- 33 years as CEO, consultant, in R&D management
- CEO of three startup technology companies
- Partner and Global Innovation Practice Leader at McKinsey & Company
- Closed seven financings, $250M in licensing deals, $500M in M&A deals and created three large joint ventures with Fortune 500 corporate partners.
- All 7 Best Practices
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Business Model Innovation
The television industry didn't see it coming. TiVo, after all, was a small company selling hardware. It was not in the entertainment business.
Then "box" disrupted the entire television industry. Prime time ceased to mean "mass market." Just as Craigslist had gutted the cash cow of classifieds in the newspaper industry, TiVo and its peers came along and changed TV viewing from "synchronous" to "asynchronous."
The record industry didn't see it coming, either. Apple, after all, was in the computer business, not entertainment. Then its iPod device and iTunes software changed the way music was delivered and distributed, and the traditional music business is still struggling to respond.
Although some technology innovation was required, Apple's vision involved business model innovation.
Increasingly, innovation comes in these two forms: technology innovation and business model innovation. Established incumbents in many industries are now under attack from disruptors – often small entities with an innovative technology or business model. The incumbents are at ground zero, the point of attack, but in many cases they don't know they're under attack until it is too late.
Whether your company is a disruptor with an opportunity to win the future or an incumbent at ground zero, there are four proven steps for business model innovation:
- Deep insights: This is a process of deductive analysis, followed by inductive hypothesis generation. The process continues until there are one or more deep insights into customers' unmet needs and potential ways to meet these, including product offering and changes to the value chain.
- Inception: This an inductive process of comparing possible paths to innovation. The aim is to understand the consequences of possible offerings in order to arrive at an alpha design, a business model concept that is ready for validation.
- Validation: It starts with testing variants of the same business concept and finding the critical elements that will capture the most value. It means building the value proposition and the value capture mechanism, developing the infrastructure for sales and marketing, and filling in the required skills in your organization.
- Ramp-and-run: This phase involves scaling the offering and launching it into the marketplace.
When faced with a disruptive threat, most incumbents stall for time. They cast aspersions on the new competitor, conduct detailed analysis concluding the threat is contained – all in the name of extending their incumbency. They may also try to mount a positive response by trying to adapt their existing business model to the new environment. This is rarely successful because the skill sets required to operate a successful, long-established business are different from those required to innovate.
However, there is a third choice: Collaborate with outside parties that have a track record of innovation, of creating fast prototypes and validating them.
Whatever the response, it is clear that the life cycles of technologies and business models are decreasing. It behooves both larger and smaller players to continue to scan the horizon for competitive threats and to be prepared for constant innovation from both a technology and a business model standpoint.