11 February 2022 - Digital Transformation
The purpose of each business is to provide a service (or a product) which customers are willing to pay for. Client satisfaction is key to success. As long as your service (or product) satisfies the needs and expectations of your target group, all is well – business as usual.
But what if another business comes along and offers either a better service (or product)? All too often, innovation is then seen as the first approach to a solution.
Most of us, when we think about innovation, we think about new products or services with new features. But is product innovation really the secret to a successful business? Not entirely…
Product innovation is usually an expensive and time-consuming pursuit, involving large teams, large amounts of capital and time. New ideas need to be found, need to be tested and constant innovation is next to impossible. The range of possibilities in one specific area at one specific time is usually limited. No one can be indefinitely innovative all the time.
So, what do we do if another business has conquered our market and an innovative product or service is not at hand? Well, there is a better way: business model innovation.
Instead of constantly searching for new products (or services), business model innovation focuses on selling the same existing products or services to the same customers in a new way.
Rolls Royce created the “Power-by-the-Hour” business model 60 years ago. This pioneering approach from then still forms the basis of their market-leading CorporateCare® service today. The idea was to propose a maintenance contract with a fixed-cost-per-flying-hour basis instead of selling expensive engines to the aircraft customers. A flying engine generates revenue for the customer and revenue for Rolls Royce. A sitting one does not make money for anyone. It is not used and cannot be damaged, so it shouldn’t cost. (read more on 3 famous business model innovations)
This is very similar to the Airbnb business model of today, where rather than buying an entire vacation house with a one-time payment, you “buy” the 15 days of vacation stay in the house. The difference being that in this model, the innovation is based on the use of a platform working with a peer-to-peer economical approach. But there is no denying that the Airbnb model is an innovative business model that in the end also led to other models like Uber, for instance.
In 2010, an article in the Bloomberg BusinessWeek (“What Amazon Fears Most: Diapers”, Bryant Urstadt) featured a tiny company that sold diapers online. Diapers were known to be bulky, not suitable for online shipping due to their low margin. But Quidsi, the founders of diapers.com, thought differently. Knowing that most of the diaper customers were mothers who did not have the time to go out to buy diapers, Quidsi came up with the idea of proposing a steady supply delivered to their doors on a regular basis. The idea of the so-called “sticky” customers was born and a year later Amazon bought Quidsi for $545 million. (read more on four paths to business model innovation)
So you see, companies like Rolls Royce, Airbnb, Quidsy, Uber or Spotify innovated although they did not invent a new product of their own. They identified a customer segment that would benefit from using existing products (or services) in a new way.
Today’s market is moving so fast that no organisation can stay complacent with its offer and survive. Customers are here today, gone tomorrow if the organisation is not paying attention to the ecosystem it is operating in. It is thus essential to review one’s business model consistently. Business model innovation frameworks can be learnt and applied to most types of organisations to understand customer needs and capture value in smart and unique ways.
- As basic as it seems, the first step is an evaluation of how your business operates today.
- Do not forget to include your customers and their changing needs in this analysis.
- Various business model innovation frameworks can be used to go from there to look for new ways of doing business.
- Including your internal stakeholders in the process is another important success factor.
- Together, you will surely find ways of making business as unusual.
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