Business model innovation can focus efforts to improve business performance. It can also be a way to make bigger changes to enterprise performance through implementing changes in corporate business strategy.
Put at its simplest a business model is a clear description of how a business makes money. Having such a clear description can aid strategic innovation in your business model.
The design of business models is just one part of business strategy.
Following the early analytical stages of planning, we move to the more creative work of generating strategic options and deciding the business strategy. Business model innovation can encompass a number of strategic moves.
Understand that not every little bit of business model change is necessarily strategic.
Every manager is accountable for improving the operation of his or her area of responsibility. They are on the lookout for innovative practices. Small-scale innovations within parts of their operation may reduce waste, speed up operations, or reduce risks and so on. These may not impact the corporate bottom line sufficiently to be called ‘strategic’, and so do not fit the idea of corporate business model innovation I have in mind here.
Such changes in the business model address what we call strategic elephants. Strategic business model change is that which is likely to affect the corporate results by say 20% or more.
A framework for a business model depicts the business cost structure and revenue sources to measure performance in terms of profit.
To work out the cost structure show the strategically important activities, assets, and purchased inputs. Also, show the customer groups, channels for reaching them, and the nature of the relationships with them to see how revenue flows.
Of course, the reason why clients make purchases in terms of the value they expect to receive must also be clear. In other words, clarify the overall value proposition, before trying to innovate any of the business model.
With a clear description of how the firm makes money, business model redesign can begin. This may involve changing just a part. You may change relationships among the various parts of the business model. Organizing all this information for discussion with the strategic planning team can be a little overwhelming. Some frameworks help with this problem.
The classic value chain analysis is one such perspective.
The Business Model Canvas is also a useful aid for discussing possible innovations.
Pioneered by A. Osterwalder, Yves Pigneur, Alan Smith, the Business Model Canvas is a popular framework for describing business models. It is a support for structured thinking and discussion of business model changes. In the case of a start-up, it can be a means of designing the business model. See the book -
Boiling it down to its simplest a business model is how a firm creates value for customers, partners, and its owners. It links a firm’s strategy with the execution of that strategy through specific activities or operations.
The business model spells out the logic for creating value through using resources and capturing some of that value as returns to owners.
A shared and agreed description of a business model defines whom, what and how of the overall business operation -
Thinking through and changing pieces or relationships among the pieces can give rise to business model improvements.
Here is the basic format of a business model canvas.
There are many ways in which to consider business model improvements. However, in the context of corporate planning we are looking for business model innovation that might improve overall corporate performance by a substantial amount. This limits options to those that make use of current strengths, offset weaknesses, capture the most promising opportunities, while managing the most pressing threats.
You can find some helpful thoughts, examples, and explanations on how to use the Business Model Canvas for business model development over at the Blog of Patrick Stähler.
You might try his Tools: Business Model Canvas, 6 Steps Approach to Business Model Innovation.
Also try the tools available to help with using the Business Model Canvas for business model design and renovation.
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