Do you want to maximize the return of your business? Consider business model innovation!Sachin Mohan
Beginning of the Dot com era initiated the discussion on the topic “Business models”. The interest in the business model has gained momentum in the current environment. Three major factors can be attributed for the increased attention towards business models- shorter product life cycle and design cycle, competition, and disruptive innovation from the business models itself.
Shorter product life cycle and competition make it necessary for the companies to look for change. Cost of producing has become higher, and product life cycle has become shorter, so in order to generate assured profit a product must be supported by a very good business model. Organizations have to constantly face a situation where it has to redefine the core and look for growth.
Current business environment is quite different from industrial era where production was the main motive. Current environment does not make it simple to be competitive unless innovative ways to capture value is implemented. Changed environment like economic opening up in Asian countries, increased globalization, and change in technology promoted the interest in business models. These changes in the environment created a gap which can be filled only by change in the way enterprises do the business that is their business model.
The centre point of business model is customer value proposition and how this value is delivered by using different building blocks that constitute business model. It says what value is delivered? How it is delivered? Which way the revenue is generated and how company is positioned in the value chain? These building blocks ultimately create the customer value and, these values are supported by key resources, key process and the mechanism of profit generation. These values are very critical for any business because if there is no value creation for the company and its partners, the business cannot exist.
A business model is very important if a company has to maximize its return. Maximizing the returns is possible when a company outdo the competition, well positioned in the value chain, and delivers high value. The change in the business model improves the position of a company with respect to the competition, increases the profit, cash flow and turnover. A business model innovation can bring the new offering that was not conceivable earlier. A very high technology might not bring back the returns if it is not supported by a good business model, whereas, a less superior technology can bring a very high return if supported by a very good business model. Even Thomas Edison’s world class innovations did not get him enough return due to business model. The business model has to be well configured to gain profits.
We are witnessing how companies like Airbnb, Friendsurance, Kiva, lending club, and the likes are disrupting the business model and creating values for consumers. In today’s world innovation is important however it must include business model innovation. Have you analysed your business model to see whether the business is capturing the maximum value? Do you need to fine tune your business model and need to do business model innovation?