Business Model Innovation
Summary
TLDRThe 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
📈 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.
🛠️ 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.
Mindmap
Keywords
💡Innovation
💡Business Model Innovation
💡Path Dependency
💡R&D Resources
💡Customer Value
💡Competitive Advantage
💡Misconceptions of Innovation
💡Creative Imitation
💡Razor and Blade Pattern
💡Iterative Cycles
💡Not-Invented-Here Syndrome
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?
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