Business Model Innovation has emerged as a key competitive strategy for the business world in recent years. According to Volberda and Heij (2018), “The speed with which technologies and strategies change forces firms to innovate their business model continually” (p.2). As the business practices evolve, the market forces, competitive dynamics, and more importantly, the need to innovate and differentiate has pushed industries to be transformed completely. The business model innovation has been a force-multiplier in terms of redistributing billions of dollars of value across the economic spectrum. It can be seen as a meta-innovation beyond products and services innovation.

This reflection essay will aim to understand the dynamics and processes of the business model innovation, the applicability of navigating to a new business model, the key steps, the success factors and the barriers to successful model innovation, through frameworks and industry examples, based on an article in Harvard Business Review by Johnson et al (2008).

This essay will conclude with a discussion on why business model reinvention is important to deliver a transformational change, spurring economic activity and creating a value, hitherto not available to existing players in the industry.

Conceptual Framework

Key Claims

· Business model innovation will become key for success and growth in future; According to Johnson et al (2008), “over 50% of executives believe business model innovation will become even more important for success than product or service innovation.” (p103).

· Business Model framework consists of 4 key elements: Customer Value Proposition, Profit formula, Key resources and Key processes

· Reinventing the business model is needed when creating new growth that causes disruption, with “…When significant changes are needed to all four elements of your existing model.” (p.115).

Industry reshaping with business model innovation

Uber reshaped the entire cab industry by bringing together an innovative business model based on demand aggregation and supply match industry. They disrupted the entire taxi market by bringing together an on-demand service, enabled by the technology and merely serving as a platform for (service) producers and consumers talk to each other, and redistributed billions of dollars of value towards the car drivers and the passengers (Pereira, 2022).

Another industry example, is by Apple Inc., to position their low-margin iTunes music, to lock in with their high-margin technology product in iPod. This revolutionized the music industry, and caused a disruption resulting in record-breaking profits for Apple, in competition to its competitors in Rio and Cabo, whose model hinged upon only the hardware and design.

When do we need a new business model

To innovate better on business model, the businesses first need to understand the value needs of their customers (existing and/or future prospects), then blueprint on to fulfil the need with a profit, and the third and important step is to understand their existing value proposition to construct a business architecture that fulfils this need.

What is a Business Model

According to Cuofano (2022), “A business model is a framework for finding a systematic way to unlock long-term value for an organization while delivering value to customers and capturing value through monetization strategies.”. This is easier said, than done, as the businesses at times may not have an understanding of their existing model.

Four Components of Business Model

There are 4 components of a business model: Customer value proposition, Profit formula, Key processes and key resources. All these 4 components are interlocking, complimentary to each other (p110). Unless a blue printing model of customer needs satisfies all the four elements, a business model innovation will fail.

Many times these changes require significant shift from current ways of working including processes and people. The very nature of an existing model’s success could be a non-starter for a new business model.

Authors explain this though the story of Tata Nano innovation, $2500 car for a small family of four in India, which required changes to its sourcing model, manufacturing processes (pre-fabricated sheets with just-in-time localized assembly), new target customer segment (lower middle class families). It required newer set of employees, and needed to be separated from core business to get it successful (p.112).

Following is a 4-step framework to frame a new business mode, or what is normally called as “Business Architecture Design”

Strategic Opportunities Mandating Need for New Business Model:

As noted prior, the business model change is needed only when significant changes to all 4 elements of the business model. Here is a 5-step strategic opportunity framework presented by authors (p.116).

Key Barriers to Change:

New business model often has lots of barriers, and factors including existing business model itself. Few barriers to change are:

· Protect the status quo – Operational norms that cannot support a low-scale operation (supplier quality, throughput times etc)

· Fear of cannibalizing own business – financial metrics (gross margin, opportunity size etc)

· Resistance to change

· Product development life cycles

· Performance demands (including stock-market response)

A detailed list including metrics, market dynamics is listed in the article (p.121).

These barriers are broken through adoption of : Defying established norms & rules, Identifying new competencies, Patience and Risk-taking ability and the ability to adopt business agility : Fail safe-Fail Fast. Christensen et. al. (2008) establishes these strategies through an industry example transformation by Dow Corning in successfully launching a newer business in Xiameter, and thereby servicing the spectrum of customers both by larger brand and the newer business, by making changes to their competencies, newer skill sets, newer processes and cerry-picking the right human resources, both internal and external (p.118).

In conclusion, the four key success factors needed for a successful business model reinvention, and increasing the odds of success include:

· Compelling Customer Value Proposition executable with narrow focus

· Define & Design new business model with all 4 elements to nail the job efficiently

· New business development process not impacted by Core business, and vice versa (not cannibalizing core)

· Disrupt industry and competitor landscape

“Established companies’ attempts at transformative growth typically spring from product or technology innovations.” (p.122).

Business model innovation is time-consuming, capital-intensive, requiring high level of executive sponsorship and commitment. The entire strategy execution should be a careful attempt to differentiate establishing clear Customer Value Proposition, sustainable in long term. True power of disruptive business lies in embracing new and innovative business model, than relying on new technologies alone.

Bibliography

Christensen, C. M., Johnson, M. W., & Kagermann, H. (2008). HBR's 10 must reads on Business Model Innovation (with featured article "reinventing your business model" by Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann) ^ 10235. HBR Store. Retrieved October 2, 2022, from https://store.hbr.org/product/hbr-s-10-must-reads-on-business-model-innovation-with-featured-article-reinventing-your-business-model-by-mark-w-johnson-clayton-m-christensen-and-henning-kagermann/10235

Cuofano, G. (2022, May 24). Business model: 70+ business models patterns in 2022. FourWeekMBA. Retrieved October 2, 2022, from https://fourweekmba.com/what-is-a-business-model/

Pereira, D. (2022, August 5). Uber business model. Business Model Analyst. Retrieved October 2, 2022, from https://businessmodelanalyst.com/uber-business-model/

Volberda, van den Bosch, F., & Heij, K. (2018). Reinventing business models : how firms cope with disruption (First edition.). Oxford University Press.

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