Reinventing your business model in 2016
For Professor Laurence Lehmann Ortega innovation has become a major global concern over the last few years, with a recent survey by BCG finding that 79% of leaders ranked it as one of their top three priorities. So how do you build innovation not just into your products and technology but also your business strategy?
WHAT IS STRATEGIC INNOVATION?
In its narrowest sense, innovation typically means reducing costs (process innovation) or improving sales (new products, line extensions, and so on). But the concept can no longer be restricted to products or technologies. Developing new competitive advantage nowadays often involves totally overhauling your business model, or, in other words, strategic innovation.
HOW CAN YOU REINVENT YOUR BUSINESS MODEL?
Laurence Lehmann-Ortega defines a business model as: “the description of the mechanisms enabling a company to generate profits.” In concrete terms, a business model is built around three components:
- Value proposition - describes the product and / or service offered to the client (its attractiveness, the type of customer targeted, and the price)
- Value architecture - how a company devises and delivers the value proposition for the customer (the value chain, resources used and key skills)
- Profit equation - the financial representation of the two components above. It reflects the profitability of a business (the difference between revenues and costs)
Strategic innovation in this context consists of introducing a new proposition and / or value architecture onto the market. Laurence identifies fourteen "areas of investigation for reinventing a company’s business model," ranging from reducing costs for customers to a radical reorganization of the supply chain or the launch of a new technology. These potential changes can be explored using an iterative process that relies heavily on experimentation.
CASE HISTORY - BLABLACAR
The success of BlaBlaCar perfectly illustrates a passenger transport company’s ability to innovate in two areas of its business model. The railways and other transport companies have traditionally developed a value proposition based on speed, comfort and safety. Car-pooling firms, however, attract customers by focusing on low prices and a combination of flexible schedules and routes. BlaBlaCar’s value architecture also departs from the conventional model by not owning any rolling stock - its entire offer hinges on a community platform that connects people “buying” and “selling” car journeys. BlaBlaCar now boasts over 20 million members in twenty countries with a turnover of €10 billion.