The Importance of Business Model Innovation

I frequently have people say something like this to me: “But my organisation can’t be innovative – we’re a service company” (or a government agency, or a university department, and so on). This is why the definition of innovation is so important. A lot of people think that their organisation isn’t innovative because they’re not making iPads, or some other sexy new product. It’s important to remember that there are many types of innovation. Schumpeter listed five: new products and services; new methods of production; opening new markets; finding a new source of supply; changing the structure of an industry.

The last one is important, because you can reframe it as business model innovation – one of the most under-rated forms of innovation. And one that is available to everyone. It’s a topic that we’ve discussed here a lot – this post has a good summary of the idea, along with some resources to investigate. This figure from the Boston Consulting Group report Business Model Innovation: When the Game Gets Tough, Change the Game (here’s the pdf of the report) shows the benefits from this form of innovation:

Quite simply, firms that undertake business model innovation make more money. And if your organisation isn’t designed around maximising profits, you still want to think about business model innovation, because it will likely lead to greater levels of success, however you’re measuring it.

Here is how Hugh MacLeod puts it in Ignore Everybody (see number 11 here):

Don’t try to stand out from the crowd; avoid crowds altogether.

Your plan for getting your work out there has to be as original as the actual work, perhaps even more so. The work has to create a totally new market. There’s no point trying to do the same thing as 250,000 other young hopefuls, waiting for a miracle. All existing business models are wrong. Find a new one.

Or, as Chris Brogan and Julien Smith say in Trust Agents, change the game.

I really do think that this is a huge opportunity. Too few people think seriously about business model innovation. But it is a critical form of innovation, and a great way to set your organisation apart, whatever you’re doing. And one more great thing about it is that you can work on business model innovation using experiments – you don’t have to change everything all at once.

So that’s my assignment for today – give some serious thought to business model innovation.

Note: I’ll be talking about this idea in a series of talks around Australia over the next couple of weeks – if you’re interested in hearing them, the links below take you to pdf versions of the information sheets for each of them:

Australian Industry Group Breakfast Forums

13 April – Brisbane

14 April – Sydney

20 April – Melbourne

21 April – Adelaide

Student and teacher of innovation - University of Queensland Business School - links to academic papers, twitter, and so on can be found here.

Please note: I reserve the right to delete comments that are offensive or off-topic.

6 thoughts on “The Importance of Business Model Innovation

  1. Tim, I agree with your statement that business model innovation is often overlooked. I’ve had the opportunity to work in industries that flank both sides of this statement. For over 10 years I have applied my skills in the entertainment/media industry. If anything those in this space are constantly thinking about innovation. Wheter it was the digital highway (500 channel universe) of the
    mid-1990s or the current desire for the public to control the experience eyes and ears are wide open. Not saying that anyone will get it right but at least it’s talked about at all levels. My experience that is the converse of this is the time I spent working at building out a for-profit portfolio for a almost 100 year old non-profit. Innovation was adding, eliminating, or repackaging a direct service program. There was never conversation around different ways to acheive the end objective. The law of the day was does it fall into our current machine. At a time when small focused forces can join to improve human conditions this, in my humble opinion, is a huge lost opportunity.

  2. Thanks for the two great examples Donald. The non-profit situation is definitely important, I think. Probably worth a post on its own!

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