7 Business Model Innovation Myths
So you are new to business model innovation? You are not the only one. An entire generation of managers has been trained to think in terms of Porter’s Five Forces. At face value there is nothing wrong with this. The core idea of this approach was to analyse industries in great depth so as to position an enterprise optimally against its competitors and thus gain a competitive advantage. However as we have discussed in previous blogs – Competitive Advantage the Holy Grail and The new age of Innovation – this type of competitive advantage can be temporary and very difficult to achieve. The mantra of the business model innovator is:
“Beat your competitors without trying to beat them”
The only way to create a new business model is to stop looking at what your competitors are doing. IKEA revolutionised the furniture industry with its cheap, yet stylish designs and a new way of selling them. Radiohead caused a stir when it allowed its fans to purchase their album for whatever price they chose. This daring strategy greatly contributed to the bands fame, both increasing ticket sales and enticing fans to buy the band’s back catalogue.
Overall, business model innovation is still a mythical task that scares a lot of managers. The following 7 myths about business model innovation continue to be pervasive among managers and business owners:
1. The initial ascent myth
“Commercial success comes with ideas no one has had before.” The fact is that new business models frequently borrow from other industries. For example, Charles Merrill purposely applied concepts used in supermarkets to the banking industry when he founded Merrill Lynch.
2. The “think big” myth
“Business model innovations are always radical and new to the world.” Most people associate new business models with the giant leaps taken by internet companies. The fact is that business model innovation can be incremental. Netflix initially innovated by distributing DVDs to customers through the mail. The internet opened up new avenues for Netflix that allowed the company to stream online.
3. The technology myth
“Every business model innovation is based on a fascinating new technology that inspires new products”. The fact is that while new technologies can indeed drive new business models, they are often generic in nature. Where creativity comes in is in applying them to revolutionise a business. It is the business application and the specific use of technology which makes the difference. The truly revolutionary act is that of uncovering the economic potential of a new technology.
4. The luck myth
“Business model innovation is just a matter of luck and cannot be undertaken systematically”. But the fact is that you will have to put in as much hard work into creating new business models as into new products, technology or processes. Business model innovation requires persistence and drive. You must plan and prepare for it as you would for an expedition into an unknown land.
5. The Einstein myth
“Only creative geniuses can come up with truly innovative ideas”. Today, success depends less and less on individual masterminds. Interdisciplinary teams that reach across organisations have replaced ivory tower inventors like Edison of the past. Innovation is no longer a matter of individual performance – it is very much a team sport.
6. The size myth
“big breakthrough requires big resources” Fact: small start ups are responsible for the most important business model innovations. Just look at the most clicked on websites in the work and the companies behind them: the top three sites are owned by firms that were all outsiders to the industry. Google was founded by Larry Page and Sergey Brin, Facebook by Mark Zuckerberg and You Tube by Chad Hurley. The highest ranked “old economy” company is BBC Online, coming in at number 40 of the most clicked on websites. The right idea and a healthy dose of courage are much more important that huge investment and considerable resources.
7. The R&D myth
“R&D departments are the source of important innovations”. The fact is that business model innovation is interdisciplinary in nature. The impetus for change can come from anywhere in the organisation.
Inspiring and driving innovation in a business separates administrators from inspiring leaders. These leaders need an entrepreneurial mind set and the capabilities to innovate.