Business Model Innovation Is the Key to Navigate Through Tough Times

Dec 18, 2019

Blockbuster, with its 84,300 employees, and over 9000 stores worldwide, was driven to bankruptcy by its competitor Netflix. While both companies were offering similar products and services, Netflix’s biggest and probably sole competitive advantage was its unique distribution system.

The landscape of failed vintage businesses is broader and riper than we had imagined. As innovation in the products and services stratosphere skyrocket to its peak, organizations are compelled to innovate their systems and processes to sustain cut-throat competition.

A 2015 survey from PwC said 54% of global CEOs were uneasy about new competitors and an equal percentage of CEOs said they were competing in non-traditional markets or were thinking of doing so. By 2018, this number grew substantially. A 2018 study from KPMG said 70% of 270 large organizations were funding innovation through their annual budgeting process.

In this article, we cover some of the prominent ways organizations are reinventing themselves.

The Need to Re-Invent Business Models

Disruptive technologies have shrunk the average lifespan of organizations from 15 years to five years. Innovation lays the route for the organizations to survive beyond this crunched period by equipping them with the right competitive advantage. Your competitors may copy your products, services, and other aspects but they will have a hard time identifying subtle tweaks in your internal business processes and by the time they do so, you would have moved to the next innovation.

Strategies for New Revenue Streams

Innovation with new products, new markets, new technologies, and investments has been a matter-of-course and, Startups have always been running on innovation steroids. However, it drastically tapers over time with small and big successes that build trust in systems that work, habituating both employees and leaders to think and work in patterns.

In established businesses, most processes are run on an ad-hoc basis and in the day-to-day convenience, strategists and leaders often miss the subtle refinement points. Business model innovation involves major changes in the organization’s internal processes while keeping every other variable constant i.e. with existing products and for existing markets.

Focused business models and hedged portfolios are the two commonest business frameworks. Here’s how leaders are rethinking them for better results:

Business Model Innovation in Startups:

Startups are using business model innovation for identifying value propositions through rethinking:

  • Target segment
  • Revenue models
  • Product and service offerings

To maximize performance, Startups can:

Calibrate Offerings with demand: The biggest risk comes from fluctuating demand. If two portfolios offer equivalent returns then, going ahead with a less risky one will bring more value in the long run. LiveOps sets up its infrastructures, signs up for clients before going ahead with their staffing. Staff members are paid according to the duration of calls they attend.

Use Lean-Startups approach: Most Startups begin with some vague hypotheses about the opportunity and the model is revised as the Startup learns its way ahead. BBureau, a mobile beauty and wellness service, experimented on a number of models before arriving at their final pop-up delivery model.

Business Model Innovation in Existing Organizations:

Existing organizations are using business model innovation for fine-tuning their operating model by:

  • Improving profits
  • Gaining a competitive advantage
  • Value creation

To Maximize Performance, Existing Organizations Can:

Refine with progress: Prioritize your customers. American Airlines introduced dynamic pricing aka SABRE systems in the 1980s. Passengers pay varying prices for seats depending on availability. The model is also replicated in Uber’s “surge pricing”. Caesars Entertainment, a casino and hospitality company, prioritizes high value-adding customers for its bookings through its Total Rewards loyalty program.

Promote flat and open decision making: Decentralize decision-making and give decision-making powers to the most informed employee. Google gives its full decision-making authority to its employees about the development projects that the organization must pursue. Walmart gave its stocking decision making rights to its supplier Procter & Gamble. Following the success of the arrangement, P&G has extended the process to its other big suppliers.

Use technology: Not Your Average Joe’s, the Boston-based restaurant chain, uses Muse, an algorithm, to track its servers’ performance w.r.t sales per customer and the customer satisfaction level. The algorithm also has a productivity-based ranking system that helps servers schedule their shifts and tables.

From Products to Process:

Legacy models are harder to tweak as their customers are accustomed to their products or services and any kind of prominent change might be unwelcome at first. Organizations need to think through both the defensive or offensive strategies to approach business model innovation.

Business model innovation can greatly improve your organization’s resilience in disruptive times. It will help you optimize your existing process and services. While innovation in the products and services sphere seems to be saturating fast, innovation in processes can last for a long time to come.

How do you plan to innovate?

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