business model innovation
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Business Model Innovation
Olivier Serrat2015
Sri Kalika DeviAlmost 80 years ago, Joseph Schumpeter, the prophet of innovation, distinguished five types: (i) a new good, (ii) a new method of production, (iii) a new market, (iv) a new source of supply of raw materials, and (v) (the carrying out of) a new organization of any industry (or market). The body of knowledge he engendered then lay dormant until the end of the 20th century, with precious few other insights. In modern parlance, the five cases were reinterpreted as product, process, market, input, and organizational innovations; references to a sixth, innovation in services—a sector that did not exist in his time—began to show up in the mid-1990s.
On Business Model Innovation
Business model innovation is now the rage. This kind of innovation is often more valuable and transformative than the other types: it reduces risks and, conversely, allows more risks to be taken. It has also, perforce, encouraged organizational innovation; for instance, internet-sped innovative processes and structures include peer-to-peer and open-source organization, collaborative mechanisms that would have been inconceivable to our parents, let alone Joseph Schumpeter.
Innovation is the successful exploitation of new ideas. Then again, if it is deemed a competence and not just a process, innovation is the ability to deliver new value to clients, audiences, and partners.
The Theory of the BusinessThe concept of value and the differentiation it rests on are integral to business, and therefore to business model innovation. For consumption or use, every organization strives to sell products and services that customers value.
Value added is what a customer expects. It follows that the notion of value should dominate any discussion of business models. A business model is not an explanation of how a company hopes to make money; it is not strategy either. A business model is the core design, the logic, that enables an organization to capture, create, and deliver value to meet explicit or latent needs (and in so doing derive some form of profit itself).
Possible Innovation Targets
Business Structure
Capital Formation
Alliances
Organization
Structure Type
Decision-Making
ProcessesProcess to Improve ProcessesFacilities Infrastruct
ureFacilities Effectivene
ssInformation Technology Infrastruct
ureEmployee and
Contractor Mix
Employee Experience
Supply Chain
Manufacturing
Communication
Distribution System
Products and
Services
Product OfferingProduct
AvailabilityTechnology (Evident)Technology (Hidden)
Research and Development
Manufacturing
Sales Model
DistributionUser
InterfacePackaging
FunctionalityLifecycle
ModelSustainabilit
yAfter-Sales Service
Customer Service
Communication
Service Process
Customer Experience
Brand and Image
Advertising
Communication Process
Feedback
Customer Relationshi
p Management
Administration
Information Stocks and
Flows
Automation
Insourcing and
Outsourcing of Services
Examples of Business ModelsAuction Bait and Hook Bricks and
ClicksBricks and
Mortar
Chemical Leasing Collective Direct Sales Disintermediat
ion
Fee In Fee Out Franchise FreemiumIndustrializat
ion of Services
Low-Cost Carrier Loyalty Monopoly Multi-Level
Marketing
Network Effects Online Content Online
Delivery Open Source
Service Servitization of Products Subscription Traffic and
Advertizing
Other Business Models
Key Elements of a Business Model
Chesbrough
Value Proposition
Market Segment
Value Chain
Cost Structure and
Target Margins
Value Network
Competitive Strategy
Hamel
Core Strategy
Strategic Resources
Customer Interface
Value Network
Johnson
Customer Value
Proposition
Profit Formula
Key Resources
Key Processes
Mullins and
Komisar
Revenue Model
Gross Margin Model
Operating Model
Working Capital Model
Investment Model
Osterwalder and
Pigneur
Customer Segments
Value Propositions
Channels
Customer Relationships
Revenue Streams
Key Resources
Key Activities
Key Partnerships
Cost Structures
Skarzynski and Gibson
Who Do We Serve?
What Do We Provide?
How Do We Provide It?
How Do We Make Money?
How Do We Differentiate and Sustain an Advantage?
Further Reading• Chesbrough, Henry. 2003. Open Innovation: The
New Imperative for Creating and Profiting from Technology. Harvard Business School Press.
• Hamel, Gary. 2002. Leading the Revolution: How to Thrive in Turbulent Times by Making Innovation a Way of Life. Harvard Business School Press.
• Johnson, Mark. 2010. Seizing the White Space: Business Model Innovation for Growth and Renewal. Harvard Business School Press.
• Morris, Langdon. 2003. Business Model Warfare: The Strategy of Business Breakthroughs. InnovationLabs.
Further Reading• Mullins, John and Randy Komisar. 2009.
Getting to Plan B: Breaking Through to a Better Business Model. Harvard Business School Press.
• Osterwalder, Alexander and Yves Pigneur. 2010. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. Wiley.
• Skarzynski, Peter and Rowan Gibson. 2008. Innovation to the Core: A Blueprint for Transforming the Way Your Company Innovates. Harvard Business School Press.
Further Reading• Serrat, Olivier. 2009. Value Cycles for
Development Outcomes. Manila: Asian Development Bank. www.adb.org/publications/value-cycles-development-outcomes
• ――. 2009. Harnessing Creativity and Innovation in the Workplace. Manila: Asian Development Bank. www.adb.org/publications/harnessing-creativity-and-innovation-workplace
• ――. 2010. Sparking Innovations in Management. Manila: Asian Development Bank. www.adb.org/publications/sparking-innovations-management
Further Reading• ――. 2010. Design Thinking. Manila: Asian Development Bank. www.adb.org/publications/design-thinking
• ――. 2011. A Primer on Intellectual Capital. Manila: Asian Development Bank. www.adb.org/publications/primer-intellectual-capital
• ――. 2012. Business Model Innovation. Manila: Asian Development Bank. www.adb.org/publications/business-model-innovation
Olivier SerratPrincipal Knowledge Management Specialist
Sustainable Developmentand Climate Change Department
Asian Development Bank
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