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What if We Don’t Know What Our Business Model Is? | The Discipline of Innovation

What if We Don’t Know What Our Business Model Is?

Here’s an alarming stat from Charles Baden-Fuller: 2/3 of companies have not articulated their business model.

Yikes!

This video has an interview with him in which he discusses this statistic and some of other business models issues that arise from the articles in a special issue of Long Range Planning which has twenty articles on the topic (all free to download through September):

(Thanks to Anders Sundelin for the pointer to the interview)

There are many different Business Model models in use at the moment – but all of them include similar components such as target market, value proposition, revenue generation mechanism, and position within the value chain and value network. The critical point here is that whatever business your organisation is in, it has these components. In other words, you have a business model whether you’ve consciously thought of it or not.

And according to Baden-Fuller’s research, at least 2/3 of us haven’t thought of it.

This is a problem for two reasons. The first is that we need to understand what our business model actually is in order to ensure that all of it fits together. The business model is an excellent tool for evaluating strategic fit. If our target market is “people that want to buy the cheapest shoes possible”, every other activity we undertake has to be oriented around driving costs down. You can use business model analysis to ensure that all your other activities are aligned with this strategy.

The second reason that we need to know what our business model is is that if we don’t articulate our business model, we can’t innovate it. Business model innovation is a powerful form of innovation. The same innovation performs differently within different business models. Consequently, business model innovation is an important tool that we need to understand.

One last point – anyone can innovate a business model. Not every organisation has the resources needed to invest heavily in R&D, or other resource-intensive forms of innovation. However, with a bit of creative thought, you can develop a new business model.

Business model innovation is currently underutilised. In part this is because many organisations have not articulated what their business model actually is. Doing so is the first step to figuring out a genuinely novel way to create value for the people for whom you’re creating things.

About Tim Kastelle

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

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One Response to What if We Don’t Know What Our Business Model Is?

  1. Mohan Arun L. 25 October 2010 at 10:08 am #

    “target market, value proposition, revenue generation mechanism, and position within the value chain and value network.” -> It all depends on who’s asking for a business model. I dont think twitter had a value proposition and a target market defined when it started. I would like to think that if one can drive adoption and usage, able to get people to use their products and services, then even if you are providing something for free, eventually you will be able to figure out everything else, including how to generate money from it.

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