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]
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