Takeaways

• 📉 Companies like Nokia and Kodak lost their edge due to missing the moment to rethink their business models amidst rapid innovation cycles.
• 🚀 Success can be the enemy of future success as it can lead to complacency and a failure to envision future opportunities.
• 💡 Innovation is not just about creating new ideas but also about increasing customer value or reducing costs to gain a competitive advantage.
• 🤖 Misconceptions about innovation include the belief that it stems from completely new ideas, requires big resources, and is always based on fascinating technologies.
• 🛠 Successful innovators often learn and recombine existing ideas rather than being the first to invent something.
• 🌐 Business model innovation involves changing at least two of the four key dimensions: target customer, value proposition, revenue generation, and offer to the customer.
• 📈 Most business model innovations are adaptations, refinements, or combinations of existing patterns rather than completely new ones.
• 🔍 Business model innovation can be inspired by creative imitation, applying successful patterns from other industries to one's own.
• 🔑 There are 55 identified business model patterns that have been responsible for all business model innovations.
• 🛒 Examples of successful business model innovation include Gillette's 'Razor and Blade' pattern and Nespresso's application of the same strategy in the coffee industry.
• 🛠️ The process of innovating a business model involves four steps: initiation, ideation, integration, and implementation.
• 📝 During the innovation process, it's crucial to challenge basic assumptions, learn from other industries, and ensure top management commitment.
• 🚧 Innovation requires time and patience, avoiding the temptation to focus too heavily on short-term KPIs and overcoming resistance within the organization.

Q & A

Why did hyper successful companies like Nokia or Kodak lose their edge?

They missed the moment when they should have left their successful path to rethink their business model, being too focused on managing daily business and serving current clients instead of envisioning future opportunities.

What is the common misconception about innovation that successful companies often fall into?

The belief that today's success is a guarantee for tomorrow's success, which can hinder the pursuit of radical innovation.

How does innovation create a competitive advantage?

Innovation either increases the customer value of a product or service or it lowers their costs, thus creating a competitive advantage.

What are the three pervasive myths about innovation mentioned in the script?

The myths are that innovation stems from completely new ideas, big success requires big resources, and innovation breakthroughs are always based on fascinating technologies.

Why did companies like IBM, Apple, and Amazon succeed despite not inventing the technologies they are known for?

They succeeded by learning and recombining existing ideas and technologies, rather than being the original inventors.

What role did Cisco's limited R&D resources play in its success?

Despite having virtually non-existent R&D resources, Cisco managed to out-innovate larger research labs like AT&T's Bell labs.

What is the significance of business model innovation in the success of companies like Google, Amazon, or eBay?

It is the business model, not just the technology, that is responsible for their success, as 14 of today's 25 most innovative firms have innovated their business model.

What are the four key questions a business model should answer?

A business model should answer who the target customer is, what is offered to the customer, how the value proposition is created, and how revenue is generated.

What percentage of business model innovations are completely novel, and what percentage adapt or refine existing patterns?

Only 10% of business model innovations are completely novel, while the other 90% adapt, refine, or combine existing patterns.

What is the 'Razor and Blade Pattern' and how has it been applied by companies like Gillette and Nespresso?

The 'Razor and Blade Pattern' involves selling a primary product at a low cost and generating revenue through the sale of complementary goods, as seen with Gillette giving away razors and selling blades at high prices, and Nespresso selling cheap coffee machines and expensive coffee.

What are the four steps recommended for innovating a business model?

The four steps are Initiation, where the current business model is analyzed; Ideation, where new models are developed using business model innovation patterns; Integration, where the consistency of the new model is checked; and Implementation, where the model is iteratively designed, piloted, tested, and refined.

What are some of the success factors and pitfalls to consider when implementing a new business model?

Success factors include implementing one business model at a time, clear communication of the change, not overemphasizing short-term KPIs, and getting top management commitment. Pitfalls to avoid include incorrect management behavior, organizational resistance, and the not-invented-here syndrome.

What is the key factor to defeat path dependency and stay competitive in today's economy according to the script?

Innovation is the key factor, which is not necessarily about new technologies or excessive R&D, but often about learning from others and reinventing the business model.

Outlines

00:00

📈 The Paradox of Success and Innovation

This paragraph delves into the reasons behind the downfall of once-thriving companies like Nokia and Kodak. Despite their abundant resources, these companies failed to pivot their business models in the face of radical innovation. The text emphasizes that being preoccupied with current operations can hinder a company's ability to envision and capitalize on future opportunities. It introduces the concept that success in the present can be a barrier to future success due to the rapid pace of innovation. The paragraph also debunks common myths about innovation, highlighting that it doesn't always stem from completely new ideas, require vast resources, or be based on cutting-edge technology. Instead, successful innovators often learn from and recombine existing ideas, as exemplified by companies like IBM, Apple, and Amazon, which achieved success not solely through technological innovation but also by innovating their business models.

05:04

🛠️ Business Model Innovation: A Structured Approach

The second paragraph outlines a structured approach to business model innovation, which is crucial for staying competitive in today's fast-paced economy. It begins by defining what a business model is and the four key questions it should answer: target customer, value offering, value proposition, and revenue generation. The paragraph then explains that a business model innovation involves changing at least two of these dimensions. It discusses how most business model innovations are not entirely new but are adaptations or combinations of existing patterns. The 'Razor and Blade' pattern is used as a case study to illustrate how companies like Gillette, Nespresso, Apple, Amazon, and HP have successfully applied this model. The paragraph concludes by advising a four-step process for innovating a business model: initiation, ideation, integration, and implementation. It stresses the importance of challenging industry norms, using analogies from other industries, ensuring consistency in the new model, and managing the implementation with care, including managing organizational resistance and securing top management support.

Keywords

💡Innovation

Innovation refers to the process of introducing new ideas, methods, or products to improve or replace existing ones. In the video's context, it is the key to overcoming path dependency and maintaining competitiveness in the economy. The script emphasizes that innovation is not just about new technologies but also about reimagining business models, as illustrated by companies like Apple and Dell.

💡Business Model Innovation

Business Model Innovation involves making changes to the way a company operates, including its value proposition, customer segments, and revenue streams. The video explains that this type of innovation can be as impactful as technological innovation, with examples such as Google, Amazon, and eBay, which have redefined their industries by innovating their business models rather than just their technology.

💡Path Dependency

Path dependency describes a situation where past decisions or events limit present options and outcomes. The video script uses this concept to explain why companies like Nokia and Kodak lost their edge; they were trapped by their past success and failed to adapt to new market conditions or technologies.

💡R&D Resources

R&D stands for Research and Development, which is the process of creating new products or services through scientific research. The script points out that having abundant R&D resources does not guarantee success if a company fails to capitalize on radical innovation and instead focuses on managing daily business.

💡Customer Value

Customer value refers to the worth or usefulness a customer perceives in a product or service. The video mentions that innovation can increase customer value, as seen with Apple's innovative products that create a high perceived value for consumers.

💡Competitive Advantage

A competitive advantage is a condition or capability that enables a company to outperform its competitors. The script explains that innovation, whether by increasing customer value or lowering costs, can create such an advantage, as demonstrated by Dell's build-to-order processes.

💡Misconceptions of Innovation

The video script identifies and debunks three common misconceptions about innovation: that it must stem from completely new ideas, requires large resources, and is based on fascinating technologies. It argues that successful innovation often involves learning and recombining existing ideas, as well as innovating business models rather than just technology.

💡Creative Imitation

Creative imitation is the process of taking successful ideas or models from one context and applying them in a new way to create innovation. The script uses this concept to explain how companies can revolutionize their industries by adapting business model innovations from other sectors.

💡Razor and Blade Pattern

The Razor and Blade Pattern is a business model where a company gives away or sells a basic product at a low cost, while selling the complementary consumables at a high margin. The video cites Gillette and Nespresso as examples of companies that have successfully used this pattern to innovate their business models.

💡Iterative Cycles

Iterative cycles refer to a process of repeated cycles of design, testing, and refinement. The script advises using iterative cycles during the implementation phase of business model innovation to test, learn, and improve the new model based on feedback and data.

💡Not-Invented-Here Syndrome

Not-Invented-Here Syndrome is a phenomenon where an organization rejects new ideas or products because they did not originate within the organization. The video script warns against this syndrome as it can hinder the adoption of innovative ideas from outside the company.

Highlights

Hyper-successful companies like Nokia or Kodak lost their edge due to missing the moment to rethink their business model.

Innovation is often missed by successful companies as they focus on managing daily business and serving current clients.

Today’s success can be the enemy of tomorrow’s success due to the fast pace of the innovation cycle.

Innovation increases customer value or lowers costs, creating a competitive advantage.

Examples of successful innovation include Apple with high perceived customer value and Dell with cost reduction through build-to-order processes.

Misconceptions about innovation include the belief that it stems from completely new ideas, requires big resources, and is based on fascinating technologies.

Successful innovators often learn and recombine rather than being the first to invent.

Cisco out-innovated AT&T’s Bell labs with minimal R&D resources, showing innovation isn't always about size.

14 of the top 25 innovative firms have innovated their business model, not just their technology.

Business model innovation answers four key questions about the target customer, offering, value proposition, and revenue generation.

A business model innovation changes at least two of the four business model dimensions.

90% of business model innovations adapted, refined, or combined existing patterns rather than introducing completely new ones.

Creative imitation, such as applying a business model innovation from another industry, is a common approach to innovation.

55 business model patterns have been identified as responsible for all business model innovations.

The Razor and Blade Pattern, used by Gillette and Nespresso, is an example of a successful business model innovation.

To innovate a business model, follow a four-step process: Initiation, Ideation, Integration, and Implementation.

During Initiation, analyze the current business model focusing on the target customer, offering, value proposition, and revenue.

Ideation involves confronting the current business model with 55 innovation patterns to develop new models.

Integration checks the consistency of the new business model, ensuring organizational fit.

Implementation requires iterative cycles of designing, building, testing, and refining the business model.

Innovation success factors include clear communication, top management commitment, and overcoming resistance.

Innovation is key to defeating path dependency and staying competitive, and it's not just about new technologies or ideas.

A structured process of innovation involves learning from others and reinventing the business model.

Transcripts

Have you ever wondered why hyper successful companies like Nokia or Kodak suddenly lose

their edge? Or how could firms like Commodore Computers,

Grundig, Nakamichi, Newsweek or Polaroid possibly fail?

Did they not have abundant R&D resources, top employees and profound knowledge of their

markets? Yes, but they had another thing in common:

They all missed the moment when they should have left their successful path to rethink

their business model. They missed out on radical innovation because

they were too busy managing daily business and serving current clients – instead of

envisioning future opportunities. In other words: Today‘s success is the enemy

of tomorrow‘s success!

The innovation cycle spins faster than ever in nearly all industries.

Innovation either increases the customer value of a product or service or it lowers their

costs

– and therefore creates a competitive advantage. Apple, for instance, creates a high perceived

customer value with its innovative new products. And Dell reduces its costs and working

capital through build-to-order-processes.

But even though its importance is undisputed, there are many misconceptions about

innovation. Three myths are particularly pervasive:

First, innovation stems from ideas nobody has had before.

Second, big success requires big resources.

And third, innovation breakthroughs are always based on fascinating technologies.

Luckily, they are all wrong!

IBM did not invent the Personal Computer, Apple did not invent MP3 technology, and

Amazon did not invent the online book store. Successful innovators learn and recombine

– whereas the pioneers get eaten by the wolves.

Cisco had virtually non-existent R&D resources, but out-innovated the largest research lab

in the world, AT&T’s Bell labs.

14 of todays 25 most innovative firms have innovated their business model – and not

just their technology!

Take firms such as Google, Amazon, or Ebay. Great algorithms, yes, but it is the business

model not just the technology that is responsible for their success.

So, what exactly is a business model innovation?

A business model provides answers to four questions:

Who is your target customer? What do you offer to the customer?

How do you create the value proposition? And how do you generate revenue?

And a business model innovation changes at least two of these four dimensions!

In our research, we have looked at all major business model innovations in the past 50

years. They have all revolutionised one or several

industries. For instance, Ikea has redefined the

way we buy furniture, TomTom has transformed the navigation business, or Ebay has

changed the world of trade. Yet only 10% of these business model innovations

were novel and introduced new business model patterns.The other 90% merely adapted,

refined or combined these patterns. For instance, innovative companies often apply

creative imitation.They ask themselves: How could a business model innovation from another

industry revolutionise our own industry?

In total, we have identified 55 business model patterns that are responsible for all

business model innovations.

For example Flatrate, Supermarket, Rent Instead of Buy, Experience Selling, E-Commerce or

the Razor and Blade Pattern.

Let‘s have a look at this one: Since 1904, Gillette has been giving away

Razors for next to nothing, but selling its blades at

obscenely high prices. Nespresso creatively imitated this pattern,

selling cheap coffee machines and expensive coffee – and revolutionised the coffee industry.

And many other companies applied the Razor and Blade Pattern, too.

Remember Apple’s iTunes, Amazon’s Kindle or Hewlett Packard‘s Inkjet-Printers?

Now, what do YOU have to do to innovate YOUR business model?

We advise you to follow four steps: Initiation, ideation, integration, and implementation.

During Initiation, you analyse your current business model. Again:

Who is your target customer? What do you offer to the customer?

How do you create the value proposition? And how do you generate revenue?

During Ideation you confront this business model with the 55 business model innovation

patterns and develop new models. How would Nespresso conduct your business?

Or is there a match between your product and the experience selling pattern?Challenge your

basic assumptions and the dominant logic of your industry.

But don’t try to reinvent the wheel. Instead, use analogies and learn from other

industries.

During Integration you need to check the consistency of the business model.

This is important detail work where you examine all four questions regarding organizational

fit.

Finally, during Implementation, it is time to awaken the beast.

But be careful! In iterative cycles, you design a business

model, build a pilot, test the pilot and return to the

design phase. It is important to not only gain qualitative

and quantitative data to verify or falsify your

assumptions about your new business model but also not to forget about the soft factors

of innovation!

Thanks to incorrect management behaviour and organisational resistance more than 70% of

all change initiatives fail! Therefore, keep a few rules in mind:

First, only implement one business model at the time.

Second, clearly communicate the new business model and the need for change.

Third, don’t overemphasise short term KPIs. Innovation needs time.

Fourth, get top management commitment. Without their sponsorship,s business model

innovation is doomed to fail! And finally, overcome the not-invented-here

syndrome!

Got that? Let‘s wrap it up then. Innovation is THE key factor to defeat path

dependency and stay competitive in today‘s economy.

Yet,innovation is not necessarily about new technologies, excessive research and

development, or about creating completely new ideas. Most of the time, innovation is

about learning from others and reinventing your

business model – not just your technology. This can be done in a structured process of

initiation, ideation, integration, and implementation: You analyse your business

model, apply the 55 innovation patterns, check for inconsistencies and start implementing

carefully – keeping in mind success factors and

pitfalls.

Are you ready then to revolutionize your own industry?

Try to creatively learn from the giants whose shoulders you are standing on!

Think big and think different. Steve Jobs did it – so why can‘t you?