I’m David Nour of Relationship Economics and this is Connecting Dots. This episode, we’re inventing a business model. The General Dot 11 of the 27th companies born in last quarter century that grew their way into the Fortune 500 in the past 10 years did so through business model innovation. In 2009, one of our fundamental recommendations to clients a varying size and industries is to get creative.
Get creative in how you engage your current prospective clients. Get creative in your sweet of products and services. And particularly to proceed value at you deliver. Get creative in where you identify great talent and the manner which you put that talent to the most effective use.
One way to encapsulate enormous amount of creativity is to focus your efforts on reinventing your business model. In 2003, Apple introduced the iPod in the iTune store. In just three years, this combination became a $10 billion product and 50% of Apples revenues catapulting Apples market cap from one billion in early 2003 to over a 150 billion by late 2007. In the process, Apple did much more than taking interesting technology and jazz up its look and feel.
The adaptive innovation that we often refer to was making music digital downloads subsequently extending that to music videos, TV shows and now even full featured movies much easier and extremely a lot more convenient. To do that Apple reinvented this business model to combine hardware, software, and a service. In essence, they gave away the blades wall price iTune music to lock the consumer into a higher price raiser. The iPod, iPhone, iTouch, iDog, what they created what was a market changing approach to value promise and value deliver. Adaptive innovation which often blurs the line between producers and consumers and in the process reinvents business models have we shaped entire industries. And we distributed billions of dollars of value. One of our clients from several years ago, a $400 million public-traded manufacturer of household products has lost 70% of its revenue because two college students figured out how to bypass their value chain of traditional manufacturing abroad, distribution, wholesale to retail to an online model direct from the manufacturer to the end customer. Thus, reinventing their business model and scaling to a $100 million revenue in less than two years.
Retail discounter such as Wal-Mart and target which entered the market with really innovative business models now account for 75% of the total evaluation of the retail sector. Low cost are often what’s called no frost airlines, grew from a blip on the radar to an estimated 60% of the market value of all carriers. So, why our stories of business model innovation from well-established companies like Apple so rare? A recent American management association study determined that no more than 10% of an innovation investment at global companies is focused on developing new business models.
And everyone is talking about it, a recent survey by the economist intelligence unit reported that over 50% of the executives believe business model innovation will become even more important to success than product or service innovation. Just last year, an IBM survey of corporate CEO’s echoed these results. Nearly all CEO’s poll reported the need to adapt their business models and other two thirds said that the extensive changes were required. In these economic times, can you as a business leader afford not to look at business model innovation to address permanent shifts in your market landscapes? So, why is it so difficult to pull off the new growth that business model innovation can bring?
Two fundamental problems, lack of consistent definition. Very people truly understand the dynamics and process of business model development. And number two, few companies understand the business model well enough, the premise behind is development, the natural inner dependencies, its strengths and limitations to really know when they can leverage the core business and when success requires a new business model—said “A new business model can often look unattractive to internal or external stakeholders”, so what can you do? How can you embark on exploring this unknown in your business? Here are three simple steps to get started.
Number one is start by actually not thinking about the business model but the opportunity to satisfy a real customer who needs a job done. Number two, constructive blueprint of how your company will fulfill that need at a profit. Three, compare that model to your existing model to see how much you would have to change it to capture the opportunity. Once you do that, you will know if you can use your existing model and organizational structure or if you need to separate out a new unit to execute a new model. Let me ask again, in this economic times can you afford not to look at business model innovation.
Visit us at relationshipeconomics.net/adaptiveinnovation to learn more. I’m David Nour with Relationship Economics and this has been another episode of Connecting the Dots.
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