What is Business Model Innovation and who cares?

In this and future posts, I would like to review some of the topics that I address in my research. And I hope this exercise will give me an idea of how relevant these issues are for people outside academia. My research topic is called, at least until now, Organising for Digital Innovation in Industry 4.0, and it is positioned in the intersection of innovation, digital technology and business. With this research, I try to understand the impact of digital technologies in the innovation process of business models, and develop actionable knowledge for the effective orchestration of digital innovation.

In this first entry, I delve into the concept of Business Model Innovation, which takes a focal point in my research, since numerous examples show that product innovation is often not enough to guarantee the success, or survival, of an organisation. Business Model Innovation seeks to address these challenges by adapting the resources, capabilities, and organisational structure of companies to support their value proposition.

Business Models

But before getting ahead of ourselves, let’s first discuss the notion of Business Model. Now, despite all the popularity that this term has around business schools. One of the earliest accounts of this concept dates back to engineering studies (Cook, 1968). Researchers back then were working on a model that would help them optimise their process of designing for value (an early example of design for X). They came up with a model that focused on identifying the elements, interactions and rules in a system that allowed to obtain the highest output of value. Which, to this day, remains the pivotal objective of a business model.

Nowadays, there are numerous definitions of business models. However, for my research, I draw from the work of three influential scholars, Magretta (2002), Teece (2010) and Osterwalder (2010), to define the business model as:

“A conceptual tool, which is used to articulate, analyse and experiment with the architecture and mechanisms that an organisation has to create, deliver and capture value”

Similarly, in my research, I consider that the way of doing business of any organisation can be understood through four components:

The value proposition at the centre, and around this, the underlying activities for value creation (how to produce the value proposition), value delivery (how to get the value proposition to the user), and value capture (how to benefit from the value proposition).

Naturally, I use these elements in my research, and If you would like to know more about them, I suggest you read my thesis.

Innovation

Moving on to the concept of innovation. My favourite definition is that of Anthony (2012), in his book The little black book of innovation. Anthony described innovation as:

“Something different that has impact”

Five words that concisely resolve what it is and what isn’t innovation, and the key word there is impact. Now, there are multiple ways to measure impact, but a common rule of thumb is to consider the scope of the innovation. Thus, the degree of impact is often characterised as new to the organisation, new to the industry, or new to the market. I believe these terms are self-explanatory so I won’t go into details. However, before moving forward, I would like to emphasise that impact makes all the difference between a novelty and an innovation.

Now, let’s pause for a moment to think about this distinction. Every one of us has seen a novelty, perhaps as an unusual souvenir from a trip abroad, as a new feature in the latest smartphone, or as the seasonal flavour for our favourite hot drink. Of course, at first, we are drawn to these flashy peculiarities, especially when companies devote considerable efforts to pass these features as innovations. For example, claiming that an ultra-slim mobile phone will keep them ahead of the mobile industry for years to come (I’m looking at you Motorola Razr). However, when these changes fail to offer a meaningful shift in value or function, these elements quickly fall into irrelevance and with them the illusion of innovation.

Business Model Innovation

Unfortunately, this is the case of many organisations around the world, who have difficulty distinguishing between novelty and innovation. Precisely, that is the point I wanted to address with this post since I have found that Business Model Innovation offers an insightful perspective of the considerations necessary to develop a meaningful value proposition, and to support that value proposition through the surrounding value-added activities. However, Business Model Innovation is not just a resource, a process, or a capability that organisations can acquire or outsource. Instead, it is a skill, a mindset and a culture that organisations must discover, practice and challenge to become and remain relevant in the current super competitive environment.

Fortunately, not everything is an uphill battle. In recent decades, the advance of digital technology has accelerated considerably, and organisations haven’t ignored the opportunities that they offer. In my next posts, I will examine some of my favourite digital technologies, such as space exploration, Artificial Intelligence, and the Internet of Things, and I will review the opportunities and challenges that they pose for Business Model Innovation.

As I mentioned at the beginning of this post, I hope this blog can give me an idea of the problems that matter most outside academia. So feel free to leave your comments about the topics you would like me to review, the challenges that you see in your industry and the ideas you have to tackle them.