How to innovate your business model in the right way
A lot of companies find it hard to decide on how to innovate their business model. They find it difficult to balance the efforts in incremental innovation and radical innovation. They do not know whether they should invest in new business models with startups or try to make their existing organisation more innovative. A true dilemma.
How to get your innovation strategy right
A recent research paper (view article) provides good insights on getting your innovation strategy right. The researchers made an in-depth analysis of the developments in the telecom and internet space from the 1990s onwards. They looked at how the companies involved (like Cisco, Nokia, Apple) addressed business model innovation. The findings of the paper shed light on how companies can address business model innovation successfully.
Value migration and value creation
The authors place business model innovation in the context of changes in the industry using the concept of value migration, which is how value creation shifts within the industry or to other industries. Especially when the technology value, basis for industry changes, might migrate from the incumbents to newcomers that harness the new technology. For example, in photography, value migration was big when digital photography started to replace traditional photography. In such a case, value is migrating away from the incumbent companies that have assets and competences for the traditional business to newcomers that have assets and competences for the new way of doing business.
Two schools and sides of business innovation
The authors discuss the two schools of business model innovation. One school promotes the exploration of new business models alongside the existing business model. The other school claims that the primary business model should be innovated. In practice we see both, although most companies focus on creating secondary business models, probably also because that is less painful then changing the primary business model.
The data of the research shows that when a value migration is large, changing the primary business model of the firm delivers more value than launching new parallel business models. Even more, proactively changing the primary business model delivers more value than reactively changing the business model. If value migration is less, companies can create more value with launching secondary business models. These findings align with the “Disruption Dilemma” of J. Gans. He also argues that when technology changes the basis of competition, innovation should be in the core, and not in separate innovation units.
Getting the innovation intent right therefore starts with an analysis of the value migration in your industry. If value migration is large, e.g., because new technology changes the industry, you should focus your innovation efforts on changing your current business model. In such situations it does not deliver value to start up parallel business models, e.g., with startups.
If the changes in your industry are small or modest, you can create more value with creating a portfolio of new initiatives developing new business models.
Crowdsourcing as a way to change your organisation from the inside
Although it might be easier and more fun to explore new business models a bit away from the current business, if value migration is strong, you should change your primary business model. In our experience, crowdsourcing provides a good way to innovate from the core, with your employees. It has shown to be an approach that can really help change the organisation from within.