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This post is an extract of my forthcoming book on business model innovation. The innovation book looks at why business model innovation is needed and how it works. You can read more about it here. These posts are early drafts of planned content and I’m putting them out to get feedback. Please do comment below, or subscribe to these pages to get each new section as it is published. In today’s post, we will be looking at finding opportunities in this new world.

So what is business model innovation?

What we have seen so far is that it is not:

Product, service, process, or organisational innovation, though those may play a part.

It is not the process of applying digital technology or even technology to a business model. That may be business model innovation, but it could equally be digitisation, digitalisation or digital transformation, or a melange of all three.

Why won’t the application of digital to a business model create business model innovation?

Simply put, digital technology is merely the latest in a long line of transformative technologies that have transformed business models. What digital technology is special only in the specifics of what it does. The relative transformative power of business model innovation remains – whatever the transformative technology that is driving its use.

That’s a lot of guff about what it isn’t. We also want to make it a bit more attractive than pornography, doing better than saying, ‘I’ll know it when I see it.

Let’s start off with a couple of thoughts to help us create a definition. Business model innovation is disruptive. It represents a discontinuity from what has gone before.

Music and Military Changing the Business Models

An example of this can be clearly seen in music. Three bands stick out in my mind for having disrupted music when I was growing up. The Beatles changed what rock and roll were all about, moving it from saccharine 50’s hits. The Sex Pistols (who I hated) started Punk and broke rock music apart, and then a decade or so later, Nirvana introduced grunge. Each of these musical inputs created a very different style of music, to that which had gone before, but at the same time, the influences of the past on the music were clear.

Using a very different example, if we look at military history, Alexander the Great combined the use of Sarissa (the Makedonian Phalanx) and the cavalry as hammer and anvil in a way that hadn’t been done before and used to conquer the ‘known’ world. Equally, Napoleon used little new technology but combined the infantry columns of revolutionary France and artillery with converging corps on the battlefield to again conquer the known world. Guderian used the concept of schwerpunkt and tanks to smash the post-WW1 military model, and Giap used dispersed infantry and pinprick attacks to smash the post-WW2 model and defeat the Americans in Vietnam.

Tech Companies and Scientists Changing Business Models

In the business world, Google discovered a way to transform advertising by generating data on consumer behavior cheaply and easily. Amazon saw a way to add an infinite number of shelves into a corner bookstore. Salesforce saw a way of making software cheaper by removing expensive onsite installations and licenses.

If we go into science, Galileo and Newton found a way of using the same facts to come to a very different conclusion that, eventually, predicted far more about the way the universe behaved. Einstein took these facts and reinterpreted them again to help us seen the universe and space-time completely differently.

The common approach of all these changes is not that there has been an introduction of new technology. Though that often is the case. Galileo’s theorising was driven by the better optical glass for telescopes, as Guderains was driven by improvements in tank engines and capability. As scholastic philosophers in the middle ages would have put it, technology was necessary for innovation, but not sufficient.

Something more was required. Before we get to that, let’s look at some of the other commonalities.

These ‘business model’ innovations all fundamentally change the way that war, music, science, the business worked. What happened after was qualitatively and quantitively different than before.

Does a Measurable Change Impacts the Business Models?

So the business model has an impact. It creates a measurable change. That change doesn’t need to be universal – I have no idea how popular the sex pistols were in China just after the Cultural revolution, or Nirvana was in Uttar Pradesh in the ’90s. It doesn’t matter. The business model innovation has an impact on the ecosystem around it. It may spill over into other ecosystems, environments, and markets, but against that is not necessary, but it is possible.

A corollary of this impact is that it makes it fundamentally untenable to go back to the way that things were before. A post WW2 general who thought to fight a war in the style of 1916 was at an immeasurable disadvantage, as Saddam Hussein saw in 2003 when he tried to fight a cold war, vs a post end of history adversary.

But despite all this change, much remains the same. Musicians played the same chords, just in a different order. Scientists collected the same planetary or molecular data but fed the results into different formulas. Businessmen still focused on creating similar value propositions for similar customers because the underlying human problems were still there.

Before we start bringing this back together, there is one key point that I’m going to introduce now. We are going to spend a lot of time on over the next few chapters.

Perpetual Shift

The key is that one or more people involved had a perceptual shift. They persuaded others to adopt the new way that they saw the world. The innovators saw the world differently. They reconfigured everything that they knew and combined it and saw that 1+1 not longer equaled 2. 1 + 1 = B.

Because the world was different, the old laws that had governed music, warfare, science, and business no longer applied. And when the old laws no longer applied then they had entered into a magical world. Where for a time, many of the rules were malleable as they sought to experiment and find new rules that served their purpose.

Let’s give a quick military example (and I’m giving fewer business examples at this point in the book to help open your mind – like going into a sauna to open up your pores). After the British success at Cambrai, where tanks were used for the first time – and successfully breached the German trench system. Everyone knew that the rules had changed. The British, French, Italians, Soviets, and Germans all experimented madly, coming up with a huge number of tanks based on ideas that seemed sensible to the theorist but, which were untested (think back to the similarity with the explosion of car factories in our auditable case study).

The German army established a secret tank training school in Kazan in the Soviet Union to practice with all the new tank models and figure out if what seemed to work in theory would actually work in practice. It did, and that formed the basis for the new panzer divisions and thus the blitzkrieg concept that stunningly smashed France out of the war in 1940.

Let’s bring this all back together

Business model innovation is based on a changing view of the world that allows an organisation to use its existing resources, and possibly new technology, to create a quantitive and qualitative shift in outcomes, that fundamentally weakens the competitiveness of all other players.

[Note: I had no idea what the business model innovation definition was before I started writing, but I do like this – it seems fresh, fairly complete, and not too long]

If You Want to Read More

I keep everything structured on my niftily titled business model innovation book page. Head there to browse, binge, read straight through, or cherry pick. Please do take a moment to comment below or upvote comments that you agree with

Subscribe to the New Book Chapters

As I write each new section you can have them sent to your email. The plan is to write something 2 – 3 times a week. It is easy to unsubscribe, but I hope you won’t as the goal is to delight and entertain as well as educate and train you through this business model innovation journey.

• How do you Growth Hack a Music Startup?
• How Do World Views Changes?
• The World is Changing
• Why Technology Will Change the World, but Hasn’t Yet
• A Step-Change is a Big Change

This post is an extract of my forthcoming book on business model innovation. The innovation book looks at why business model innovation is needed and how it works. You can read more about it here. These posts are early drafts of planned content and I’m putting them out to get feedback. Please do comment below, or subscribe to these pages to get each new section as it is published. In today’s post, we will be looking at finding opportunities in this new world.

As we see business models starting to slowly die one of the key features that they all have is that they have unresolved anomalies in them.

Imagine a tree growing beside a concrete lamppost. As the tree grows, the lamp post remains in place, forcing the tree to grow around it to distort its natural pattern of growth. One way of resolving it is if the tree is large and strong enough to slowly force the lamp post out of its way as it grows. Or if it puts enough strain on the lampost so that it cracks and falls. If it can’t, then the tree is distorted by it. This introduces inefficiencies in the tree’s growth and makes it harder to survive.

Anomalies work like this in business. The weird thing is that they are often not as visible as a concrete lamppost.

Palm Oil Farming: A Complete Anomaly

Let’s think back to our Asian palm oil plantation. This has a number of anomalies, persistent problems that managers could never really fix.

• They could never improve the yields on the palm oil trees.
• They found it harder and harder to get good staff
• Could not find a way of automating harvesting.

Every industry has a number of problems like these. They are driven by market structure, the nature of supply and demand in the market, historical happenstance, the way that innovation happened in the industry, or for another thousand reasons.

Most managers accept these are constraints on the business model. They work industriously to ensure that they maximise sales and profits and minimise costs to ensure that the business works.

Some managers inside the industry see them, like a stump, in the middle of a field, as something that needs to be blasted or otherwise removed.

How to Remove Anomalies That Are Impediments To Business

What seems to be the case is that as anomalies are removed business models are suddenly able to change rapidly. Imagine – taking the concrete lamppost away that has constrained the tree’s growth. It can now expand out into the void that the lampost prevented it from using.

If we increased the yields on palm oil trees, let’s say by 50% through genetic modification, that will drive huge numbers of the lower yield producers out of the market in a few years. It also changes the manpower requirements, exacerbating them in the areas where the new high-yield trees are planted. It also changes the dynamics of palm oil refinery placement. Mills are usually less than 20 miles from the plantations to minimise the time that the bunches have to spoil before they are processed. They could then be made larger, driving down the costs of the finished product through inefficiencies of scale.

From that simplified example, you can see how when we removed an anomaly. Whether it is a technological, cultural, social, economic, or political constraint then a business model can change very rapidly.

This is a sense is what the whole book is about.

What are the anomalies in your industry? Why do they exist? How can they be removed, bypassed, reconciled, and what will that mean to the patterns of business models in your industry?

If You Want to Read More

I keep everything structured on my niftily titled business model innovation book page. Head there to browse, binge, read straight through, or cherry pick. Please do take a moment to comment below or upvote comments that you agree with

Subscribe to the New Book Chapters

As I write each new section you can have them sent to your email. The plan is to write something 2 – 3 times a week. It is easy to unsubscribe, but I hope you won’t as the goal is to delight and entertain as well as educate and train you through this business model innovation journey.

• Business Model Failure: According to Hemingway
• Lost In Transformation – Explore The Wilderness To Find Anomalies: Business Model Innovation Explained
• How It Works
• Are Business Models Similar to Oaktrees?
• Exploring the Malaysian Jungle

This post is an extract of my forthcoming book on business model innovation. The innovation book looks at why business model innovation is needed and how it works. You can read more about it here. These posts are early drafts of planned content and I’m putting them out to get feedback. Please do comment below, or subscribe to these pages to get each new section as it is published. In today’s post, we will be looking at finding opportunities in this new world.

Let’s put this differently.

My daughter is just into her teens. As a result, she’s started to make her room a reflection of her personality. One way that she’s doing this is by having lots of thick wax candles in the room. The room has a wonderful warm glow – it feels safe and secure. She also reads a lot. When I go in to remind her to blow the candles out, (actually I love the smell of the candles being snuffed out), I find her face close up to the book, squinting to make out the black wiggles on the page. The candles are lovely, they let her read. It’s hard though.

If I’m feeling cruel, I’ll switch the light on. As we are living in a temporary rented house in Sharjah at the moment, the light is bright, harsh, and actinic. It kills the mood. It’s more suitable for an interrogation cell where you aren’t going to be allowed to sleep for 36 hours. Those letters pop off the page in crisp-type blocks. Reading becomes easier and faster. Comprehension, recall, and insight all bloom as this happens.

Customer Value

A normally incremental approach to innovation would tinker with the number of candles in the room. Their placement. It would tweak with the way composition and that of the wick. How do we maximise the lux and the flux density on the book pages? As long as we are making it a bit brighter then the reader is happier with the product.

How though? Can we step out of this approach to hill climbing – finding local suboptimal peaks – and find a point where the lighting in the room transcends the reading experience.

This may seem a metaphor – but this was a very real business model innovation at the end of the 19th and beginning of the 20th century – as electricity transformed homes after darkness.

When we are looking for ways of creating customer value, this is the measure that we want to set ourselves. If we measure the increase of performance in percentage terms, even in double-digit percentage terms, then we are not having the impact that is going to create the disruption that our customer desires and needs. Instead, the goal is to look for ways to increase the customer value that they get by orders of magnitude. One order of magnitude is 10 times larger. Two orders of magnitude are 100 times larger.

One final example before we move on.

Wikipedia versus Encyclopedia Britannica. The Future will Always Win

I was always curious as a small boy. One of the most bitter memories of my childhood is my English teacher at primary school, Mrs. King, accusing me of lying about how many books I’d read. I claimed that I’d read every book in the school library. She held me up for shame in front of the entire class. The fact that I was able to give her a synopsis of every book that she pointed out only seemed to deepen my guilt in her eyes. Decades later, that still hurt. My parents recognizing my thirst for knowledge bought me the Encyclopedia Britannica.

I never read it as much as the dictionary, but it was a joyful browsing compansion. As a tool for answering questions, it was good, but the questions I asked had to be important. First, I had to decide whether to look at the Micro or macro part of the encyclopedia, (the little articles or the big ones).

Then I had to practice my spelling and figure out which of 10 volumes the search term was in. Then I had to leaf through 1000+ pages of thin paper, trying to find the right entry. I think that I probably used it once a week or so.

Move on a few decades, and when I am reading a book on my kindle, I press and hold my finger down on a word, and Wikipedia opens up. I then have a reasonably good article telling me what I need to know instantly. I used Wikipedia 5-20 times a day.

Wikipedia, just on those metrics created 35- 140 times more value than my old paper encyclopedia. This is the challenge. This is the goal to work towards for the customer.

If You Want to Read More

I keep everything structured on my niftily titled business model innovation book page. Head there to browse, binge, read straight through, or cherry pick. Please do take a moment to comment below or upvote comments that you agree with

Subscribe to the New Book Chapters

As I write each new section you can have them sent to your email. The plan is to write something 2 – 3 times a week. It is easy to unsubscribe, but I hope you won’t as the goal is to delight and entertain as well as educate and train you through this business model innovation journey.

• About Denis Oakley
• Denis Oakley’s Reading List
• What Business Model Can and Can’t do?
• Thomas Kuhn’s Science and Business Models
• Epiphany Bridge – University

This post is an extract of my forthcoming book on business model innovation. The innovation book looks at why business model innovation is needed and how it works. You can read more about it here. These posts are early drafts of planned content and I’m putting them out to get feedback. Please do comment below, or subscribe to these pages to get each new section as it is published. In today’s post, we will be looking at finding opportunities in this new world.

Business model innovation can sometimes exist in the eye of a believer. What can seem to one company to be a radical breakthrough, seems to another to be a small piece of incremental innovation.

How do you tell?

The simplest way is to look at the outputs and see if there is a step-change in them.

Let’s give an example. I was talking with author and coach Andrew Sillitoe recently about his book, the Four Keys. As it says on the tin, the book explores the foundations of what makes a solid foundation for a good life. As we talked, Andrew said bluntly, “It doesn’t pop does it?” “No”, I answered, “It has everything that the book should have, but it doesn’t transcend the genre and get people to be recommending it, buying their friends copies, or devoting entire blog posts to the minutiae of a single paragraph.

A step change goes well beyond the god or a workmanlike improvement in a product or service. It makes it so much better.

Step change

I’ve been running consistently for 15 years. 35 years if you include the decades of on and off again running from when I first learned to run across the muddy fields of the North Shropshire Plain. My marathon training has always been poor. I’ve done too much too soon, gone too far too often, go too hard with not enough recovery. So my running has been a triumph of will ever training. Training should be the foundation upon which will launches you into a new sphere.

Then I signed up to peloton outdoor. I don’t have the tread or the cycling machine. Yet, with a coach in my ear, telling me what to do, coaxing me through the dark moments of my marathon training, I have got faster than ever before. It has enabled me to soar. My performance has transformed.

Why am I talking about it from the customer’s perspective? Shouldn’t we think about the impact of strategy on a company’s bottom line? In EPS, share price, or market capitalisation?

Want to Innovate? Follow the Customers

Almost certainly not. Shareholder value follows customer value. When there is a steep increase in the value that the corporation offers to the customer, then that value is reflected in the shareholder value at some delay.

When we work the other way round, then what we see are stagnant companies that cannot drag themselves out of the competitive morass.

Think then about the step change that you can create – check in-less flying, automated cars, refilling fridges, supermarkets that give you offers based on your health objectives – so that you get healthier through indulgence. Think about some of the steps changes that we’ve had already. Seamless sharing of intimate moments with those we care about, instant answers to any question that we ask, always knowing where our loved ones are, sex with a willing (and unpaid) partner at a few hours’ notice.

These are huge changes in people’s lives and satisfaction, and these are the true outputs. The question is not, “how do we do this a little better?” Instead, the question is “How do we do this so much better, that it seems first magical and then life becomes unliveable without it”

These are the steps changes that we look for.

Make no mistake – it is tough – but as a scrambler knows – once you get your hands on the rock, you can gain height far faster than plodding slowly up a path that slowly zig-zags across the mountain.

If You Want to Read More

I keep everything structured on my niftily titled business model innovation book page. Head there to browse, binge, read straight through, or cherry pick. Please do take a moment to comment below or upvote comments that you agree with

Subscribe to the New Book Chapters

As I write each new section you can have them sent to your email. The plan is to write something 2 – 3 times a week. It is easy to unsubscribe, but I hope you won’t as the goal is to delight and entertain as well as educate and train you through this business model innovation journey.

• How It Works
• A Sales Process for Artists and Designers
• The World is Changing
• Visualisation and Business Transformation
• What is 1,000 Days of Running and Why is it Important?

This post is an extract of my forthcoming book on business model innovation. The innovation book looks at why business model innovation is needed and how it works. You can read more about it here. These posts are early drafts of planned content and I’m putting them out to get feedback. Please do comment below, or subscribe to these pages to get each new section as it is published. In today’s post, we will be looking at finding opportunities in this new world.

Digitalisation is the next step from digitisation.

If digitisation is converting our analog information into digital information. Digitalisation is the realisation that now information is in a much more flexible form we are constrained by the old rules of paper and analog.

We can handle the data quite differently, and as a result, we can create more value, we can do things faster or better than we ever have before.

A really simple example is Craig’s List. This is an American website for selling second-hand stuff and personal services. Back in the day, when everything was analog to sell something that you didn’t want, you had to take out a classified advert (not sure what classified means here) in the local paper, pop your telephone number down and wait for buyers to ring you. This worked well whether you were selling old cars, your body, or bric a brac.

It was quite expensive because you had to call the paper, explain what you wanted, write the copy. This then had to be typeset, handed over to the printers and a few days later a newspaper would be delivered to thousands of people with your advert on it.

End of Analog Era, Start the Digital Revolution

Craig List realised that by digitialising this process, it could be made significantly faster. You filled out a form with your advert, paid some money, and your advert was up and available for anyone who came to Craig’s website to read. As a result, it was not only cheaper – you did all the work, but Craig’s list was effectively a newspaper with an infinite number of pages. Everything changed.

Digitalisation goes a lot further than that, and as it does, it starts to blur into business model innovation. When I was a student, I went along to Natwest to open an account. A bunch of forms later, I took my cheque to the counter, where it was deposited into the account. When I wanted some money, I came back to the branch and took some out.

A couple of years ago, I opened an account at Starling, a neo-bank. It doesn’t have any branches. I downloaded an app, took my photo, and uploaded my passport. With my identity verified, I had the account opened in minutes. A few minutes after that, I had transferred cash into the account and was spending money using Apple pay.

A lot of the core functions have been digitalised and made vastly more efficient. But in many ways, the bank still has the same underlying business model as Nat West did in my youth.

The Power of Digitisation

Digitalisation then is often a halfway house. It is a place between – let’s keep doing things the way they were, and let’s change radically. It is efficiency and effectiveness play. In some industries, digitalisation keeps you in the game – for example, banking or insurance. If you haven’t moved to use apps, for example for most banking, then you are losing customers and credibility. In other industries, it is an opportunity to get a competitive advantage over competitors in one or more aspects of your operations. And in some, it is a part of an overall transformation process.

You don’t need to do digitalisation to do business model innovation. Business model innovation is not the same as digitalisation, but they often do overlap.

If You Want to Read More

I keep everything structured on my niftily titled business model innovation book page. Head there to browse, binge, read straight through, or cherry pick. Please do take a moment to comment below or upvote comments that you agree with

Subscribe to the New Book Chapters

As I write each new section you can have them sent to your email. The plan is to write something 2 – 3 times a week. It is easy to unsubscribe, but I hope you won’t as the goal is to delight and entertain as well as educate and train you through this business model innovation journey.

• Digitalise Your Business For Explosive Growth
• The Digital Nomad Business Directory
• What Business Model Can and Can’t do?
• How to Achieve Double-Digit Growth with your Customer
• Haya and Digital Privacy – How the Islamic Idea of Modesty Can Help

This post is an extract of my forthcoming book on business model innovation. The innovation book looks at why business model innovation is needed and how it works. You can read more about it here. These posts are early drafts of planned content and I’m putting them out to get feedback. Please do comment below, or subscribe to these pages to get each new section as it is published. In today’s post, we will be looking at finding opportunities in this new world.

There are lots of mistakes to be made when it comes to business model innovation.

The majority of those mistakes are brilliant. They are the consequence of you going off the beaten trail and exploring, finding new challenges, and having to come up with new solutions. Most of the stuff you try won’t work, and that is ok.

Think back to Edison in his lab with his group of research assistants trying to find the perfect filament for the incandescent light bulb, the holy grail of home lighting in the 1890s.

As I remember, they tried thousands of different substances with different specifications – finally settling on slivers of bamboo. You can claim that every single failure was a mistake of some kind. True, but that is part of the journey that we need to go on.

The bigger mistakes are the ones where the journey never starts.

I was working with an engineering company in Malaysia. They had grown substantially over the last 30 years, indeed in a previous life, I had even sold steel to them, and so I knew and liked them. I could also see the challenges that they faced as oil production in the South China sea and around Borneo started to reach maturity.

We went through a business model innovation workshop, looking for new business models that they could grow into.

Towards the end of the session, the Managing Director said to me. “This is very interesting Denis, but we want to keep doing what we are doing we’re good at that.”

It’s not business model innovation if you keep doing the same thing as you did before. If you decide to have a makeover, and you wear the same clothes, your hair is cut in the same way, are the same colour and you still use the same accessories. It might feel good that you have smartened up – but it’s not a makeover or transformation.

If You Fail to Innovate You Fail as a Business

There is this very real fear of loss among some leaders and businesses. I know this company, I know this business model. I feel safe, comfortable, and in control here. If I don’t change then, it’s not my fault if we are overwhelmed by market forces. I will not be a failure.

If instead we strike out and do something new, I am going to be the one selling it to the board. I will be the one who will be remembered for sinking the company ship, for staving in its sides below the waterline. I will have to deal with the snide jokes and mockery of my peers.

Better to

“Keep doing what we are good at.”

Can Business Innovate Itself?

The irony is that in most cases of business model innovation, the company gets the opportunity to really double down on what it is very good at – core competencies – leading to a flowing of tactical innovation and improvement as it works hard to make the new business model work.

A good example is in the early years of Eastman Kodak. They had a business model that delivered photography to the masses. To do this, they became excellent in cameras, film, developing photos, chemicals, paper technology, and more. And it was this knowledge and the IP and patents that sustained them as they made their hesitant transition into digital.

The rule then, if you are going to do business model innovation, you have to accept that there will be some losses. In just the same way that when you get married, you have to give up the other girl and boyfriends. Or when you move to a new house, you have to leave behind the old house and let it live on only in memories.

There is a loss. That loss needs to be acknowledged and change accepted.

If You Want to Read More

I keep everything structured on my niftily titled business model innovation book page. Head there to browse, binge, read straight through, or cherry pick. Please do take a moment to comment below or upvote comments that you agree with

Subscribe to the New Book Chapters

As I write each new section you can have them sent to your email. The plan is to write something 2 – 3 times a week. It is easy to unsubscribe, but I hope you won’t as the goal is to delight and entertain as well as educate and train you through this business model innovation journey.

• Start Your Entrepreneurial Journey
• Growing Up in Birmingham
• Business Model Lifecycle – Innovation
• Feasibility of a Business Model
• Epiphany Bridge – University

This post is an extract of my forthcoming book on business model innovation. The innovation book looks at why business model innovation is needed and how it works. You can read more about it here. These posts are early drafts of planned content and I’m putting them out to get feedback. Please do comment below, or subscribe to these pages to get each new section as it is published. In today’s post, we will be looking at finding opportunities in this new world.

When companies talk about innovation, they often talk about innovation in their products and services.

I was at the Diageo headquarters in London a few years ago talking to some of their leading marketers and innovators. Diageo is a big brand, making some of the world’s most loved alcoholic drinks.

Their big success in the last few years was coming up with a new herbal gin that was selling in significant amounts in West Africa. They were so over the moon about it that it came up in almost every presentation that they gave. I can’t remember the figure, but my memory is that it had boosted their sales by about 5% – a huge deal for a multi-billion dollar company.

Why we should be following product innovation?

Let’s step back a bit from the marketers doing new product development and look at what is happening. The marketers have developed a new product that is doing well. Their competitors aren’t daft, and in a few years or less, there will be a dozen other brands of herbal gin on the market. Diageo’s may come out on top due to a couple of extra years of brand building behind it, or it may not. Over time it will become part of the company’s stable, of brands to be reinvented, promoted, and traded with other drinks companies when it no longer fits the portfolio.

This is how most companies treat their brand/products and services. GE was notorious for only taking part in an industry if it could be in the top three. If it couldn’t win, it didn’t ply.

This innovation drives companies forward – trying to make better products for consumers and businesses. It was this approach that put brakes, ignition motors, and sunroofs in cars – and made our lives safer and easier.

This innovation swallows up 90% of all corporate innovation. There are reliable approaches to de-risking innovation (though FMCG companies can spend $70m on a new product, that has < a 20% chance of spending more than 5 years on supermarkets shelves.)

The Secret to Innovation in FMCG

Essentially what we are doing is using the same factory to make a slightly different product. At its simplest, the toothpaste tube is squeezing out green paste instead of blue past. You still have a toothpaste tube with the same design and shape.

In a static market, this is ok. The toothpaste colour switching business model works. As markets change, being able to come up with striped, wavy, or rainbow coloured toothpaste matters far less than being able to come up with a toothpick or dental floss. The business model that produces new products becomes a constraint on innovation.

If that is product innovation, what is business model innovation, and how does it differ?

At its simplest, it can do two things. First, it changes the product that is being made. Imagine whisky pills. Or perhaps IV whisky that is injected straight into the bloodstream – and is even better than the real thing. There we have changed the product so thoroughly – and how it enters the market – that everything has to change.

Business model innovation is also about changing the product – but in slightly different, more subtle ways.

Secondly, we change how the whisky is made. Instead of having a distillery and maturing the barrels for years, we do something very different – crowdsourcing whiskeys from a million living room distillers in Edinburgh and blending them. The old production process is totally disrupted.

Both of these suggestions seem daft to me and no doubt seem daft to most of you (inevitably there will be a genius for whom the above connects some dots, and that will make a difference though). That’s not the point. If either came true or if both came true, you simply could not and would not keep making whisky in the same way again. Similarly for herbal gins are destined for West Africa.

That’s business model innovation, and that is why it is different from product innovation.

Let’s go back to the car industry for a minute.

What Tesla is doing is business model innovation. The car that they make (the product) isn’t a lot different from all the other cars out there. True, it is electric and has some autonomy, but 98%+ of its function is the same.

What is different is that huge battery and electric motor. You can express the difference in one word. Simpler. There are far few components. So assembly is easier. That means cheaper and faster because you can automate it a lot more. At the same time, you strip out the old distribution networks that car manufacturers used and sell your own cars (vertical integration). Suddenly you have a business model that makes cars for a lot less and captures a lot more profit. That’s a business model innovation.

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• Cars Case Study – Invention to Changing the Industry
• Should a Brand be Desirable?
• Innovation & Scarcity
• Business Model Innovation Changes Everything
• Business Model Innovation Changes Everything