Business Model Innovation – A New Way of Creating and Capturing Value in Organizations

There are numerous claims that Business Model Innovation is extremely important if you want to stay competitive and increase your revenues. Some would even say that Business Model Innovation has a stronger impact on margin growth than product and service innovations and at the same time can disrupt established industries. InnovationManagement asked Business Model Innovation guru Alexander Osterwalder a few questions.

How would you shortly describe the main content or cornerstones in Business Model Innovation?

- Business Model Innovation is actually really simple: it’s about new ways of creating and capturing value in organizations. Why is that important? For several reasons.

- Firstly, companies need to find new ways to grow and stay competitive. If a corporation with a 50 billion Euro turnover wants to grow 5% every year that means generating 2.5 billion in new revenues every year. Traditionally, this has been achieved through technology, product, and service innovation. Since these types of innovations are increasingly difficult to sustain companies are looking towards the next level and that is business model innovation.

As a company you need to be prepared for those industry shifts

- Secondly, industries are increasingly transforming because of new trends and new insurgents that compete with totally new business models. Think of the music industry. The major record companies were not prepared for the digitization of music and new players like Apple with their iPod/iTunes business model occupying their space. As a company you need to be prepared for those industry shifts.

- Thirdly, traditional industry boundaries are disappearing. In which industry is Apple? Is it hardware, is it software, is it entertainment, is it logistics? Well, Apple has to master parts of all those industries. The unit of analysis is not the industry anymore, but the business model. That’s a totally different kind of thinking.

How can you work with your business model?

- Our business Model Canvas is a shared and visual language that helps managers and entrepreneurs have better discussions when describing, analyzing and designing business models. It facilitates a better outcome. I’ve seen too many discussions around business model innovation go nowhere because meeting participants had diverging understandings of what a business model is and because they didn’t have a process and approach to discuss business models.

- Increasingly, companies like Telenor, Capgemini, Yahoo! and even some government services in Canada are using the Business Model Canvas to think about business models in a structured and constructive way.

If a company wants to be innovative in its business model, how can the company understand how to do this? What’s the best way to learn? What’s the best way of going about it?

Innovative business models touch all aspects of an organization

- The most important is to work with a multi-disciplinary team. You need perspectives from marketing, operations, finance, etc. to build new and innovative business models. It’s about breaking down the boundaries. Innovative business models touch all aspects of an organization.

- Another crucial aspect to business model innovation is the attitude. We need to start to work like architects when we design new business models. Before an architect makes plans for a building, he synthesizes knowledge from the environment (materials, legal constraints, usage, etc.) into hundreds of prototypes. He explores numerous possible alternatives in an iterative way before choosing a direction and before making a definite plan. Managers will say that it takes too much time. But we need that time to come up with great new business models.

There are a number of international reports on innovation management claiming that business model innovation is extremely important if you want to stay competitive and increase your revenues. What is your comment on that?

- There is no doubt. I would go even further. You need to continuously manage your business model and continuously generate innovative business models. On the one hand you need to improve the business models that make substantial money and on the other hand you need to build and maintain a portfolio of new business models for the future. Some will evolve from the second group into the first. Some will fail. You need that kind of failure to build future growth. If you don’t have that attitude you will end up like the major competitors in the music or news industry. You will be threatened to disappear.

- Organizations need to become more pro-active. Nestlé, for example, has a whole portfolio of coffee business models including the long established Nescafé, the wildly growing Nespresso, and the relatively new Dolce Gusto. Each one has a business model of its own. Or have a look at Daimler, the vehicle manufacturer that owns the Mercedes brand. They run a business innovation department that experiments with new business models. With car2go they are piloting an amazing mobility concept selling cars by the minute, just like you pay calls by the minute with your mobile phone provider.

This week Alexander Osterwalder is facilitating a workshop in Gothenburg, Sweden, click here for more information (in Swedish).

More information about upcoming talks  can be found here.

About Alexander Osterwalder

Alexander Osterwalder is a sought-after author, speaker, workshop facilitator and adviser on the topic of business model design and innovation. He has established himself as a global thought leader in this area, based on a systematic and practical methodology to achieve business model innovation. Executives and entrepreneurs all over the world apply Dr. Osterwalderʼs approach to strengthen their business model and achieve a competitive advantage through business model innovation. Organizations that use his approach include 3M, Ericsson, IBM, Telenor, Capgemini, Deloitte, Logica, Public Works and Government Services Canada, and many more. Besides his speaking engagements, Dr. Osterwalder focuses on executive training in the domain of business model development and innovation.

  • Music Production School

    Excellent article. I would agree that the future of the music industry and independent artists is based on developing their own personal model. It has been in the ‘underground’ like this for the past 10 years or so and is coming to surface more and more with technology changes.

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