| Abstract: |  Full text |
A Center for CIO Leadership Summary
In today’s ever-changing times, innovation in business models is a success differentiator for CEOs. But what is business model innovation and what can we learn from successful business model innovators? Based on experience, an extensive literature review, and an analysis of 35 best practice cases, the authors first developed a framework for understanding business model innovation. Here, they identified three main types of business model innovations: those in industry models, revenue models, and enterprise models. The authors then compared these three types of business model innovation across the 35 best practice cases and found that each type of business model innovation, used either alone or in combination and with the right strategy and strong execution, can generate success. Among the three types, enterprise model innovation emphasizing external collaboration and partnerships is the most common.
CIO Context
Your organization’s ability to shift direction and introduce business model innovations is a critical success factor in today’s rapidly changing global business environment. As one CEO told the article’s authors, “Products and services can be copied; the business model is the differentiator.” You can help drive necessary business model innovation in your organization. To do so, you need to pinpoint your company’s strengths and shortcomings, and weigh that information against the three options for business model innovation identified in this article (industry models, revenue models, and enterprise models). You also need to understand the context for innovation in your industry, define your current position, and build your capabilities for managing business model innovation.
Can you guess which type of business model innovation is the most common? According to the authors’ research, innovations in enterprise models that focus on network plays (external collaboration and partnerships) are the most common.
Business Model Innovation Matters
In the next two years, 65% of surveyed leaders anticipate fundamental change in their industries, say the article’s authors. In response, many CEOs are focusing on innovations in operations and/or in products and services. Their priorities are misaligned: of the surveyed companies, the financial outperformers focus twice as much on business model innovation compared to the underperformers.
During periods of seemingly chaotic economic transformation, a company’s survival can hinge on its ability to turn away from the old ways of doing things and to introduce new business models. In all cases, what is possible—not what was—must prevail.
Is your company ready to cannibalize existing lines of business, if necessary? Could you leverage your core capabilities to offer different products or services? If not, what are the first steps you need to take?
Three Types of Business Model Innovation
| Industry model—This approach involves innovating the “industry value chain” through horizontal moves (into new industries), redefining existing industries, or developing entirely new industries or segments. |
| Revenue model—This approach involves innovations in how companies generate revenues by reconfiguring offerings (product/service/value mix) and/or by introducing new pricing models. |
| Enterprise model—This approach involves innovating the structure of the enterprise and the role it plays in new or existing value chains. This dimension focuses on redefining organizational boundaries. Innovation can be accomplished via integration (a supply chain owned by one firm, for example), specialization, or network plays. |
Which types of innovation has your organization tried? How successful were you, and why?
Key Principles
A few of the key principles in the article include:
|
With a sound overarching business strategy and strong execution, all three types of innovation (or combinations) can lead to successful financial results. |
|
Look to entrepreneurs, or companies in business for fewer than 15 years, for lessons in innovation. |
|
Align your strategy with your brand, operations, core strengths, and other assets. |
|
Failure rates for strategic partnerships exceed 50%, with problems related to collaboration being a key cause. Innovation leaders who are able to overcome this hurdle have found a powerful way to differentiate themselves. |
Look beyond your own industry for examples of successful innovation. Which companies offer lessons that you can apply to your own brand? | 
