Business model innovation is the process of changing or designing a business to significantly increase its ability to create and capture value and disrupt the markets that it competes in.
Companies that have identical or very similar business models to their competitors are highly vulnerable to market shocks and disruption. This is because they are all vulnerable in the same way, and often respond in similar ways. BMI gives companies the ability to diversify business models and find better paths to growth and increased profitability
Let’s break down this definition of business model innovation into its parts.
What is business model innovation?
Business model innovation is a change process. In it, you change how the business or organisation works, usually substantially. This requires significant cultural and organisational change for existing companies. For new ventures, it often means that your business model is substantially different from existing ones.
Business model innovation is an intentional process where you are trying to find the best business model for a particular environment or context. It can be emergent. As you solve business challenges in a novel way or use new technology, you can develop entirely new business models.
Business model innovation significantly increases the amount of value created. All business creates value, or should. With business model innovation the intention is to create a significant amount of new value. In many industries, the value of the new products or services is 50 to 100 times greater than the previous best solutions. Google, Facebook, Wikipedia all do this.
Business model innovation significantly increases the amount of value captured. The amount of value that you capture drives the profitability of the business model. Successful business model innovation enables companies to generate significant amounts of profit. Uber significantly increase passenger and driver value but failed to capture value itself. WeWork and Wikipedia also fail to capture value well (though that was never Wikipedia’s intention)
Business model innovation disrupts the markets the business competes in. The scale of value creation created by the new business model is often a shock to the market that you compete in. The best business models make it difficult for competitors to respond, to compete or survive. This can be through product innovation, but more often it is through disruption of manufacturing or distribution processes.
What is not business model innovation?
BMI is not a small change to the business. In the normal course of business, small changes are constantly being made to a business, or groups of businesses as they engage in evolutionary competition. Small changes to operations that do not disrupt the market aren’t business model innovation.
Business model innovation is not incremental growth. A business model innovation process that increases revenues by 5% is a failure. There is no point in putting so much work and emotional labour into the project for such small returns. Business model innovation is creating a step-change in growth.
BMI is not being the same business at the end as when you started. Business model innovation transforms your business making it look quite different.
Business model innovation is not looking at a business model from another industry, superficially adopting it and then claiming that your business model is the ‘Airbnb of X’ or the ‘Uber of Y’
What else is important about BMI?
Business model innovation requires you to see the world differently. If you look at the competitive landscape in the same way as everyone else you won’t be able to find the insights that drive successful business model innovation.
Business model innovation is a creative process that draws on technical domain knowledge, a deep understanding of business strategy and the ability to find insights that competitors cannot.
BMI in Human Speech
Putting aside all the corporate strategy gumph. What you need to know is this.
If your business model is the same as everyone else and your industry or market is starting to be affected by change then you are really vulnerable. You need to change how you do what you do so that you are able to take advantage of all this change.
You can just use your intuition to make changes to your business. The trouble is most of your competitors have the same knowledge and nights as you, so you all make the same mistakes together.
If you want to make better choices and unlock the opportunities that come with change – and not just get screwed – then applying a BMI process is a good idea. It helps you to get from A to B (screwed up to fat cat) quickly and safely without too much stress. Unless you are really conservative, in which case get some valium because a great deal of what you believe to be true is going to have to change.
