Why do businesses innovate their existing business models? Why did famous companies like IBM and Rolls Royce shake up their business models? For the simple reason that the business landscape is constantly changing, and sometimes, business model innovation becomes vital to surviving in a competitive market.
According to the book “Business Model Generation,” business model innovations may be based on a company’s resources, offerings, customer needs, or financial matters like revenue streams, cost of production, and price.
For example, IBM was one of the first manufacturers of personal computers in the 1980s. Other manufacturers swiftly copied its product, and over time, IBM lost its edge in desktop manufacturing. To survive, it shifted its focus to designing and offering software solutions. Its business model innovation-driven by its offerings- has helped it to remain one of the top players in the IT industry to this day, with operations in 170 countries.
Business models should always be designed keeping customer needs in mind. However, it is essential to select which customer to pay attention to. For example, instead of focusing on existing customers, a company may focus on new customers and renovate its business model around their needs. This is the case of Bangladeshi logistics startup Pathao, which started off as a delivery service but expanded its business model to provide ride-hailing services.
Innovating a business model requires a great deal of brainstorming by a diverse group of people. These people should be picked from different departments of an organization and should feature different ages and levels of expertise. The creation or innovation of a business model typically starts with an ideation phase, where many ideas are generated. These ideas are then narrowed down, merged, and fine-tuned into feasible choices.
When innovating a business model, we should break the barriers of limiting beliefs by asking ourselves “What if” questions. What if we could carry our phones wherever we went? What if we could see people while talking to them over phone? These seemingly ridiculous questions asked by people in the past likely drove innovations which benefit us at present.
Ideation sessions should be moderated by facilitators, who will ensure that all participants remain focused and refrain from judging other participants’ ideas. Visual thinking should be encouraged- participants can jot down or draw pictures of their ideas on Post-it notes and put them on a wall for everyone to see. This way, the ideas can be rearranged, grouped, merged, or removed.
These Post-it notes can then be categorized into one of the one nine building blocks of a business model. In other words, the Post-it notes can be moved about to fill up a Business Model Canvas. This is called generating a business model prototype. Multiple prototypes may be developed from the ideas in an ideation session.
A participant may then explain the business model step by step, block by block, so that others can understand how the model was built. This is called story-telling.
Each prototype may be complemented by spreadsheets that reflect the financial aspects of implementing a proposed business model. This may help decision-makers narrow down the choices and select the model that fits their needs best.
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