I had a meeting today with Terry Cutler, and he told me about a couple of interesting examples of business model innovation. The striking one comes from Chile. As in many other countries, Chile’s old-growth rainforest has been severely depleted through logging and land-clearing. There have been major international protests against the logging practices of the two leading Chilean timber firms – Arauco and CMPC, which have led to boycotts of their products in the United States and Europe.
This has caused some problems for Arauco and CMPC, particularly when firms such as Home Depot and several other major timber purchasers pledged to stop buying Chilean timber.
They came up with a pretty interesting solution to the problem – they innovated their business model. How? By forming a strategic alliance with several of the NGOs that were leading the boycotts including (in the U.S.) American Lands Alliance, Natural Resources Defense Council, Greenpeace and Rainforest Action Network, (in Chile) Defensores Del Bosques Chileno, Instituto Ecologia Politica and Greenpeace. The agreement brings the NGOs into the forest management process of Arauco and CMPC, which are obviously of critical strategic importance to the firms.
This is an enormously creative solution to the problem. The idea of negotiating with people that appear to be trying to put you out of business would strike many firms as unproductive. And yet, by doing so, Arauco and CMPC gain access to an important market, they make themselves demonstrably more sustainable, and they go some way towards making themselves genuinely green.
That’s the power of business model innovation – it gets you into completely new space. When you do this, you are essentially creating markets. The huge benefit to this is that when you create a market, you don’t have to put as much effort into breaking existing ties between your competitors and their customers.
Here’s an interesting question – where are there similar opportunities?
Terry put forward an interesting idea. One of the areas of research strength in Australia is genetically modified food. There are bans against selling GM food in Australia and Europe. He suggested that the organisations with this specialty have an opportunity to generate a similar innovation in their business models.
Business model innovation is something that is worth considering – especially if you find yourself facing seemingly intractable problems.