People are confused about the difference between Business Model, Strategy and Innovation.
by Idris Mootee
Most people think they know what a business model is. But when you ask them about the “strategy’ then they wondered what they’re talking about. Most of the time they mean business strategy (what a company does and how to make money) and use the words interchangeably. That’s fine. Then some people even get more confused when they apply that in innovation context. They mean changing or rethinking the business itself, including its core, boundaries, activities and capabilities. That’s strategic innovation. Business model innovation could be part of the outcome. But let’s face it, how many companies out there need to (and can afford to) rethink their business models?
A company can innovate strategically but with no need to change its business models. After all, there are only less than 10 business models out there, it is not like you can do unlimited creative explorations. At its simplest, a business model simply about exploring various ways to develop, improve or optimize your revenue stream(s) and matching them to your customer value propositions. Here are some examples of how people missed the term:
Google is probably perceived as one of the most innovative companies today. They are essential exploiting technology innovation and you can say they have created an innovative culture. But there is nothing innovative about their business model design. Selling ads and sponsored links, not different from other media in that case, but there are so many people saying Google has an innovative business model.
And think about Amazon.com, it is an online retailer started with books and now expanding into new categories and even products. OK, it is a pretty innovative company but there is nothing innovative about their business model. They are an online direct merchant even though they have opened up their channel for others to sell their products and take a cut, that doesn’t qualify as business model innovation. That’s retailing except there is no physical store, just technology infrastructure.
What is Facebook’s business model? Not sure there is one, but so far it is advertising. And what options are available to them, not many. You don’t need a strategist to perform a business model design innovation exercise, I can tell you in 5 minutes. I’ve read so much garbage about people running seminars on business model innovation, these feel like business yoga classes for those who knows nothing about real business strategy or Jnana yoga.
I’ve just finished writing 90% of our Innovation and Strategy Training package material, lots of good stuff and we will be using them to help our clients to truly innovate from organizing to planning and activation. These materials can turn anyone with a few years of good general business experience into an innovation strategist in a few days, and smarter than those who write books and articles on business model innovation who are as confused as the people who they talk to.
To strategically innovate or complete redesign of a company business model, first there must be a need, or strategic intent. Driven by a business strategy that forces the rethinking of the business models. Not the cart before the horse. Also one must understand what options exist and the migration paths. Strategic innovation can sometimes include business model redesign in combination with product, service, social, technology and experience innovation.
Not every company need to make radical changes in its core business itself, and in some instances the case for change becomes desperately obvious – as it is in the case of Blockbuster, Kodak, Palm or GM. Business model redesign is driven by of strategic innovation (a strategy to play a new game). This means complete transformation—of the organization, its core offerings, structure, systems, culture and capabilities—to create value in a new way. This include a business strategic decisions to move up-market or down-market or shift from products to services or solutions when the pace of commoditization continues to accelerate or the industry boundaries is opening up for new entrants. Not every company needs it. But every company needs to innovate around their products/service/experience/delivery/technology in order to remain competitive, all without rethinking their business models. My strategy and innovation material includes methods and tools that are rigor and effective, sometimes reading this junk can actually confuse me.
Idris Mootee is the CEO of idea couture, a strategic innovation and experience design firm. He is the author of four books, tens of published articles, and a frequent speaker at business conferences and executive retreats.