Business Model Innovation

Business model innovation was one of many hot topics at Innovation Suite 2011.  The conference hosted thirty two invitees from nine countries and a variety of companies including GE, Bayer, Kraft, and SAP.  On the minds of many was how to create new business models to transform a company and move to higher ground.

Business Model Innovation is defined as follows (from Wikipedia):

Business model innovation results in an entirely different type of company that competes not only on the value proposition of its offerings, but aligns its profit formula, resources and processes to enhance that value proposition, capture new market segments and alienate competitors.

Here are four ways to conceptualize a new business model:

1.  SIT Tools:  The S.I.T. tool kit can be applied to a list of the company’s major components (sales force, brand, operation, systems, etc).  This approach is good when things are going well in your current business model, but you want some options.  Here is an example:

Standard Bank of South Africa sought a new business model through acquisition of another bank.  The board considered the usual targets…a bank in South Africa, a North American bank, European bank…but none emerged as a clear winner.  So they used the Subtraction technique.  “We have no staff, but we still have all the other components.  Now what bank could we acquire that has the perfect complement of employees with all of our other components?”  For example, should they acquire a bank with a younger workforce, more experienced, more diverse, better trained, less expensive, etc.

2.  Reverse Assumption:  Reverse assumption analysis is another useful tool to provoke ideas about your business model.  Assumptions are often misplaced or outdated, and this technique helps re-frame the future as a reversal of today’s assumptions.  To use the method, list all the “obvious” assumptions about your company and its industry.  For example, in the medical device industry, key assumption include:

• medical devices are used by surgeons
• hospitals pay for medical devices
• insurance companies reimburse hospitals for equipment costs

Then reverse the assumptions one by one.  “Medical devices are not used by surgeons.”  Perhaps the new business model is to create products used by other operating room personnel, patients, or other physicians. Perhaps medical devices are not purchased, but rather leased or paid for on a per case basis.

3.  UDP Chain:  If your current business model is broken, consider using the UDP (Un-Desired Phenomena) technique.  First, make a list of the main “players” in your problematic business model.  These are factors that create problems, transfer them, or are their “victims.”  Develop a chain that sequences these factors together.  Build the chain up by asking “so what.”  What does this factor cause to happen?  Build the chain down by asking “why.”  What causes or gives rise to this factor?  Once the chain is built, consider different options for breaking the chain.  What resources or changes need to occur?  What factors are in my control versus out of my control?  Each break in each of the UDP chains begins to suggest a new business model that may improve your current situation.

4.  Innovate in Adjacent Markets:  Adjacent markets can lead you to new business models.  Adjacent markets are not too far away from your core business in terms of channels, technology, price point, brand, etc.  To find them, use The Big Picture framework.  Its four quadrants completely define any market category. Consider each quadrant one at a time and imagine extending beyond the bounds of the category in some close by, adjacent way.  The key is to stretch, not leap beyond your current business model.  Ask yourself these questions:

•  Quadrant 1:  What substitute products are non-category consumers using to fulfill the need.  Where are they buying it?  What complementary products go along with these substitutes?
•  Quadrant 2:  What other products do your loyal customers buy, perhaps at the same price point or to fulfill the same or similar brand promise?
•  Quadrant 3:  Why do multi-brand customers use several brands?  Is it time-dependent?  Situation-dependent?  Why does it vary?  What other products are used when the competitive brands are consumed?
•  Quadrant 4:  What other category of products does your competitor sell?  How do those fit into their product line?  How could they fit into yours?