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What is Business Model Innovation? Definition, Framework, Examples and Best Practices

By Nick Jain

Published on: July 13, 2023

business model innovation

Table of Contents

What is Business Model Innovation?

Business model innovation framework: key components, 12 key examples of business model innovation, top 10 best practices for business model innovation.

Business model innovation is defined as the process of creating, modifying, or defining the fundamental structure and components of a business model to create new value propositions, capture new market opportunities, and gain a competitive advantage. It involves developing innovative ways to generate revenue, deliver products or services, and create and capture customer value.

Traditional business models typically consist of various elements such as target customer segments, value propositions, distribution channels, revenue streams, key activities, resources, and cost structure. Business model innovation challenges existing assumptions, norms, and industry practices to explore new avenues for growth and profitability.

Business Model Innovation Forms:

Business model innovation is essential in today’s dynamic and rapidly changing business environment. It enables companies to adapt, stay relevant, and seize new opportunities, particularly in the face of digital innovation , disruptive technologies, and evolving customer expectations. Successful business model innovation can lead to improved competitiveness, increased market share, higher profitability, and sustainable growth.

  • New Revenue Models: Introducing novel ways of generating revenue, such as subscription-based models, freemium models, licensing, or pay-per-use.
  • Value Proposition Innovation: Developing innovative products, services, or features that offer unique benefits to customers and differentiate the business from competitors.
  • Cost Structure Innovation: Identifying cost-saving opportunities, optimizing resource allocation, or leveraging technology innovation to reduce costs and improve profitability.
  • Distribution Channel Innovation: Finding new channels or leveraging existing ones in innovative ways to reach customers more effectively and efficiently.
  • Platform and Ecosystem Innovation: Building platforms or ecosystems that connect different stakeholders and create value through network effects and collaborations.
  • Business Model Reinvention: Completely reimagining the business model to adapt to changing market conditions, emerging trends, or disruptive innovation .

Importance of Business Model Innovation

Importance of Business Model Innovation

Business model innovation is crucial for companies to remain competitive, respond to market changes, and create sustainable growth. It enables companies to deliver enhanced value to customers, optimize operations, and seize new opportunities, ultimately driving long-term success in a rapidly evolving business landscape. Business model innovation is significantly important for businesses due to the following reasons:

1. Competitive Advantage

Business model innovation allows companies to differentiate themselves from competitors by offering unique value propositions, exploring untapped market segments, or leveraging emerging technology innovation . It enables businesses to gain a competitive edge and stay ahead in the market.

2. Adaptation to Changing Environment

Business environments are subject to constant change, driven by technological advancements, evolving customer preferences, regulatory shifts, and market disruptions. By innovating their business models, companies can adapt to these changes, mitigate risks, and capitalize on emerging opportunities.

3. Revenue Growth

Effective business model innovation can lead to new revenue streams or increased revenue generation. By exploring new business models or modifying existing ones, companies can tap into previously unexplored markets, attract new customers, and capture additional value from their existing customer base.

4. Operational Efficiency

Optimizing and innovating the various components of a business model can lead to increased operational efficiency. By streamlining processes, leveraging technology, digital innovation , and optimizing resource allocation, companies can reduce costs, improve productivity, and enhance overall performance.

5. Improved Customer Value

Through business model innovation, companies can elevate the value they deliver to customers. By understanding customer needs and pain points, businesses can develop innovative value propositions, personalized experiences, and tailored solutions that meet customer expectations and create long-term loyalty.

6. Business Resilience

A well-designed and innovative business model is more likely to withstand market disruptions and economic downturns. By diversifying revenue streams, exploring alternative business models, or building resilient ecosystems, companies can improve their ability to navigate uncertainties and maintain long-term sustainability.

7. Organizational Renewal

Business model innovation promotes a culture of innovation , creativity, adaptability, and continuous improvement within organizations. It encourages employees to think outside the box, challenge conventional wisdom, and contribute to the ongoing evolution of the business. This fosters a dynamic and innovative organizational culture.

8. Attracting Investment and Partnerships

Business model innovation often attracts the attention of investors, partners, and stakeholders who recognize the potential for growth and profitability. Innovative business models demonstrate a forward-thinking approach and can enhance a company’s attractiveness for funding, partnerships, and strategic alliances.

Learn more: What is Continuous Innovation?

When approaching business model innovation, several frameworks and key components can guide the process. Here are some commonly used components in a business model innovation framework:

  • Value Proposition: This component defines the unique value that a business offers to its customers. It encompasses the products, services, features, and benefits that address customer needs, solve their problems, or fulfill their desires.
  • Customer Segments: Identifying and understanding the target customer segments is crucial for effective business model innovation. It involves analyzing customer feedback , behaviors, preferences, and pain points to tailor the value proposition and business model accordingly.
  • Revenue Streams: This component focuses on how the business generates revenue from its value proposition. It includes pricing strategies, revenue models (e.g., one-time sales, subscriptions, licensing), and potential sources of income from customers, partners, or other stakeholders.
  • Channels: Channels represent the distribution and communication channels used to reach and engage customers. This component considers both physical and digital channels, such as direct sales, online platforms, retail partnerships, or mobile applications.
  • Innovation Mechanisms: This component focuses on fostering a culture of innovation within the organization and implementing mechanisms to encourage and support business model innovation. It can involve innovation processes , idea platforms, cross-functional teams, experimentation, or learning loops.
  • Key Activities: Key activities encompass the core processes, operations, and actions required to deliver the value proposition effectively. It includes activities such as research and development, manufacturing, marketing, sales, customer support, and strategic partnerships.
  • Key Resources: Key resources refer to the essential assets, capabilities, and infrastructure needed to operate the business model. These resources can include physical assets, intellectual property, technology, human capital, supplier networks, or financial resources.
  • Innovation Drivers: The external and internal factors that push a company to reconsider and evolve its business model to remain competitive, relevant, and adaptable in the ever-changing business landscape. Identify the factors driving the need for business model innovation, such as technological innovation , changes in customer behavior, or industry disruptions.
  • Partnerships and Ecosystems: This component involves identifying and leveraging strategic partnerships or building ecosystems that complement the business model. Collaborations with suppliers, distributors, technology providers, or complementary businesses can enhance value delivery and create new opportunities.
  • Cost Structure: The cost structure defines the expenses associated with operating the business model. It includes costs related to production, marketing, distribution, infrastructure, talent, and any other resources required to deliver the value proposition.

10 Key Examples of Business Model Innovation

There are numerous examples of business model innovation across various industries. These examples illustrate how business model innovation can lead to industry disruption, improved customer experiences, and increased efficiency. Adapting to changing market dynamics and exploring innovative business models can be key to long-term success.

  • Netflix (Transforming Entertainment Distribution): Netflix revolutionized the home entertainment industry by introducing a subscription-based model for streaming movies and TV shows. Instead of traditional DVD rentals, Leveraging technology innovation they shifted to a digital platform that allows users to access content on-demand for a monthly subscription fee.
  • Uber (Disrupting Transportation Services): Uber disrupted the transportation industry by introducing a peer-to-peer ride-sharing platform. They created a business model that connects riders and drivers through a mobile app, providing convenient, affordable, and flexible transportation services.
  • Airbnb (Redefining Accommodation): Airbnb transformed the hospitality industry by offering a platform that allows individuals to rent out their homes or spare rooms to travelers. They created a marketplace that connects hosts and guests, enabling people to find unique and affordable accommodations worldwide.
  • Apple (Integrated Ecosystem): Apple’s business model revolves around an integrated ecosystem of hardware, software, and services. Products like the iPhone, MacBook, and Apple Watch seamlessly work together, creating a cohesive user experience.
  • Tesla (Electric Vehicles and Beyond): Tesla disrupted innovation in the automotive industry by introducing electric vehicles (EVs) with a vertically integrated business model. They not only manufacture and sell EVs but also build and operate their own charging infrastructure, providing a comprehensive solution for sustainable transportation.
  • Spotify (Transforming the Music Industry with Streaming): Spotify changed the music industry with its streaming service that offers access to a vast library of music. They introduced a freemium model, providing both free and premium subscription options, while compensating artists based on streaming plays.
  • Amazon (E-commerce Ecosystem): Amazon transformed e-commerce by creating a comprehensive online marketplace that offers a wide range of products, competitive prices, and fast delivery. They also introduced Prime membership, providing additional benefits like free shipping and access to streaming services.
  • Alibaba (E-commerce Ecosystem): Alibaba revolutionized e-commerce in China by creating a business-to-business (B2B) online marketplace that connects manufacturers with buyers. They expanded their business model to include business-to-consumer (B2C), consumer-to-consumer (C2C), and other services like digital innovation such as cloud computing and digital payments.
  • Google (Monetizing Search and Advertising): Google’s business model innovation lies in its search engine and advertising platform. They provide free access to their search engine while generating revenue through targeted advertising based on user data and search queries.
  • Patreon (Empowering Creators with Fan Support): Patreon introduced a membership platform that allows creators, such as artists, musicians, and podcasters, to receive ongoing financial support from their fans. It enables fans to become patrons and support their favorite creators through this innovation .
  • Dollar Shave Club (Subscription-based Razors): Dollar Shave Club disrupted the shaving industry by offering a subscription-based model for razors and grooming products. They eliminated the need for purchasing expensive razors in stores and instead provided affordable, high-quality products delivered directly to customers’ doors.
  • IKEA (Flat-Pack Furniture and In-Store Experience): IKEA’s business model innovation includes flat-pack, self-assembled furniture and a unique in-store experience. This approach allows for cost savings and a distinctive shopping environment.

Learn more: What is Discontinuous Innovation?

When engaging in business model innovation, it’s important to follow certain best practices to increase the chances of success. Outlined below are several essential best practices to consider:

1. Customer-Centric Approach

Start by deeply understanding customer needs, pain points, and behaviors. Identify unmet needs and gaps in the market to develop innovative solutions that deliver superior value to customers.

2. Embrace a Growth Mindset

Foster a culture of continuous innovation like learning and experimentation. Encourage employees to challenge assumptions, take calculated risks, and learn from failures. Embrace an entrepreneurial mindset that embraces change and seeks out new opportunities.

3. Collaborative and Cross-Functional Approach

Involve diverse perspectives from different teams and departments within the organization. Collaborate across functions to generate innovative ideas, validate assumptions, and ensure alignment and buy-in throughout the organization.

4. Data-Driven Decision Making

Leverage data and analytics to inform decision-making processes. Gather insights on customer feedback , behavior, market trends, and industry dynamics to support business model innovation efforts. Use data to validate assumptions and iterate on the business model.

5. Iterative and Agile Approach

Adopt an iterative approach to business model innovation. Start with small experiments, test assumptions, gather feedback, and iterate based on the results. Embrace agile methodologies to quickly adapt and respond to changing market dynamics.

6. External Insights and Open Innovation

Look beyond internal resources for inspiration and insights. Engage with external stakeholders, such as customers, partners, industry experts, and academia, to gain diverse perspectives and identify emerging trends and technologies that can drive innovation .

7. Prototyping and Minimum Viable Products (MVPs)

Develop prototypes or MVPs to quickly test and validate different aspects of the business model. Use rapid prototyping techniques to gather feedback from customers and stakeholders and make necessary refinements before scaling.

8. Intellectual Property Protection

Evaluate the intellectual property (IP) aspects of the business model to protect any unique innovations or competitive advantages. Secure patents, trademarks, copyrights, or trade secrets where appropriate to safeguard the business model and prevent imitation.

9. Scalability and Long-Term Viability

Consider scalability and long-term viability when designing the business model. Ensure that the model can be effectively scaled as the business grows and that it aligns with the organization’s strategic goals and capabilities.

10. Continuous Monitoring and Adaptation

Business model innovation is an ongoing process. Continuously monitor market trends, customer feedback , and competitive landscape to identify opportunities for refinement and adaptation. Stay agile and be prepared to adjust the business model as needed to maintain relevance and competitiveness.

Learn more: What is Business Innovation?

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Business Model Innovation: What It Is And Why It’s Important

Business Model Innovation: What It Is And Why It’s Important

Industry Advice Business

Amazon launched in 1995 as the “Earth’s biggest bookstore.” Fast-forward 22 years, and that “bookstore” is now a leader in cloud computing, can deliver groceries to your doorstep, and produces Emmy Award-winning television series. 

The trillion-dollar organization has achieved this growth by being continuously willing to innovate upon its business model in order to address new challenges and pursue new opportunities. 

“Amazon is amazing at new business model development,” says Greg Collier, an academic specialist in   Northeastern’s D’Amore-McKim School of Business and the director of international programs for the Center for Entrepreneurship Education . “They look at themselves from a customer-defined perspective.”

That approach has helped Amazon scale because rather than rely on one revenue stream or customer segment, the company continuously asks “ What’s next?” This has allowed leadership to iterate on its business model accordingly, repeatedly experimenting with a process known as business model innovation .

As Amazon’s success demonstrates, this process can be incredibly exciting and impactful when you’re in control. However, when the need to innovate your business model is thrust upon you by outside forces, it can also feel quite disruptive. 

For instance, today, the novel coronavirus is causing tremendous shifts in both the national and global economy. Many companies are being forced to innovate and adapt their business models in order to meet these challenges, or else risk falling victim to these drastic changes.

Read on to explore what business model innovation is and why it is so important for businesses to be capable of change.

What Is Business Model Innovation?

A business model is a document or strategy which outlines how a business or organization delivers value to its customers. In its simplest form, a business model provides information about an organization’s target market, that market’s need, and the role that the business’s products or services will play in meeting those needs. 

Business model innovation , then, describes the process in which an organization adjusts its business model. Often, this innovation reflects a fundamental change in how a company delivers value to its customers, whether that’s through the development of new revenue streams or distribution channels.

Business Model Innovation Example: The Video Game Industry

Amazon is not the only company known for continuously innovating its business model.

The video game industry, for example, has gone through a number of periods of business model innovation in recent years, Collier says, by envisioning new ways in which to make money from customers.

When video games were first created, the consoles that housed them were expensive and bulky, which put them out of reach of most consumers. This gave rise to arcades, which would charge customers to essentially purchase credits needed to play the games. 

As manufacturing processes and technological advancements made it easier to create smaller, more economical units, however, companies like Atari took advantage of the demand by selling units directly to the customer—a massive departure from what had been the accepted practice.

More recently, game developers have had to undergo rapid business model innovation in order to meet the evolving demands of customers—many of whom want to be able to play their games right on their smartphones. 

Originally, many companies adjusted their practices in order to put their games in this format, charging consumers a subscription fee or making them pay to unlock new levels. Some of those businesses, however, were able to innovate their business models to make gameplay free to the end-user by incorporating in-app advertising or selling merchandise such as T-shirts and plush toys. This practice, they found, was able to dramatically increase their reach, while also bringing in substantial funds from consumers.

As Collier notes, “Competitors can easily change how they price.” That’s why it’s crucial for companies to consider how their products are being delivered.

The Importance of Business Model Innovation 

Business model innovation allows a business to take advantage of changing customer demands and expectations. Were organizations like Amazon and Atari unable to innovate and shift their business models, it is very possible that they could have been displaced by newcomers who were better able to meet the customer need.

Business Model Innovation Example: Blockbuster vs. Netflix

Take Blockbuster, for example. The video rental chain faced a series of challenges, particularly when DVDs started out selling VHS tapes. DVDs took up less shelf space, had higher quality video and audio, and were also durable and thin enough to ship in the mail—which is where Netflix founders Reed Hastings and Marc Randolph spotted an opportunity.

The pair launched Netflix in 1997 as a DVD-by-mail business, enabling customers to rent movies without needing to leave their house. The added bonus was that Netflix could stock its product in distribution centers; it didn’t need to maintain inventory for more than 9,000 stores and pay the same operating costs Blockbuster did.

It took seven years for Blockbuster to start its own DVD-by-mail service. By that point, Netflix had a competitive advantage and its sights set on launching a streaming service, forcing Blockbuster to play a game of constant catch-up. In early 2014, all remaining Blockbuster stores shut down .

“Blockbuster’s problem was really distribution,” Collier says. “DVDs inspired Netflix, and the technology change then drove a change in the business model. And those changes are a lot harder to copy. You’re eliminating key pieces in the way a business operates.”

For this reason, it’s often harder for legacy brands to innovate. Those companies are already delivering a product or service that their customers expect, making it more difficult for teams to strategize around what’s next or think through how the industry could be disrupted.

“Disruption is usually then done by new entrants,” Collier says. “Established organizations are already making money.”

Business Model Innovation Example: Kodak

By focusing solely on existing revenue streams, however, organizations could face a fate similar to Kodak. The company once accounted for 90 percent of film and 85 percent of camera sales . Although impressive, that was just the problem: Kodak viewed itself as a film and chemical business, so when the company’s own engineer, Steven Sasson, created the first digital camera, Kodak ignored the business opportunity. Executives were nervous the shift toward digital would make Kodak’s existing products irrelevant, and impact its main revenue stream. The company lost its first-mover advantage and, in turn, was later forced to file for bankruptcy.

Business Model Innovation Example: Mars

Mars started as a candy business, bringing popular brands like Milky Way, M&M’s, and Snickers to market. Over time, however, Mars started expanding into pet food and, eventually, began acquiring pet hospitals. In early 2017, Mars purchased VCA —a company that owns roughly 800 animal hospitals—for $7.7 billion. further solidifying its hold on the pet market.

“Mars looked at its core capabilities, which is what corporate entrepreneurship is all about,” Collier says. “It’s about looking at your products and services in new ways. Leverage something you’re really good at and apply it in new ways to new products.”

The Role of Lean Innovation

Implementing lean innovation is advantageous. Lean innovation enables teams to develop, prototype, and validate new business models faster and with fewer resources by capturing customer feedback early and often.

Collier recommends companies start with a hypothesis: “I have this new customer and here’s the problem I’m solving for him or her,” for example. From there, employees can start to test those key assumptions using different ideation and marketing techniques to gather customer insights, such as surveying. That customer feedback can then be leveraged to develop a pilot or prototype that can be used to measure the team’s assumptions. If the first idea doesn’t work, companies can more easily pivot and test a new hypothesis.

“This is a big part people forget to do,” Collier says. “Lean design allows us to rapidly test and experiment perpetually until we come to a model that works.”

Pursuing Innovation in Business

In addition to business model innovation, companies could also pursue other types of innovation , including:

  • Product Innovation : This describes the development of a new product, as well as an improvement in the performance or features of an existing product. Apple’s continued iteration of its iPhone is an example of this.
  • Process Innovation : Process innovation is the implementation of new or improved production and delivery methods in an effort to increase a company’s production levels and reduce costs. One of the most notable examples of this is when Ford Motor Company introduced the first moving assembly line, which brought the assembly time for a single vehicle down from 12 hours to roughly 90 minutes .

The choice to pursue product, process, or business model innovation will largely depend on the company’s customer and industry. Executives running a product firm, for example, need to constantly think about how they plan to innovate their product.

“When the innovation starts to slow down, that’s when firms should be thinking of and looking at next-generation capabilities,” Collier suggests.

If a company is trying to choose where to focus its efforts, however, the business model is a recommended place to start.

“Business model innovation is often more impactful on a business than product innovations,” Collier says. “It’s Amazon’s business model that’s disrupting the market.”

Innovation Doesn’t Always Come Easy

While the examples above demonstrate that innovation is an important part of running a business, it’s also clear that it doesn’t always come easy. Corporate history is littered with examples of companies that were unable to innovate when they needed to the most.

Luckily, there are steps that business owners, entrepreneurs, and professionals can take to become better suited to pursuing innovation when an opportunity appears. 

Learning the fundamentals of how businesses and industries change will prove to be instrumental in enabling you to carry out your own initiatives. Assess and dissect the successes and failures of businesses in the past, and learn how to apply these valuable lessons to your own challenges. 

This article was originally published in December 2017. It has since been updated for accuracy and relevance.

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Guide to business model innovation: Strategies and examples

what is an example of a business model innovation

In an ever-changing world, business model innovation is something every product manager and entrepreneur should focus on.

Guide To Business Model Innovation: Strategies And Examples

Business models that were solid a few months back might be irrelevant today, especially if we look at ever-increasing technological advances. If I had a penny for every business model that has had to pivot due to the advent of ChatGPT, I could retire today.

In this guide, I’ll show you how you can demystify business model innovation by simply asking the right questions.

What is a business model?

Let’s start with a high-level overview of what a business model actually is. You’ve probably already seen Strategyzer’s famous business model canvas at least once:

Business Model Canvas Template

This business model canvas is one of the most common approaches to describing a business model. It includes answers to nine key questions:

  • Customer segments — For whom are you creating value?
  • Value proposition — What value do you deliver to customers?
  • Channels — How are you reaching your customers?
  • Customer relationship — What type of relationship do you establish with your customers?
  • Key partners — Who are your key partners and suppliers?
  • Key activities — What do you need to do to deliver the value proposition for your customers?
  • Key resources — What key resources do your value proposition and distribution channels require?
  • Revenue streams — How much value do you capture from your value delivery activities?
  • Cost structure — How much does maintaining the business model cost you?

If you can get a good answer to all these questions, the overall strategy for your business is solid and self-supporting.

However, the business innovation canvas is just a template. Depending on the maturity of your company, you might need something more lightweight or more robust.

Ultimately, what you need is clarity regarding three critical areas of business operation:

  • Value creation — What value do you offer to the market?
  • Value delivery — How do you ensure the market discovers your value proposition?
  • Value capture — How do you benefit from delivering that value?

Business Model Innovation

In this article, I’ll focus on the more lightweight approach to business model innovation. It’ll make it more applicable for product managers, who often work only on a product-oriented part of the business model.

What is business model innovation?

Building a business model is similar to everything we do in a product and agile environment. Any guesses?

Yes! We do it iteratively!

In the past, we often worked thoroughly to establish a very detailed business model, probably got a company loan for that, and then spent years executing that model. In the modern world, this approach doesn’t work. Things just change too fast.

Today, business models are not planned; they are discovered. The best approach is to adjust, inspect, and adapt your business model iteratively:

Business Model Innovation Is A Circular Process

That’s what business model innovation is. It’s a never-ending, iterative process of discovering the best business model given current micro and macro circumstances.

what is an example of a business model innovation

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Strategies to innovate on your business model

Now let’s try to put the theory into practice. Although there is no “right” approach to iterating on one business model, the lightweight process I prefer involves repeatedly asking three high-level questions:

  • Can we improve the value we deliver to the market ?
  • Can we improve the way we reach our customers ?
  • Can we improve the way we capture the value along the way ?

Innovating on the value proposition

This part is the most well-known to product managers. To some extent, PMs are hired to focus chiefly on this area of the business model.

Start by visualizing your current value creation process. I like to use a double-layered value proposition model for that (my own framework).

A core value proposition includes:

  • Customer profile — Who is your target persona? What gains do they want? What pains do they experience?
  • Value canvas — How do you deliver value for your customer? Which pains do you relieve, and which gains do you create?

A category value proposition includes:

  • Market standards and benchmarks — You should meet these to be relevant
  • General performance expectations of the market — No matter how great the value proposition of your app is, people won’t use it if it takes 20 seconds to load
  • Category rules — What are the must-haves for a given type of product? For example, good luck building an email app without a labeling option

Once you have visualized your business model, start challenging it. Use quantitative data, qualitative knowledge, and market expertise to determine how to deliver more value to the market.

The most common approaches to delivering more value include:

  • Pivoting customer segments — Maybe the persona you target isn’t the right fit after all?
  • Expanding customer segments — Even if your target segment is properly defined, at some point, the market gets saturated. Maybe it’s time to expand?
  • Focusing on different pain points — Are the pain points you target most relevant for your customers?
  • Expanding offering — Can you deliver more valuable services to your customers?
  • Shrinking offering — Cutting out the noise and doubling down on your best solutions might also be a sound decision.
  • Innovating on current offering — Maybe iterating on the current offering is the most optimal way?

What you should focus on depends heavily on the data you have and the context you operate in. But if I were to give a universal tip, focus on properly balancing small bets (improving the current business model) and big bets (pivoting the business model) for the most optimal outcomes.

Innovating on value distribution

Innovating on value distribution is all about searching for the most optimal channel for acquiring users and maximizing that channel’s potential.

Let’s assume you acquire users through LinkedIn ads (performance marketing). You should revisit this strategy regularly and ask yourself two questions.

  • Embracing tactics to minimize CAC.
  • Hiring performance marketing professionals / external agencies to help you boost your reach.
  • Experimenting with new platforms.
  • Trying programmatic advertising.
  • Experiment with setting up a blog
  • Use the data you have to automatically generate new pages at a sale
  • Build virality mechanics into the app

My main tip here is the same as in the previous chapter: in an ideal scenario, you would continuously improve on both your current growth channel (small bets) while also exploring other growth channels (big bets) — especially if you haven’t reached product-channel fit yet.

Innovating on value capture

Capturing value might sound fancy, but let’s be honest — in most cases, it’s all about generating revenue.

You should regularly revisit how your product and business generate money from its operation. While the exact questions you should be asking yourself depend on your particular model, the four questions I believe every PM should ask themselves regularly are:

  • Do we have the most optimal revenue model?
  • Is the way we charge the best way?
  • Do we charge at an optimal price point?
  • Can we boost our revenue with better bundling and packaging?

1. Do we have the most optimal revenue model?

It’s a big question. If you are a subscription product , should you be a subscription product? Maybe you should try ad-based revenue, or combine both?

2. Is the way we charge the best way?

The way you charge is more important than how much you actually charge. Ideally, you should charge per value received (i.e., the number of transactions). Or, if this is impossible, per some proxy metrics (e.g., the number of seats), or a flat monthly fee. Is it the best way?

3. Do we charge at an optimal price point?

Different segments have different willingness to pay and price sensitivity . Finding the best price points to charge requires a lot of quantitative research, but it’s worth it.

In the end, increasing the price by 10 percent might be the fastest way to grow revenue or the fastest way to lose all your customers.

4. Can we boost our revenue with better bundling and packaging?

If you have a more mature product with various types of plans, consider bundling/unbundling them and experimenting with different plan settings.

Maybe there’s a gap between your tier 1 and tier 2 offering, leaving a lot of money on the table. Or, perhaps you should add to your most premium offering  a standalone, pay-per-use feature.

Sometimes, moving a feature from one plan to another can knock your revenue through the roof.

Business model innovation examples

Now that we’ve thoroughly explored the concept of business model innovation, let’s dive into some real-world examples. These cases highlight the impact that innovative business models can have on a company’s success or failure.

Netflix: Streaming revolution

One of the most well-known examples of successful business model innovation is Netflix. The company started as a DVD rental service by mail, but it quickly identified the potential of streaming technology.

By shifting its focus to on-demand streaming, Netflix transformed the way we consume entertainment and effectively disrupted the traditional cable TV industry. This strategic shift allowed the company to grow exponentially and become a global entertainment powerhouse.

Uber: Ride-sharing disruption

By leveraging then-nascent mobile app technology, Uber created a platform that connects drivers with passengers looking for a ride. This peer-to-peer model revolutionized the transportation industry, challenging traditional taxi services and expanding to other services like food delivery.

Although Uber faced regulatory hurdles and controversies along the way, it remains a prime example of how business model innovation can create a new market.

Blockbuster: A cautionary tale

On the flip side, Blockbuster’s failure to innovate its business model serves as a cautionary tale. As a movie and video game rental chain, Blockbuster was once the go-to place for home entertainment. However, the company failed to adapt to the digital age and recognize the potential of streaming services, ultimately leading to its decline.

Had Blockbuster been more agile and open to business model innovation, it might have remained a significant player in the entertainment industry.

LEGO: Reinventing the brick

LEGO, the iconic toy company, faced near bankruptcy in the early 2000s due to a lack of focus and an overly complex product portfolio. To turn things around, LEGO embraced business model innovation by refocusing on its core product — the beloved plastic brick — and expanding into new markets.

By capitalizing on brand partnerships, digital gaming, and even theme parks, LEGO successfully transformed its business model and remains a beloved brand worldwide.

Zipcar: Car-sharing pioneer

Zipcar was an early pioneer of the car-sharing model. By allowing members to rent cars by the hour or day, Zipcar offered a convenient and cost-effective alternative to traditional car ownership.

Although the company faced challenges and was eventually acquired by Avis Budget Group, its innovative business model inspired a wave of car-sharing services that continue to reshape urban transportation.

Business model innovation sounds like a big, daunting endeavor. In reality, though, it can be as complex or as straightforward as you want it to be.

I believe in simplicity. The more robust the innovation process is, the more neglected and deprioritized it often gets.

When it comes to business model innovation, I encourage you to think about it simply as an iterative process of asking the right questions. Start with the three main questions:

  • Can we improve the value we deliver to the market?
  • Can we improve the way we reach our customers?
  • Can we improve the way we capture the value along the way?

Then, step by step, go a bit deeper and ask more detailed questions.

On the one hand, you must innovate your business model in a conscious, iterative manner to stay competitive. But on the other hand, you don’t have to do it all at once. In fact, you shouldn’t.

Revisit the main questions and focus on the part of your business model that requires the most attention in your current context. Trying to innovate on a business model as a whole is a fool’s game.

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Business Model Innovation – The What, Why, and How

Jesse Nieminen

In the last couple of decades, we’ve seen a dramatic increase in the popularity of business model innovation – and for good reason.

Technology has made it easier than ever to adopt a wide variety of novel business models effectively. At the same time, increased pace of innovation and global competition has made differentiation more important than ever .

In addition, with the havoc caused by COVID-19, we're already seeing that even though many businesses are battling for survival, there are also winners. Those winners usually possess very robust business models, which further outlines the importance of business model innovation in times like this.

In this article, we’ll look into what exactly it is, why it is so important, as well as how one can make it happen with the help of quite a few examples.

Table of contents

  • What is business model innovation?
  • Why is it important?
  • Examples of innovative business models
  • How to create business model innovation

The Definition of Business Model Innovation

One of the common mistakes people make when it comes to business models is that they simply look at them very narrowly as just the pricing model for their products and services.

While it certainly is a key part of the business model, the term is actually defined as the way an “organization creates, delivers and captures value”.

Business model is the way an organization creates, delivers and captures value.

Successful business models thus take a very holistic approach by integrating these different aspects of the business into a well-organized and thought out system.

Business model innovation, then is simply a novel way to put these pieces together to hopefully create a system that produces more value for both customers and the organization itself.

What is a business model?

Why Is Business Model Innovation So Important?

Without realizing it, a business that doesn’t explicitly focus on their business model as a whole often ends up compromising their initial strengths.

For example, many businesses start to gradually drift apart from the true needs of their customers unless they specifically focus on avoiding that. Some might focus too heavily on just optimizing the delivery of their products and sacrifice their ability to create value.

There are many reasons for these phenomena. Perhaps management focuses too heavily on what the competition is doing, or perhaps there’s pressure from shareholders to optimize for short-term profit.

Regardless, there are countless industries where the true interests of the customers and those of the service providers have become opposite.

The healthcare sector is a prime example of this: a private hospital has strong incentives for wanting you to be chronically sick so that you’d keep coming back regularly and they could charge you for each visit. You naturally want the hospital to take good care of you, but ideally, you’d just want to stay healthy and not have to go to the doctors’ in the first place.

The Healthcare industry is in dire need of business model innovation

Business model innovation is simply put probably the most important tool for building a business that creates maximal value for all stakeholders: customers, shareholders, employees, and the society at large.

This obviously leads to a wide variety of benefits :

  • Increased value creation will lead to increased growth , even for otherwise stagnant businesses
  • As business model innovation often requires new operating models and is thus often very difficult for established competitors to copy
  • …which can lead to an extend period of competitive advantage
  • The right kind of business model also helps overcome objections to sales and create positive brand recognition
  • As mentioned, some business models can make the business much more robust towards market cycles and unexpected “black swan” events, such as the recent COVID-19 crisis

To conclude, business model innovation is a flexible tool for building a great business irrespective of the industry. That’s why you’ll see most of the fastest growing and most disruptive businesses including business model innovation as a key part of their “innovation mix” .

Examples of Business Model Innovation

Before we get into the part where we look at how to actually do business model innovation, let’s first take a look at a few examples of business model innovation to get a better picture of what it can look like in practice.

Subscription models

Subscription models are a powerful way to turn one-off purchases to a more predictable, and over time larger, stream of revenue while ensuring that the customer keeps getting value and is also able to better afford higher-end services due to the purchase occurring over time.

Subscription models are equally applicable for both B2B and B2C businesses.

On the B2B side, Software as a Service (SaaS) products like Microsoft Office 365 and Infrastructure as a Service (IaaS) offerings like Amazon Web Services are great examples of this approach.

Slack is an example of a company using a SaaS subscription business model

Subscription businesses tend to have quite distinct, straightforward value chains but do require some capabilities that many product businesses might not be very strong at, such as delivery and customer support.  

Freemium is a portmanteau of the words free and premium. It refers to business models where a company offers a free version of their product, typically with certain limitations, in order to attract users and eventually upgrade them to paying “premium customers”.

For businesses with a good product, high gross margins and high customer acquisition costs, such as most content and software businesses, this can be a very powerful model, especially in crowded markets.

Viima uses the freemium business model

The Freemium model is quite common for B2B software products that tend to have bottom-up adoption like Slack and Zoom , but also for many B2C services, such as Spotify and Apple iCloud .

The downside is that without strong value creation, freemium models might make it difficult for the business to capture enough value.

In essence, platforms are places that aggregate and/or facilitate supply and demand meeting. Platforms are characterized by their distributed approach to creating value.

In practice that means that they’re basically either matchmakers or marketplaces, but still come in many shapes and forms. They typically earn money by either taking a commission of the transactions, or by charging the supply side for the value-added services they provide.

These days you mostly hear the term being used for digital platforms, but the business model far predates online services. Shopping malls and classified ads in newspapers are just a couple of examples of traditional platform business models.

Digital platforms are one of the most powerful business models today

The challenge with platform business models is that it's often really hard to get platforms off the ground and achieve a critical mass where they become self-sustaining.

Direct-to-Consumer (D2C)

Both consumer and industrial goods manufacturers have traditionally relied on a, often complicated, supply chain of wholesalers and retailers to sell their goods.

Before the Internet, that allowed them to have a much larger geographical reach and thus benefit from economies of scale.

However, with the rise of e-commerce, we’ve seen a rapid rise in the popularity of the Direct-to-Consumer business model in many categories of consumer goods.

This approach provides the manufacturer with higher margins as the middlemen are removed, gives them much more control over the brand, customer experience and relationship, and provides them with more data, that is also of higher quality, on demand and customer preferences.

Warby Parker sells eyeglasses with the direct to customer business model

Ads, affiliates & sponsorships

For as long as there have been content and communication channels, there’s been advertising in one form or the other, and that hasn’t changed recently.

With the rise of the Internet, smartphones, and the democratization of content creation, we’ve seen a dramatic increase in content, which has made the traditional business model of monetizing content with advertising and sponsorships harder since there’s so much more competition for people’s attention.

For the right kind of audiences, typically in very specific niches, it can still be a viable business model in itself and for other businesses with a sizeable following, it can become an additional secondary source of income.

For example, while Spotify generates the vast majority of its revenue and profits from its subscribers, advertising revenue does provide the company with a solid secondary revenue stream that can be used for investing in growth.

Loss leaders & add-on services

While there’s nothing new in selling professional services, we’ve seen many interesting novel business models built around them.

A great example of this is the business model of open source software companies like WordPress, Red Hat and Elastic . These companies have built very popular open source software products that they let other companies use completely for free.

When you give away great software for free, it tends to become extremely widely adopted, as has certainly been the case for the aforementioned three products. Without the open source model, these companies would never have been able to reach the kind of market share they’ve actually managed to get to.

Once their products have been adopted at scale, the open source companies are obviously well positioned to either sell professional services or offer hosting services for this large base of users.

The same basic logic of giving something away for free, or at a loss, and then sell additional products or services to that wider customer base is also known as a loss leader strategy. It has been widely adopted across many industries, such as retail where stores might offer a real bargain for certain attractive products to lure in more foot traffic.

In general, selling maintenance contracts and other add-on services has become a ubiquitous business model especially in B2B, but also for more expensive B2C products, such as cars.

Razor & blades

Nespresso uses the razor & blade business model

Interestingly, just like with so many other stories of innovation , the story of the business model being invented by Gillette when he first created disposable razor blades isn’t true . In reality, it was invented by the competitors that entered the market once Gillette’s patents expired.

Since then, the model has been adopted by many companies selling goods like film cameras, printers and Nespresso capsules .

While the aforementioned examples cover some of the innovative business model patterns that we’ve seen gain popularity in the recent years, there are many others as well: franchising, auctions, micropayments, pay-what-you-want , the list goes on.

The Business Model Navigator is a very convenient and easy-to-use tool for browsing these patterns.

There are literally countless ways you can combine the different business models together with different product and service offerings to try to maximize the value created by your products and services.

Spotify uses the freemium business model

Another example of this is Peloton . They sell high-end exercise equipment like bikes and treadmills for home use, and couple that with a subscription service that provides exercise programs, virtual classes and many other engaging features to accompany the bike. According to the company, even though their devices are quite expensive, they aim to sell them at break-even and then make money with the subscriptions.

This obviously means that to make a profit, they need to ensure that their customers stay motivated and keep exercising, which is what ultimately keeps them fit and creates value for everyone involved.

The leadership of the company may not have managed the business optimally, which has led to severe financial challenges after the lockdowns ended but that doesn't take anything away from the fundamental strength of the business model. Still, this is a great reminder that while a strong business model is a great foundation, there's more to running a successful business than that.

How Do You Create Business Model Innovation?

The examples above have hopefully provided you with some inspiration on what kind of new business models might be possible.

However, if you’re looking to create a business model innovation for your business, here are a few tips that can help you find the right model for you.

How to create business model innovation

1. Start with customer value

The first step, as with every innovation, is to start with customer value.

  • What is “the job” that the customer wants done?
  • What are the obstacles that currently prevent them from getting the job done?
  • What are your customers now using to get the same job done, or why are they putting off doing it?
  • How do they know if the job is done or not?

Once you have a clear answer to these questions, you’ll already be well on your way.

2. What are your strengths?

Every business should obviously build their business models to benefit from and take advantage of their own strengths and unique capabilities.

For example, if you have plenty of data and when and how your products break, you’re obviously the party that’s best positioned to provide novel maintenance services, or maybe even insurance for these products.

3. What are your objectives for the business?

Some businesses want to focus on profitability, others want to grow as much as possible, and some simply want to do as good of a job as possible for their customers.

These goals ultimately matter a lot when you’re trying to design the perfect business model as different business models are better suited for different kinds of goals.

Some companies might simply want to find ways to expand their current business with minor tweaks to their model where others might be looking for bigger, more transformative kind of changes.

For example, if you’re looking to maximize growth, you should choose a business model where the customer gets almost all of the value and keep costs down to maximize adoption.

In the short term, you will take a financial hit compared to some of the other models, but this can make the business unattractive for competitors, thus providing you with a big competitive advantage in the long run. The Freemium and open source models are obvious examples of this approach.

4. Look for patterns by benchmarking leading innovators

As mentioned, the best business models are tailored to the needs of your customers, the characteristics of your industry, as well as your business objectives.

Thus, whenever you’re looking to design a new business model, it’s usually a good idea to benchmark what the most innovative companies in the world are currently doing.

You should obviously know where your competition is but remember that the point of business model innovation is to find a way that allows you to provide much more value than they do, either at a lower price or with better margins, maybe even both, so don’t just copy them!

Thus, the best benchmarks are often from very different industries.

As mentioned, the Business Model Navigator is a great resource for this benchmarking process. It’s a website that features 55 different business model patterns that you can try to apply for your own business, including most of the examples we presented above.

Business Model Navigator Patterns

5. Put it all together to identify the right model

The next step is to combine your findings from steps 1, 2, 3 and 4. Find ways where you can create as much value for your customers as possible, that uses your strengths, and allows you to capture a fair share of that revenue as determined by your business objectives.

This is obviously the creative part, so it might take some time and effort to get this right, but remember that you can always look at the examples we’ve mentioned above.

Mapping business model innovation

On the other hand, if you are selling products, you probably want to turn one off sales into a more predictable stream of revenue, as well as grow the amount of business you get from each customer. In this case, the solution is to either sell add-on services that help your customers make the most out of your products, or to look for ways that you could use to turn those one-off product sales into subscriptions with some service components.  

6. Validate and iterate

As with any other kind of innovation, you typically don’t get business model innovation right the first time around either.

In the end, the only way to know if it works is by testing the business model in practice.

The challenging part with many business model innovations are that they often require drastic changes to your current operating model, which you obviously shouldn’t do unless you have strong evidence for the transition being worth it.

Thus, it’s crucially important that you validate the assumptions that you’ve done in the steps leading to this point, starting from your most critical assumption , and pilot that with a small subset of your customers.

Validating the business model at smaller scale obviously saves costs and resources, but has another key advantage: speed. Learning and moving fast is essential for innovation success.

Learning and moving fast is essential for innovation success.

Time is of the essence in business model innovation

It can sometimes take quite a few of those tweaks to figure out the right business model, even if your products are brilliant, which is why you need to learn, iterate, and move fast when your window of opportunity is still open.

To conclude, business model innovation is a powerful, yet still very underappreciated tool.

It’s one of those topics that is quite straightforward to get the hang of, and can thus help make a difference quite soon.

If you’re not seeing the business results you think you should be getting with your products and services, or you’re looking to take significant market share from entrenched competitors, give business model innovation a try.

If you want a powerful tool to get started with your innovation process, you might want to try Viima ! It takes just minutes and is completely free.

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Four Paths to Business Model Innovation

  • Karan Girotra
  • Serguei Netessine

The secret to success lies in who makes what decisions when and why.

Reprint: R1407H

Drawing on the idea that any business model is essentially a set of key decisions that collectively determine how a business earns its revenue, incurs its costs, and manages its risks, the authors view innovations to the model as changes to those decisions: What mix of products or services should you offer? When should you make your key decisions? Who are your best decision makers? and Why do key decision makers choose as they do? In this article they present a framework to help managers take business model innovation to the level of a reliable and improvable discipline. Companies can use the framework to make their innovation processes more systematic and open so that business model reinvention becomes a continual, inclusive process rather than a series of isolated, internally focused events.

Idea in Brief

The problem.

Business model innovation is typically an ad hoc process, lacking any framework for exploring opportunities. As a result, many companies miss out on inexpensive ways to radically improve their profitability and productivity.

The Solution

Drawing on the idea that a business model reflects a set of decisions, the authors frame innovation in terms of deciding what products or services to offer, when to make decisions, who should make them, and why the decision makers choose as they do.

Traditional call centers hire a staff to supply services as needed from a place of work, incurring significant up-front costs and risks. LiveOps created a new model by revising the order of decisions: It employs agents as calls come in by routing the calls to home-based freelancers who have signaled their availability.

Business model innovation is a wonderful thing. At its simplest, it demands neither new technologies nor the creation of brand-new markets: It’s about delivering existing products that are produced by existing technologies to existing markets. And because it often involves changes invisible to the outside world, it can bring advantages that are hard to copy.

what is an example of a business model innovation

  • KG Karan Girotra is the Charles H. Dyson Family Professor of Management at Cornell Tech and the Johnson College of Business at Cornell University, and a coauthor, with Serguei Netessine, of The Risk-Driven Business Model: Four Questions That Will Define Your Company (HBR Press, 2014). Follow him on Twitter: @Girotrak
  • Serguei Netessine is the vice dean for global initiatives and the Dhirubhai Ambani Professor of Innovation and Entrepreneurship at the University of Pennsylvania’s Wharton School and a coauthor, with Karan Girotra, of  The Risk-Driven Business Model: Four Questions That Will Define Your Company   (HBR Press, 2014). Follow him on Twitter: @snetesin

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Four Essential Business Model Innovation Examples for the Modern Enterprise

By: sei team.

SEI_Business-Model-Innovation

In today’s business landscape, organizations must be agile and open to new ideas to keep pace with ever-changing market dynamics. Fortunately, business model innovation can be a powerful tool to help companies unlock their potential value and gain the sustainable, competitive advantage they need. While product and service innovation are necessary to remain relevant, it is the innovative restructuring of a company’s business model that can truly drive transformative growth. By reevaluating and reinventing the ways in which they create and deliver value to customers, companies can discover new opportunities, improve profitability, and — most importantly — maintain that competitive edge.

Although business model innovation offers significant potential for organizations, it can be a complex undertaking. In order to achieve a successful transformation, it is essential to adopt a strategic approach and possess a deep understanding of various methodologies to apply the right one for an organization’s unique needs.

Our goal in the following sections is to explore some of the most effective types of business models, providing valuable insights into the strategies that have transformed industries and spurred growth for companies across the globe. Alongside each approach, we’ll examine business model innovation examples that showcase the power of these strategies in action.

What is Business Model Innovation?

Business model innovation involves the evaluation of a company’s existing business model to identify opportunities for improvement. At its core, the objective is to optimize, innovate, and  implement new ways of delivering value to customers  while generating revenue for a company. This can be done using a range of practices, such as identifying new customer segments, developing new products or services, creating new channels for distribution, or leveraging new technologies to improve operational efficiency. Using this approach successfully requires a thorough understanding of customer needs, market trends, and industry dynamics.

This is where diving into different innovative strategies and techniques comes into play, providing organizations with the tools they need to kick off a business model innovation project with confidence. Let’s explore four of the most effective methodologies that companies can use to drive growth and success.

1 – Disruptive Innovation

Disruptive innovation is a well-known approach to business model innovation that has been successfully employed by major companies like Uber and Netflix. This approach involves creating a new business model that disrupts an existing market by  creating a new technology or product  that enables a company to offer customers a lower-cost or more convenient solution that may not currently exist. To achieve this, you must identify a market that is underserved or overlooked by current players and develop a new way of delivering value that meets the needs of that market.

Uber, for example, disrupted the traditional taxi industry by offering a more convenient and accessible alternative. By developing a mobile app that directly connects riders with drivers, Uber created a new business model that leveraged technology to disrupt the pre-existing market. Much in the same way, Netflix revolutionized the entertainment industry by fundamentally changing how we consume media through streaming services. By embracing the transformative potential of digital technology and delivering content in an on-demand, subscription-based model, Netflix effectively flipped the script on traditional cable and broadcast television. This paradigm shift has forced legacy players to adapt or risk becoming obsolete.

Similar companies have emerged since Netflix and Uber’s inception, underscoring the effectiveness of disruptive innovation in predicting and meeting future needs. It can serve as a powerful tool for pioneering new approaches and giving your business a competitive edge.

2 – Platform Innovation

Platform innovation is another approach to business model innovation that has become increasingly popular in recent years. With this methodology, a company creates a platform that allows third-party developers to create and offer new products and services to customers. This approach can be particularly effective in industries where network effects play a significant role, such as social media or e-commerce.

Platforms such as Amazon, Facebook, and Google are prime examples of this approach in practice. These world-renowned brands have created entire ecosystems that enable developers to build on top of their existing infrastructure, creating new products and services to deliver additional value to their customers. By providing a platform for others to innovate, these companies are able to leverage the collective creativity of a large community of developers and entrepreneurs.

The key to successful platform innovation requires more than just creating a platform and inviting developers to join. Companies must establish a solid foundation that provides a robust infrastructure for developers to build on, including access to data, tools, and resources. It’s essential to ensure the platform is user-friendly, scalable, and secure to integrate seamlessly with other systems and platforms.

3 – Revenue Model Innovation

Revenue model innovation is a methodology that focuses on identifying new ways to generate income or capture value from a company’s current products or services. This approach involves rethinking and adapting the organization’s revenue model to capitalize on untapped opportunities.

A prime example of a company that has successfully employed revenue model innovation is Adobe Systems. Adobe, traditionally known for software products like Photoshop, Illustrator, and Acrobat, initially sold these software packages as one-time purchases, with customers paying a large upfront fee to own the software. However, as the market evolved and customers began to demand more flexibility and regular updates, Adobe recognized the need for a change in its revenue model.

In 2013,  Adobe transitioned from a perpetual licensing model to a subscription-based model  with the introduction of Adobe Creative Cloud. This transition to SaaS allowed customers to access Adobe’s suite of creative software tools for a monthly or annual fee. The shift not only provided customers with greater flexibility but also led to a more predictable and recurring revenue stream for Adobe. As a result, the company has experienced significant growth, with its stock price increasing substantially since the introduction of Creative Cloud.

Adobe’s successful revenue model innovation demonstrates how businesses can strategically adapt their revenue models to better serve customer needs and secure a more sustainable financial future.

4 – Customer Engagement Innovation

Companies need to seek ways to enhance customer satisfaction and loyalty. One effective approach is to transform how a company interacts with and builds customer relationships. Commonly known as customer engagement innovation, this methodology aims to provide personalized experiences, exceptional customer service, or targeted marketing efforts to improve consumer satisfaction. The approach often leverages  digital technologies and data-driven insights  to create a more seamless, convenient, and meaningful interaction between the company and its customers.

Starbucks is a great example of a company that has successfully embraced this approach. The coffee giant has built a reputation for creating a unique and welcoming in-store experience, but recognized the need to adapt as customers began to expect more digital interactions. To address this, Starbucks innovated its customer engagement strategy, leveraging digital technologies such as a mobile app to create a more personalized and convenient experience that resonated with customers.

The company used data collected through its app to analyze customer behavior, preferences, and purchase patterns, enabling it to make more informed decisions about store locations, menu offerings, and marketing strategies. By creating a seamless digital and physical experience and utilizing data-driven insights, Starbucks elevated customer engagement to new heights.

Innovate to Succeed with SEI

The ability to pivot and respond quickly to emerging challenges and opportunities is essential for companies to survive and thrive in today’s economy. These are just four of the many approaches to business model innovation your organization could take, and deciding which one is right for you is the real challenge. That’s where we can help.

At SEI, our experienced business transformation consultants are dedicated to providing clients with the strategic guidance, innovative thinking, and practical methodologies necessary to navigate the path to successful business model innovation. By leveraging our extensive experience and industry insights, we help clients identify new opportunities to grow. Contact us today  to discover how we can help you innovate and discover new ways to drive long-term success.

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  • November 7, 2023
  • Digital Experience , Digital Strategy , Digital Transformation

What is Business Model Innovation?

Business Model Innovation (BMI) is more than just a set of incremental changes; it represents a holistic and radical transformation of how a company creates and delivers value to its customers. Most importantly, from the shareholder’s view, BMI represents how it generates revenue or profits through the value proposition.

While some may be well-versed in Business Model Innovation, others may wonder, “What exactly is Business Model Innovation?” In this guide, we define the concept, explain its importance, provide examples, discuss strategies and challenges, and look to the future of Business Model Innovation. 

Business Model Innovation Defined

Business Model Innovation is a comprehensive approach that determines the core components of a company’s strategy, including its target audience, value proposition, revenue streams, and cost structure. 

Business Model Innovation involves:

  • Rethinking an organization’s existing business models.
  • Challenging conventional wisdom.
  • Exploring novel approaches to problem-solving. 

A core component of Business Model Innovation that most organizations overlook is the Operating Model. The Operating Model is an expansion on Michael Porter’s Value Chain first described in his book Competitive Advantage: Creating and Sustaining Superior Performance . In simple terms, a value chain is a series of steps or systems a business uses to create value for its customers. The Operating Model builds upon the concept of the value chain to include all of the capabilities that support the value chain (illustrated as chevrons – see below). Capabilities are visual constructs that describe the people who perform business processes supported by various technologies within an organization. The Operating Model makes the activities and processes that an organization conducts explicit, and in doing so, allows the organization to easily identify, evaluate, and correct inefficient, ineffective, or missing capabilities that are crucial in executing the organization’s strategy. 

Using the Operating Model for BMI focuses on the business processes within the organization that produce customer value. Broadly, these processes fall into three or four Process Families:

The Operating Model

  • Service Development
  • Prospect Awareness and Acquisition
  • Service Delivery ( Customer Experience )
  • Customer Retention and Community Development 

Importance of Business Model Innovation

To stay relevant, businesses always need to evolve, but they can choose to do so proactively and lead the way or reactively and struggle to keep up. For companies that want to remain relevant , Business Model Innovation allows them to leverage changing customer demands and expectations to drive business growth. Far too many have failed to heed market dynamics at their peril ( for example did you know that Eastman Kodak, a pioneer in the photography industry, played a vital role in the development of digital imaging technology and yet was unable to capitalize on its investment).. 

Examples of Business Model Innovation

Many things we enjoy and rely upon exist due to Business Model Innovation. Just take Netflix, for example. The company began as a DVD rental service, transformed into a cutting-edge subscription-based streaming platform that completely disrupted the industry, and is now creating a buzz by randomly giving away DVDs to customers. Another example is Airbnb. It disrupted the hotel industry with innovative peer-to-peer accommodation arrangements and tourism experiences. These companies boldly shook up the status quo and became staples in our lives. 

Strategies in Business Model Innovation

The fastest way to build new business models, innovate, and transform culture along the way is with a Strategy-to-Execution process that includes the following tenets from the Transformation Manifesto :

  • A complete and total leadership focus on running, improving, and transforming the business simultaneously is required. 
  • A strategy-to-execution process is cultivated and includes many contributors. Without this, running and improving the business will fail, and transformation will be impossible. 
  • The strategy-to-execution process must be driven by vision and inspiration. The best type of transformation is driven by value and is not a response to market forces.
  • A fundamental rethinking of the business operating model must be embraced. Forget hierarchy; it’s all about capability development and deployment.
  • There must be a deliberate shift away from command and control models to new networked models of work.
  • Adoption of new capability-based behaviors, metrics, and responsibilities must be widespread.
  • Transformation requires new techniques – capability modeling, business value analysis, heat mapping, investment road mapping, and enterprise architecture.
  • Higher velocity must be created by using the agile or scrum approach for business and IT.
  • Inspired stumbling forward must be encouraged and rewarded.
  • Transformation must start with CEO and C-suite leadership and center on Talent Management. Leadership must demand more from HR and IT to leverage talent for better collaboration and to create the conditions for innovation and growth.

Challenges in Business Model Innovation

Despite their best efforts, many organizations seem to be incapable of Business Model Innovation. The most common root cause of this struggle is that businesses make the mistake of confusing the Org-chart, which describes what employees do for the organization, with the Operating Model, which describes what an organization does to deliver its value proposition to its customers. 

While it can be helpful to direct attention to employee contributions, doing so in this context distracts from what is at the core of business transformation. Viewing business model transformation through the lens of the Org-chart encourages parochial thinking and reinforces departmental silos. Org-chart thinking typically results in a retrospective inward gaze rather than a forward-looking outward scan to discover new market opportunities, enhance customer experiences, and improve operational efficiencies. 

Using the Operating Model for BMI focuses on the customer-value-producing business processes within the organization. Viewing the organization through this lens not only positions the organization for Business Model Innovation but more importantly, it often reveals gaping competitive holes, leaving the organization highly susceptible to digital disruptors – new or existing competitors who have leveraged new/emerging technology to leapfrog existing incumbents.

Future of Business Model Innovation

The Future of Business Model Innovation is for you to define. What will your business innovate? 

In his book, The Fourth Industrial Revolution , Klaus Schwab stated, “The question for all industries and companies, without exception, is no longer am I going to be disrupted but when is disruption coming, what form will it take, and how will it affect me and my organization?” At Accelare, we’ve created a quick, 4-minute assessment that helps organizations evaluate their operating model to determine their digital disruption exposure.  

This assessment looks at four specific domains that are critical to BMI:

  • Value Innovation/Customer Experience – The organization’s ability to design and deliver a meaningful customer experience at a lower cost. 
  • Operational Innovation/Agility – The organization’s ability to re-align human capital, business processes, and current technology to anticipate and capitalize on market shifts.  
  • Organizational Engagement – The organization’s ability to promote employee experiences and build alignment through communication and active participation.
  • Financial Health – The organization’s ability to allocate capital to create value for stakeholders.

Upon completion, we will send out a free, personalized report that compares your organization against a baseline and offers advice on improving your digital disruption resilience and BMI efforts.

To jumpstart your Business Model Innovation journey, take our Digital Disruption Assessment . 

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Social Impact

/ article, four steps to sustainable business model innovation.

By  David Young and  Marine Gerard

This article is part of an ongoing series that describes the concept of “Sustainable Business Model Innovation” (SBM-I) and how companies are putting it to use.

You may have noticed that every day there’s another announcement about companies making new climate commitments, asset managers outlining their plans for ESG integration, or regulators proposing new disclosures or extending producers’ responsibilities. Corporate coalitions like the World Economic Forum International Business Council and the US Business Roundtable endorse a more stakeholder-inclusive corporate capitalism while industry coalitions work to solve their members’ shared sustainability challenges. And employees and consumers call on employers and brands to take environmental and social challenges seriously. All of this makes clear that we have entered a new era for business, one in which sustaining competitive advantage requires companies to transform their business models for sustainability.

Company leaders need a broader, more systemic understanding of these dynamic sustainability challenges and the ways that their companies can play a part in addressing them. Fortunately, as some farsighted businesses are discovering, the most powerful opportunities for profitable innovation are embedded in these same challenges. Let’s consider three examples.

The first is Telenor, the leading Norwegian mobile operator. In 2008, having entered Pakistan three years earlier, it joined forces with the microfinance bank Tameer. With support from the Bill and Melinda Gates Foundation, the International Finance Corporation (IFC), and the Consultative Group to Assist the Poor (CGAP), they launched a new service called Easypaisa, providing mobile-based financial services to the unbanked and underbanked. By the end of 2019, Telenor Microfinance Bank (the result of Telenor’s acquisition of Tameer) boasted the largest branchless banking service in Pakistan, growing its Easypaisa mobile wallet user base to 6.4 million, its depositor base to 17 million, and the transactions volume through its agent network to about PKR 1 trillion (approximately $6 billion). This service has significantly advanced financial inclusion in Pakistan and established Telenor as a major telecom enterprise there.

Or consider Ajinomoto, a global food and biotech company based in Japan. It produces seasonings, sweeteners, and pharmaceuticals. As part of its 2030 vision and growth strategy to “help one billion people worldwide lead a healthier life,” Ajinomoto is exploring a new "personalized nutrition for health" business. Combining its core nutrition expertise and new technology, the company aims to provide customers with digitally enabled diagnostics, analytics, and product recommendations. These would guide people toward the kind of well-balanced amino acid intake that boosts cognitive and physiological functions and helps prevent aging-related diseases like dementia—a prominent societal issue in Japan.

Another example is Indigo Ag, a US-based agricultural technology startup that was valued at $1.4 billion in 2017. In 2019, the company launched a service called Indigo Carbon to help incentivize farmers to remove carbon from the atmosphere and sequester it in their soil. The service provides technologies and recommendations for regenerative agriculture practices. The ultimate goal is to pay farmers for each ton of carbon captured and then sell certifications to companies looking to offset their carbon footprints. By supporting a transparent carbon credit marketplace, Indigo Carbon creates benefits for all participants: the farmers, the companies buying the offsets, the planet, and its own business.

What do these three companies have in common? Regardless of industry, geography, or size, they (and dozens of others like them) are innovating business models—building on and expanding beyond their core assets and capabilities—to address significant environmental and societal challenges in their local contexts. In this way, they create new sources of value and competitive advantage for their business.

The Four-Step Innovation Cycle

In our research, we have studied more than 100 cases of companies that are practicing what we call “Sustainable Business Model Innovation” (SBM-I). We have found that the most advanced of these companies, the “front-runners,” combine environmental, societal, and financial priorities to re-imagine their core business models and even shift the boundaries of competition.

One might expect the front-runners to consist mainly of smaller enterprises, branded through their visible social or environmental missions. But most of them are actually global corporations that have gradually developed new business models that create both sustainability and long-term competitive advantage.

The core practice for SBM-I is an iterative innovation cycle, shown in Exhibit 1. With each round, the company gains scale, experience, and market presence for its initiative; these reinforce both the business advantage and the environmental and societal benefits generated.

what is an example of a business model innovation

1. Expand the Business Canvas

So how can you bring this cycle to life in your company? The first step is to develop a rich understanding of the broader stakeholder ecosystem in which the company operates and of the environmental and societal issues and trends that might affect this ecosystem. As part of this diagnosis, you explore the potential impacts of ecosystem dynamics and issues on your business model. This will allow you to identify a range of business vulnerabilities and opportunities tied to environmental and societal issues. Some of these are good starting points for focused SBM-I.

More specifically, we recommend the following:

  • Expand the business canvas by mapping the wider ecosystem of stakeholders and societal issues in which the business operates. Ask yourself: Who are the key stakeholders in the system? What are the material environmental and societal issues and trends? How do stakeholders and environmental and societal issues directly or indirectly impact all the different parts of the business model?
  • Stress-test the business model (current or potential) within this broader map. How do stakeholder dynamics and environmental and societal issues constrain or hold back your business model? Where do limitations in the system create vulnerabilities for the business model? 
  • Extrapolate trends and build materiality scenarios. Look at today’s environmental and societal trends and think about how they might evolve over time. In addition, build scenarios to envision completely different, more extreme versions of the future (as opposed to linearly projecting trends) to stretch your thinking. And then, under these scenarios, ask yourself: How might environmental and societal issues change over time? How might stakeholders’ perceptions of and attitudes toward those issues shift? What would be the effects on the system map and the business model?
  • Explore scaling up the business. Imagine the business model at different scales of activity. Suppose your business grew three- or five-fold over the next few years. Where might breaking points or opportunities arise? What happens to the externalities the business creates? How do risks and opportunities change?
  • Identify innovation opportunity spaces or “strategic intervention points” (SIPs). These are points at which targeted action or innovation could alter stakeholder dynamics, positively impact the environmental or societal issues, reduce the vulnerabilities of the business model, or even create new business value opportunities.

Look for difficulties, gaps, and risks to arise from the analysis. For example, your company’s own lines of business might contribute to the environmental or societal issue and impact the growth of the business today. Also, don’t just rely on your own thinking. Cultivate outsiders who can provide complementary and thought-provoking perspectives.

In a recent interview , Christine Rodwell, former vice president of business development cities at Veolia, explained that “to walk the talk on sustainability, companies need to listen to their external stakeholders. They should create a committee of critical friends (across public, social, and academic sectors) who will challenge them and advise them to develop business solutions that create meaningful environmental and societal benefits.”

To understand what expanding a business canvas looks like in practice, consider the hypothetical example of a consumer packaged goods (CPG) manufacturing company engaged in a real-world dilemma: the toxic effect of plastic packaging on natural habitats, particularly in the world’s oceans. About 18 billion pounds of plastic waste enter the world’s oceans each year. This is equivalent to five grocery bags of trash on every foot of coastline. Plastic pollution causes extensive damage to life on land and at sea, including toxic contamination, strangulation, blockage of digestive passages, and endocrine-related reproductive problems for people as well as animals. Concerns about this problem reached a tipping point in the mid-2010s, as studies confirmed the damage.

As industrial leaders in this field know all too well, the complexities of gathering, cleaning, sorting, recycling, and reusing plastics have made it costly and difficult to address this issue. Companies that step forward with effective and financially viable solutions will not only gain enormous goodwill but are also likely to build high-growth businesses.

But where do you start? And where do you focus innovation efforts and investments to tackle such a complex, multifaceted environmental issue? Reflecting the SBM-I cycle approach, Exhibit 2 shows what a stakeholder-centric systems map for the plastics issue could look like from the point of view of a CPG company. This map uses basic systems dynamics principles to capture the most significant interrelationships among the CPG company, the environmental issue at stake, and key stakeholders (consumers, policymakers, civil society, waste collectors and recyclers, and plastics manufacturers). The arrows show patterns of cause and effect. For example, when urbanization increases, so does the cost of landfilling.

what is an example of a business model innovation

The power of this diagram (versus more traditional, linear depictions) comes in part from its ability to reveal where delays, rebound effects, or tipping points might be active in the system. For instance, the node labeled “environmental and recycling awareness” will influence changes in several consumer habits—but only after a delay. Such awareness cannot be seen as a quick-fix solution, but over time it will help change the dynamics of the entire system.

The boxes in the exhibit represent the opportunity spaces or strategic intervention points (SIPs) that become evident during this step. In this example, a few of the SIPs for our CPG company are as follows: shifting to new packaging formats; setting up plastic collection initiatives; lobbying for government programs like deposit return systems; joining precompetitive coalitions that invest in recycling infrastructure and new recycling technology; and educating and nudging consumers to consume and dispose of packaging in more sustainable ways.

2. Innovate for a Resilient Business Model

The first step in the cycle will have led you to identify the opportunity spaces that hold potential for both financial returns and societal value. You must then transform your business model, or imagine an entirely new one, so that you can seize these opportunities. In this second step, you innovate and develop new aspects of that new business model. You are seeking to bypass current constraints, break tradeoffs, deploy technological advances, and perhaps integrate activities that were previously kept separate. You should ideate a new business model to integrate and reinforce both business advantage and environmental and societal benefits.

In related research , we introduced and defined seven archetypal business models that optimize for both societal and business value. Here we illustrate how they might apply to the plastics waste challenge.

  • Own the origins. Change production inputs to generate societal and environmental benefits. For instance, HP is working with waste collectors in a partnership with the First Mile Coalition in Haiti. HP has invested $2 million in a local facility to produce clean, high-quality recycled plastics that can then be used as input in an array of HP personal computer products and ink cartridges, reducing the environmental footprint of those products. Four years after its launch in 2016, the program had already diverted approximately 1.7 million pounds (771 metric tons) of plastic materials (equivalent to more than 60 million plastic bottles) from waterways and oceans and created income opportunities for 1,100 Haitians (with 1,000 more expected in coming years). Thanks to this and other efforts, HP boasted the world’s most sustainable PC portfolio in May 2020. This included, for example, the HP Elite Dragonfly, the first PC manufactured with ocean-bound plastic.
  • Own the whole cycle. Create environmental and societal impact by influencing the product usage cycle from cradle to grave. Since the 1990s, Grupo AlEn, a leader in home cleaning products based in Monterrey, has invested and scaled up its in-house plastic recycling operations to become one of the largest plastic recyclers in Mexico. AlEn now operates 30 routes and 6,200 collection points in the Monterrey area, recycling more than 50,000 tons of PET and HDPE per year. This business expansion has given AlEn an exclusive supply of recycled plastics, enabling it to create distinctive, greener packaging at a relatively stable cost.
  • Expand societal value. Expand the environmental and societal value of products and services, and capture value in pricing, market share, and loyalty. In 2018, PepsiCo acquired Sodastream, the world’s leading at-home sparkling water maker. Building on this technology, PepsiCo has begun to bring packaging-free, customizable beverages to workplaces, college campuses, and airports. This new business positions PepsiCo to win in the increasingly personalized beverage market and to save an estimated 67 billion single-use plastic bottles by 2025.
  • Expand the value chains. Innovate by layering onto the business ecosystems of customers or of partners in other industries. In Chile, Algramo’s innovative bulk distribution system replaces single-use plastic with RFID-equipped reusable containers. Since 2013, the startup has scaled up its business by partnering with more than 2,000 family-owned stores across Santiago. They dispense affordable food and staple products “al gramo” (Spanish for “by the gram”) and reward customers for reusing containers. Algramo’s model not only helps the environment but also benefits the urban poor, who previously had to pay high prices for small quantities of products, in wasteful, individually wrapped packets.
  • Re-localize and regionalize. Shorten and reconfigure global value chains to bring societal benefits closer to home. In Brazil, BASF has developed a solution to a local issue: waste certificate fraud. Some collectors and recyclers claim credits for recycled materials that they didn’t actually process or that aren’t actually recycled. Partnering with Kryha, a digital blockchain studio, and Recicleiros, an NGO that supports waste collectors and their cooperatives, BASF developed an online platform called ReciChain. This platform enables accurate and secured data tracking throughout the recycling value chain, to improve the quality of operations and guarantee the validity of manufacturers’ certificates and claims.
  • Energize the brand. Encode, promote, and monetize the full environmental and societal value of products and services, and use that leverage to engage customers in novel ways. The innovative manufacturing company 3M released the latest version of its Thinsulate insulation product in 2019. This is “100% recycled featherless insulation” made from recycled plastic bottles. Building on this accomplishment, 3M worked with the high-end apparel brand Askov Finlayson to create “the world’s first climate-positive parka,” producing 3,000 parkas in 2019 as an inspiring demonstration project.
  • Build across sectors. Create new business models in collaboration with government and nonprofit organizations, particularly in rapidly developing economies, to improve the business ecosystem and societal proposition. Together, SC Johnson and the social enterprise Plastic Bank have opened nine recycling centers in Indonesia to collect and recycle plastic before it reaches the ocean. This partnership also plays an important societal role, helping families in impoverished areas who collect plastic waste by buying it at a premium from them. In 2019, the partnership announced a ground-breaking, three-year deal to create 509 plastic collection points, including locations in Thailand, the Philippines, Vietnam, and Brazil. In aggregate, these points are expected to collect 30,000 metric tons of plastic over three years—the equivalent of stopping 1.5 billion plastic bottles from entering waterways and the ocean. On the business side, among other benefits, this collaboration will secure a steady supply of high-quality recycled plastics and help SC Johnson meet its 2025 packaging goals.

These seven archetypes can be starting points for developing your own business model innovation. Adapt them, and combine several together to develop a more comprehensive solution to environmental and societal issues relevant to your enterprise. Interestingly, among the 102 in-depth SBM-I cases that we explored in our research, 75% of the SBM-I leaders (the “front-runners”) combine three or more archetypes. This contrasts with less than 30% in the two other groups: the “ecosystem leaders” and the “initiative leaders,” whose efforts tend to be more narrowly focused.

In addition to exploring the possibilities inherent in these seven archetypes, take inspiration in the lessons learned from SBM-I front-runners. Front-runners see sustainability as a source of competitive advantage. In line with their long-term strategies, they continuously iterate and fine-tune their business models, always seeking to deepen their beneficial impact. They explicitly seek to understand and fix the root causes of environmental and societal challenges—as some of our plastics recyclers did, addressing not just the environmental concerns but also the social aspects of the issue. These companies also use digital technologies wherever possible, to break economic constraints and unlock new solutions. They practice an intensive form of stakeholder engagement: partnering with nonprofits and governments, operating across organizational boundaries, and pooling resources with other enterprises, even competitors. Last but not least, they experiment with new forms of value capture, such as blended financing sources, to de-risk and amplify their own investments. After all, notwithstanding their environmental and social track records, the front-runners are still in business to show a profit and return investment to shareholders.

3. Link to Drivers of Value and Competitive Advantage

In the third stage of the cycle, test, iterate, and refine your business model ideas or concepts (from the second step) to ensure that they will yield the environmental and societal benefits intended, and that the benefits will translate into value and advantage for the company. A business with weak profit margins cannot invest in innovation to amplify and scale environmental and societal benefits.

The objective of this step is to keep assessing and reengineering the business model, so that it continually improves the resilience of the business and the benefits to society. The following questions, based on our research into the characteristics of robust, resilient business models , can help you navigate this part of the process:

  • Can the business model scale effectively? Can it be replicated across all your business units or the markets you serve, without diminishing returns?
  • Will the business model differentiate your brand or product and make it more competitive in the marketplace?
  • Will it reduce the risk of commoditization, by being hard for others to imitate? Will its distinctiveness help you retain some control over pricing?
  • Can it leverage network effects? For example, can it attract the kinds of customers and suppliers that make other customers feel compelled to join?
  • Does the business model harness business ecosystems—including the larger industry, the value chain, and everyone who interacts with your products, services, and practices—for advantage and sustainability?
  • Does the business model naturally create meaningful environmental and societal benefits?
  • Will the environmental and societal benefits remain durable against changing trends over time, even as the business model scales up?
  • Does the business model increase returns to shareholders as well? Are the financial benefits linked to the environmental and societal benefits in some significant way?
  • Finally, does the model animate your company’s purpose? Does it boost engagement and loyalty between the company and its employees, customers, investors, and other stakeholders?

Exhibit 3 shows how a company might assess its business model against these nine questions. The resulting footprint reveals how robust and resilient the business model is and identifies where it could be improved to unlock further advantage and value for the company.

what is an example of a business model innovation

The fuller the footprint, the better. Among the front-runners in our sample, 90% score “high” on at least five of the nine attributes, as opposed to only 30% in the other groups. The front-runners also show superior average scores on every single dimension.

4. Scale the Initiative

The full potential value of sustainable business model innovation is achieved only when the new business model is brought to scale: engaging people in the company, across the supply chain, in the company’s networks, and in its ecosystems to expand impact and advantage.

To accomplish this, companies can leverage three enablers. First, partnerships with other organizations, within or across industries or sectors, can help a company pool resources, fill capability gaps, and unlock new markets. Almost 90% of the front-runners have broadened their efforts this way. Second, digital technology (leveraged by 80% of the front-runners) can help create new distribution channels that reach previously unserved or underserved populations at a fraction of the cost of their predecessors. Third, companies that adopt SBM-I tend to develop cultures and leadership values that attract and engage people inside and outside their boundaries. Indeed, all of the front-runners explicitly mention the environmental and societal impact they seek to deliver in their vision, purpose, or mission statements.

Consider the example of BIMA, a mission-driven provider of mobile-delivered health and insurance services that started operations in Ghana in 2010. Its innovative digital technology platform and its partnership model (which comprises telecom providers, mobile money providers, and insurance underwriters) have enabled it to rapidly scale its innovative business model. BIMA now provides affordable, easy-to-manage life and health insurance to more than 35 million low-income customers across ten emerging economies. BIMA’s customers have access to its services through their mobile phones. Many of them are lower income families who earn less than $10 a day. About 75% of them are obtaining insurance for the first time in their lives. These societal benefits are at the core of BIMA’s strategy and mission; the company’s website says explicitly that its “purpose is to protect the future of every family.”

The four-step innovation cycle we propose in this article offers companies a way to systematically integrate and solve for social and business value in one business model. Most of the companies that begin this journey are already skilled at optimizing for business advantage. They may already recognize the importance of taking into account their environmental and societal impacts. With this approach, they are now ready to take on innovation for a business that optimizes for both business and social value.

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Business Model Innovations: Components and Types with Examples

Business Model Innovations: Components and Types with Examples

When reading the success story of any business, the core is the business model. Let us break the term and understand, business model and innovation. A business model is a framework for making money, creating, and capturing value. Innovation is performing tasks differently from the norms. Combined together, a business model innovation is a framework to capture or create value by doing something differently.

Business model innovation does not mean the business has to leapfrog the competition by the product characteristics compared to competitors. A winner in business model innovation is the firm that moved first to change the rules of the game or the firm that came later and pursued a better business model.

To understand business model innovation, it is important to understand the five building blocks of any business model and the type of business model innovation. For better understanding, we have supported each point with relevant examples.

Components of Business Model

Entrepreneurs are well-rehearsed with the components of the business model but do not understand the relevance of the business model analysis . Before we explore each of these components, let us first understand the rationale of each component and the linkage between each of them. To drive customers to the firm, they must provide something worthy to their customer or address the pain points of the customer. The business must provide the customer with a unique value proposition to earn revenue. However, the right value proposition to the wrong customer will not be beneficial, which is why the market segment should be clear.

A revenue model is a structured way to monetize the value proposition. So for the firm to earn high revenue the firm needs to provide the right value proposition to the right market segment. This will intimate the competitors, to prevail during this stage, the firm needs a growth model. The growth model outnumbers competitors and grows profitability. Finally, to deliver the right value proposition, a firm requires the right capabilities i.e. resources, assets, property, human resources, etc.

Customer Value Proposition

A firm’s customer value proposition is the value it can provide the customer through the product/service. It also depends on which aspect solves a problem and/or satisfies the needs of the customer better than the competitors. A value proposition must answer the most asked questions of the target customers: What is so compelling, engaging, rewarding or delightful in a product which will make customers shift from the competitors?

Customers do not always know what they need in a product/service.

For example – customers didn’t know they needed a touch screen and internet connectivity in their mobile phones until the iPhone was launched. The value proposition will also introduce customers to their own latent needs from the product/ service.

The value proposition depends on the reputation, image, assets the firm control, and the relationship with customers.

For Example – A car enthusiast would buy a car not only because of its features and engine capacity but also because it is a BMW or a Ferrari. A brand-focused customer may buy a product because it is sold in a particular store rather than any other store.

Market Segment

The primary source of revenue is through customers and the firm needs to know their customers properly to be able to serve them. Some details which are needed of the customers are:

  • What does our primary target audience need?
  • What is the market size of our audience?
  • Are they willing to pay for your product?
  • Will your product be profitable to these target audiences?

The market segment is the section of people to whom the value proposition is being offered or will be offered. The market segment of a business model is about the quality and quantity of the competitors i.e. suppliers, competitors, customers, complementors and others who have to cooperate to create or capture value.

Segmentation can be the type of customers and their preferences, types of products being offered, willingness to pay, demography, geography, distribution channel, types of relationships with customers. Segmentation creates market segments such as a niche market, mass-market, and multi-sided market.

The multi-sided market is when two or more types of market segments are interrelated and the firm makes money by facilitating the interaction.

For example – a credit card market is a multi-sided market as cardholders are on one side and the merchants on the other. The more the cardholder owns a particular card, the better off will be the merchants who accept that particular card and better off will be the credit card company.

Revenue Model

The revenue model component is to get the maximum number of market segment who like the value proposition to pay for the product as close to their reservation price without driving them away. A customer’s reservation price is the highest price a customer is ready to pay for the product. These are some of the types of revenue model:

  • Advertising
  • Razor-blade
  • Subscription
  • Asset sales
  • And many more

For example – traditionally Kodak used this technique to sell its film-based camera. They kept the camera cost low whereas the cost of each film was high. This made Kodak popular and they reached record-breaking profits. However, the firm failed miserably when it applied the same model in digital photography.

The price is such an important factor for the revenue model, the entrepreneurs must keep in mind to set the price right. Too high a price will drive the customers away to the competitors or too low a price (without any strategic motive) will lave unnecessary money on the table.

Growth Model

The growth component of a business model is to analyze the following questions and plan them to create the best strategy to grow profitably:

  • What a firm has to do to increase the number of customers?
  • Strategies to increase the willingness to pay?
  • How to keep the price close to the reservation price while keeping it low?

As the firms start providing value for money and making revenue, the competitors increase the prices. The supplier will charge extra money for the commodity or the delivery logistics will increase the charges. This forces the firms to decrease the quality of the product to increase the number of delivery.

Even the competitors will want to go ahead of the firm by imitating or will leapfrog the firm for their benefits, forcing the firm to lower the price or raise its costs.

For example, The internet disrupted the business model of many newspapers and other traditional media, killing their revenue model. Similarly, in today’s world, several unique online business ideas are disrupting the offline business models. An important part of the growth model is to find new UVP and revenue models to relative competitors.

Capabilities

Capabilities are the central point for any business model analysis. The biggest entrepreneurial challenge is to build the capability to take advantage of any opportunity by offering the maximum value proposition. Find the market segment whose needs it can satisfy, increase the number of high-willingness to pay customers in the already existing market or move to the new market. Looking for a better revenue model or improve the existing, work on better pricing model or work towards profitable growth.

Capabilities in a business model consist of resources and activities. Resources are the assets that a firm owns or has access to, whereas activities are what it does. Activities transform resources into values created and/or captured. The quality of the resource determines the amount of value created and/or captured.

For example: At the core of Google’s business model are search capabilities that enable it to deliver searches that are perceived as very dependable by many customers, software that enables it to serve the needs of the long tail searches, tools that it offers to app developers, and so on and so forth.

Conceptualize or Evaluate Your Business Model Framework

Business model innovation and its types .

Types of Business Model Analysis

In a regular business model innovation, the new firms use the same/existing capabilities i.e. value chain activities and underpinning resources. The business model is such that the existing firms in the market still remain competitive. Products of the old firm still take up enough market share to be competitive enough.

Example: The strategy pursued by Dell in the 90s when it introduced the built-to-order direct model. Rather than passing their product through distributors, Dell directly sold their products to the customers. The customers could order from Dell, informing them about their specification needed by them. Dell brought something new in the market but the capabilities that it used for this strategy was not radically different from the ones existing in the market. The business model was such that the other computer makers like HP, Compaq who sold through distributors were still in the market and earned profitability.

Capabilities Building

In capabilities building innovation, the capabilities needed in the new business model is radically different from the old business model. The old business is still competitive along with the new one. The capability needed in the new business model has to be created from scratch or acquired in some other way.

Example: A firm that produces renewable resources is an example of capability building innovation. The capabilities of this firm will be highly different from the petroleum-based business model. Creating ethanol from sugar cane, sugar beet, corn and sweet potato which is completely from drills, pump out, refine petrol. Both the fuels co-exist in the market. 

The popular example of capabilities building is of brick and mortar vs online store. The capabilities needed for both are completely different yet they co-exist in the market share.

Position Building

In Position building business model, the product/service rooted in the new business model overpowers the product/service in the old business model leaving the latter non-competitive. However, the capabilities of both business models are the same.

Example: When Walmart came to a small town in the US, it was a position building business model. The capabilities of Walmart were almost the same as retailers’ business models. Walmart rendered many small businesses out of competition as the old business model could not offer the customer the cost-saving offered by Walmart.

Revolutionary

In the revolutionary business model, the core capabilities that underpin the new and old businesses are completely different. The capabilities used by the old business model is completely useless for the new business. The revolutionary business model redefines the creation and capturing of value by overturning the way value chain activities were performed earlier. The rule of the game is changed both market-wise and capability-wise.

Example: eBay was launched on a revolutionary business model. The online auction required radically different capabilities as compared to an offline auction. For many products, the offline business model is not competitive.

Dynamic and Application

While dividing the business model into different types, we have assumed that the business model is static- that is when a business model is regular it will remain regular always. Nullifying the assumption, many business models may start off as regular but as time goes by many change into position building, capability-building, revolutionary, etc.

Example: Usually, disruptive technologies start off as regular and move on to become revolutionary or position building. Google was neither the first to introduce a search engine nor the first to launch sponsored ads. However, due to its business model innovation, it became revolutionary and monetized more by being a search engine.

To what extent is the game changed by business model innovation? This one question’s answer must be clear in the mind of entrepreneurs after this post. Understand the two variables in the two by two matrix figure(1.1), after deep analysis of your business and the market in which you are entering. Devising a business model must be done after close consideration of all the points mentioned above. Have other queries related to business model Analysis? Talk to our experts.

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What is innovation?

A light bulb above four open cartons

When you think of innovation, what springs to mind? Maybe it’s a flashy new gadget—but don’t be mistaken. There’s much more to the world of innovation, which extends far beyond new products and things you’ll find on a store shelf.

Get to know and directly engage with senior McKinsey experts on innovation.

Marc de Jong is a senior partner in McKinsey’s Amsterdam office, Laura Furstenthal is a senior partner in the Bay Area office, and Erik Roth is a senior partner in the Stamford office.

If products alone aren’t the full story, what is innovation? In a business context, innovation is the ability to conceive, develop, deliver, and scale new products, services, processes, and business models for customers.

Successful innovation delivers net new growth that is substantial. As McKinsey senior partner Laura Furstenthal  notes in an episode of the Inside the Strategy Room podcast , “However you measure it, innovation has to increase value and drive growth.”

As important as innovation is, getting it right can be challenging. Over 80 percent of executives surveyed  say that innovation is among their top three priorities, yet less than 10 percent report being satisfied with their organizations’ innovation performance. Many established companies are better operators than innovators , producing few new and creative game changers. Most succeed by optimizing existing core businesses.

Why is innovation important in business?

Some companies do succeed at innovation. Our research considered how proficient 183 companies were at innovation, and compared that assessment against a proprietary database of economic profit  (the total profit minus the cost of capital). We found that companies that harness the essentials of innovation see a substantial performance edge that separates them from others—with evidence that mastering innovation can generate economic profit that is 2.4 times higher than that of other players .

Learn more about our Strategy & Corporate Finance  practice.

How can leaders decide what innovations to prioritize?

Successful innovation has historically occurred at the intersection of several elements, which can guide prioritization efforts. The three most important elements are the who, the what, and the how :

  • An unmet customer need (the ‘who’): Who is the customer and what problem do they need to solve? Are macrotrends such as automation driving changes in customer needs?
  • A solution (the ‘what’): Is the solution compelling and can it be executed?
  • A business model that allows for the solution to be monetized (the ‘how’): How will the solution create value? What is the business model?

Successful innovation requires answers to each of these questions.

An example from inventor and businessman Thomas Edison helps illustrate the concept. “In every case, he did not just invent the what, he also invented a how,” says Furstenthal in a conversation on innovation . “In the case of the light bulb, he created the filament and the vacuum tube that allowed it to turn on and off, and he developed the production process that enabled mass production.”

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Introducing McKinsey Explainers : Direct answers to complex questions

How do organizations become better innovators.

McKinsey conducted research into the attributes and behaviors behind superior innovation performance , which were validated in action at hundreds of companies. This research yielded eight critical elements  for organizations to master:

  • Aspire: Do you regard innovation-led growth as critical, and have you put in place cascaded targets that reflect this?
  • Choose: Do you invest in a coherent, time- and risk-balanced portfolio of initiatives, and do you devote sufficient resources to it?
  • Discover: Are your business, market, and technology R&D efforts actionable and capable of being translated into winning value propositions?
  • Evolve: Do you create new business models that provide defensible, robust, and scalable profit sources?
  • Accelerate: Do you develop and launch innovations quickly and effectively?
  • Scale: Do you launch innovations at the right scale in the relevant markets and segments?
  • Extend: Do you create and capitalize on external networks?
  • Mobilize: Are your people motivated, rewarded, and organized to innovate repeatedly?

Of these eight essentials, two merit particular attention : aspire and choose . Without these two elements, efforts may be too scattershot to make a lasting difference. It’s particularly crucial to ensure that leaders are setting bold aspirations and making tough choices when it comes to resource allocation and portfolio moves. To do so successfully, many leaders will need to shift their mindsets or management approaches.

What are examples of successful innovators?

Real-world examples of successful innovation, related to some of the eight essentials listed , can highlight the benefits of pursuing innovation systematically :

  • Mercedes-Benz Group invested extensively in digitizing its product development system. That allowed the company to shorten its innovation cycles significantly , and its capabilities for personalizing cars have improved, even as assembly efficiency rose by 25 percent.
  • Gavi, a public–private partnership founded to save children’s lives and protect their health by broadening access to immunization, used nonfinancial targets to help drive its innovation efforts —and this helped the organization broaden its aspiration for impact in a way that was bold, specific, measurable, and time bound.
  • Lantmännen, a large Nordic agricultural cooperative, faced flat organic growth. Leadership created a vision and strategic plan  connected to financial targets cascaded down to business units and product groups. Doing so allowed the organization to move from 4 percent annual growth to 13 percent, on the back of successfully launching several new brands.
  • The information services organization RELX Group brought discipline to choosing its innovation portfolio  by running ten to 15 experiments in each customer segment in its pipeline every year. It selects one or two of the most successful ideas from the portfolio to continue.
  • International insurance company Discovery Group mobilized the organization around innovation  by creating incentives for a thousand of the company’s leaders using semiannual divisional scorecards. Innovation isn’t a choice; it’s a requirement and a part of the organization’s culture.

These examples aren’t necessarily what you may think of when you imagine disruptive innovation—which calls to mind moves that shake up an entire industry, and might be more associated with top tech trends  such as the Bio Revolution . Yet these examples show how committing to innovation can make a sizable difference.

How can my organization improve the volume and quality of new ideas?

Steps to help aspiring innovators  get started include the following:

  • Hold collision sessions: Cross-functional groups gather in a structured process to think through the intersection of unmet customer needs, technology trends, and business models, bringing creativity and specificity to the process of idea generation. Then, a venture panel considers these ideas and iterates on them, prioritizing what to do.
  • Challenge orthodoxies: Participants gather and describe beliefs that are common but that prevent the organization from innovating for customers. Examples of these orthodoxies include statements such as “budgets are limited” or “we don’t have the digital capabilities to pull it off.” Once the orthodoxies are laid out, teams brainstorm after being prompted to consider if the opposite of the statement were true.
  • Make analogies to other industries: A team might create a list of companies with unique value propositions. Then, they systematically apply these value propositions to their ideas to see if the analogy can create new sources of value or fresh opportunities.
  • Apply constraints: Rather than searching for blue-sky ideas, tighten the constraints on an idea’s business or operating model and explore potential new solutions. What if you served only one type of customer? What if the only channel you could access was online?

In the words of chemist Linus Pauling, “The way to get to good ideas is to get lots of ideas and throw the bad ones away.”

What is an innovation portfolio?

An innovation portfolio  is a thoughtfully curated bundle of potentially innovative initiatives, with clear aspirations and required resources defined for each. Managing the portfolio this way helps find new opportunities and determine the appropriate number and mix of initiatives, including the following:

  • confirming the total value of the portfolio needed
  • evaluating existing innovation projects based on incremental value delivered, risk, and alignment with strategic priorities
  • getting comfortable saying “no” to stop projects that are dilutive, and resisting the siren song of incremental initiatives that are unlikely to pay for themselves
  • reallocating resources—including competencies and skills—to new initiatives or to current ones that additional support can accelerate or amplify
  • identifying portfolio gaps and defining new initiatives to close them

How to measure innovation?

One way to measure innovation is to look at innovation-driven net new growth, which we call the “green box.”  This phrase refers to how you quantify the growth in revenue or earnings that an innovation needs to provide within a defined timeframe. This concept can help clarify aspirations and influence choices on the innovation journey.

While many imagine that innovation is solely about creativity and generating ideas, at its core, innovation is a matter of resource allocation . To put it another way: it’s one thing to frame innovation as a catalyst for growth, and another to act upon it by refocusing people, assets, and management attention on the organization’s best ideas.

The green box can help to solidify a tangible commitment  by defining the value that a company creates from breakthrough and incremental innovation, on a defined timeline (say, five years), with quantifiable metrics such as net new revenue or earnings growth. Crucially, the green box looks at growth from innovation alone, setting aside other possible sources such as market momentum, M&A, and so forth. And once defined, the growth aspiration can be cascaded into a set of objectives and metrics that the company’s various operating units can incorporate into its individual innovation portfolios.

It’s useful to note that some organizations may find that measures not solely financial in nature are more appropriate or relevant. For instance, metrics such as the number of subscribers or patients—or customer satisfaction—can resonate. What’s critical is selecting a metric that is a proxy for value creation. A large US healthcare payer , for example, looked to spur innovation that would improve patient satisfaction and the quality of care.

Separate from the concept of the green box, two simple metrics  can also offer surprising insight about innovation vis-à-vis the effectiveness of an organization’s R&D spending. Both of these lend themselves to benchmarking, since they can be gauged from the outside in, and they offer insight at the level of a company’s full innovation portfolio. The two R&D conversion metrics are as follows:

  • R&D-to-product conversion: This metric is calculated by looking at the ratio of R&D spending (as a portion of sales) to sales from new products. It can show how well your R&D dollars convert to actual sales of new products—and it might reveal that spending more doesn’t necessarily translate into stronger performance.
  • New-products-to-margin conversion: This metric considers the ratio of gross margin percentage to sales from new products. It can indicate how new-product sales contribute to lifting margins.

While no metric is perfect, these may offer perspective that keeps the focus squarely on returns from innovation and the value it creates—often more meaningful than looking inward at measures of activity, such as the number of patents secured.

How do you create a high-performing innovation team?

Innovation is a team sport. Experience working with strong innovators and start-ups has helped identify ten traits of successful innovation teams . Those fall into four big categories: vision , or the ability to spot opportunities and inspire others to go after them; collaboration , which relates to fostering effective teamwork and change management (for instance, by telling a good innovation story ); learning or absorbing new ideas; and execution , with traits that facilitate snappy decision making even when uncertainty arises.

Being strategic about the composition of an innovation team can help minimize failures and bring discipline to the process.

What innovation advice can help business leaders?

One broad piece of advice centers on creating a culture that accounts for the human side of innovation . When people worry about failure, criticism, or the career impact of a wrong move, it can keep them from embracing innovation. In a recent poll, 85 percent of executives say fear holds back their organization’s innovation efforts often or always—but there are ways to overcome these barriers .

Additionally, the Committed Innovator podcast and related articles share perspectives from leading experts who have helped their organizations tackle inertia and unlock bold strategic moves. If you are looking for words of wisdom, their insights can help spark inspiration to innovate:

  • Naomi Kelman, CEO, Willow . “Creating a safe environment for innovation is really what you need to do to get the greatness out of the people who work with you, which is ultimately what drives growth.”
  • Safi Bahcall, author, Loonshots . “Most of the important breakthroughs failed many times before they succeeded. That is where ‘fail fast’ goes wrong. Most companies are too impatient.”
  • Amy Brooks, chief innovation officer, National Basketball Association . “You can use data or examples to convince people about what is working in the market or what other industries are doing. We like to share best practices within our own leagues and within sports, but we also pay attention to every other industry that sells to consumers.”
  • Tanya Baker, global leader, Goldman Sachs Accelerate . “If someone knowledgeable thinks what you are doing is a bad idea, make sure they have a seat at the table. Put them on your board; make them one of your advisers so you don’t have any blind spots.”
  • Neal Gutterson, former chief technology officer, Corteva . “[A] key skill is being able to hold two divergent thoughts and approaches in your brain and in your team at the same time. The great companies will be ambidextrous innovators, able to disrupt themselves in the future while serving the core [business] today.”
  • Anjali Sud, CEO, Vimeo . “What keeps me up at night is execution and, within that, focus. Because when you are in a market like ours, at a time like now, the opportunity is huge. We are this nimble, fast-growing, fast-moving company, and everywhere I look I see opportunity. But am I providing enough focus for my teams so that we can truly be great at something? You don’t want to miss a big boat, and it’s hard sometimes to say no to valid, exciting ideas that could be transformative.”

For more in-depth exploration of these topics, see McKinsey’s insights on Strategy & Corporate Finance . Learn more about McKinsey’s Growth & Innovation  work—and check out innovation-related job opportunities if you’re interested in working at McKinsey.

Articles referenced include:

  • “ Fear factor: Overcoming human barriers to innovation ,” June 3, 2022, Laura Furstenthal , Alex Morris, and Erik Roth
  • “ Innovation—the launchpad out of crisis ,” September 15, 2021, Laura Furstenthal  and Erik Roth
  • “ The innovation commitment ,” October 24, 2019, Daniel Cohen, Brian Quinn, and Erik Roth
  • “ Fielding high-performing innovation teams ,” January 17, 2019, Matt Banholzer , Fabian Metzeler, and Erik Roth
  • “ Taking the measure of innovation ,” April 20, 2018, Guttorm Aase, Erik Roth , and Sri Swaminathan
  • “ The eight essentials of innovation ,” April 1, 2015, Marc de Jong , Nathan Marston, and Erik Roth

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Innovation in Business: What It Is & Why It’s So Important

Business professionals pursuing innovation in the workplace

  • 08 Mar 2022

Today’s competitive landscape heavily relies on innovation. Business leaders must constantly look for new ways to innovate because you can't solve many problems with old solutions.

Innovation is critical across all industries; however, it's important to avoid using it as a buzzword and instead take time to thoroughly understand the innovation process.

Here's an overview of innovation in business, why it's important, and how you can encourage it in the workplace.

What Is Innovation?

Innovation and creativity are often used synonymously. While similar, they're not the same. Using creativity in business is important because it fosters unique ideas. This novelty is a key component of innovation.

For an idea to be innovative, it must also be useful. Creative ideas don't always lead to innovations because they don't necessarily produce viable solutions to problems.

Simply put: Innovation is a product, service, business model, or strategy that's both novel and useful. Innovations don't have to be major breakthroughs in technology or new business models; they can be as simple as upgrades to a company's customer service or features added to an existing product.

Access your free e-book today.

Types of Innovation

Innovation in business can be grouped into two categories : sustaining and disruptive.

  • Sustaining innovation: Sustaining innovation enhances an organization's processes and technologies to improve its product line for an existing customer base. It's typically pursued by incumbent businesses that want to stay atop their market.
  • Disruptive innovation: Disruptive innovation occurs when smaller companies challenge larger businesses. It can be classified into groups depending on the markets those businesses compete in. Low-end disruption refers to companies entering and claiming a segment at the bottom of an existing market, while new-market disruption denotes companies creating an additional market segment to serve a customer base the existing market doesn't reach.

The most successful companies incorporate both types of innovation into their business strategies. While maintaining an existing position in the market is important, pursuing growth is essential to being competitive. It also helps protect a business against other companies affecting its standing.

Learn about the differences between sustaining and disruptive innovation in the video below, and subscribe to our YouTube channel for more explainer content!

The Importance of Innovation

Unforeseen challenges are inevitable in business. Innovation can help you stay ahead of the curve and grow your company in the process. Here are three reasons innovation is crucial for your business:

  • It allows adaptability: The recent COVID-19 pandemic disrupted business on a monumental scale. Routine operations were rendered obsolete over the course of a few months. Many businesses still sustain negative results from this world shift because they’ve stuck to the status quo. Innovation is often necessary for companies to adapt and overcome the challenges of change.
  • It fosters growth: Stagnation can be extremely detrimental to your business. Achieving organizational and economic growth through innovation is key to staying afloat in today’s highly competitive world.
  • It separates businesses from their competition: Most industries are populated with multiple competitors offering similar products or services. Innovation can distinguish your business from others.

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Innovation & Design Thinking

Several tools encourage innovation in the workplace. For example, when a problem’s cause is difficult to pinpoint, you can turn to approaches like creative problem-solving . One of the best approaches to innovation is adopting a design thinking mentality.

Design thinking is a solutions-based, human-centric mindset. It's a practical way to strategize and design using insights from observations and research.

Four Phases of Innovation

Innovation's requirements for novelty and usefulness call for navigating between concrete and abstract thinking. Introducing structure to innovation can guide this process.

In the online course Design Thinking and Innovation , Harvard Business School Dean Srikant Datar teaches design thinking principles using a four-phase innovation framework : clarify, ideate, develop, and implement.

Four phases of design thinking: clarify, ideate, develop, and implement

  • Clarify: The first stage of the process is clarifying a problem. This involves conducting research to empathize with your target audience. The goal is to identify their key pain points and frame the problem in a way that allows you to solve it.
  • Ideate: The ideation stage involves generating ideas to solve the problem identified during research. Ideation challenges assumptions and overcomes biases to produce innovative ideas.
  • Develop: The development stage involves exploring solutions generated during ideation. It emphasizes rapid prototyping to answer questions about a solution's practicality and effectiveness.
  • Implement: The final stage of the process is implementation. This stage involves communicating your developed idea to stakeholders to encourage its adoption.

Human-Centered Design

Innovation requires considering user needs. Design thinking promotes empathy by fostering human-centered design , which addresses explicit pain points and latent needs identified during innovation’s clarification stage.

There are three characteristics of human-centered design:

  • Desirability: For a product or service to succeed, people must want it. Prosperous innovations are attractive to consumers and meet their needs.
  • Feasibility: Innovative ideas won't go anywhere unless you have the resources to pursue them. You must consider whether ideas are possible given technological, economic, or regulatory barriers.
  • Viability: Even if a design is desirable and feasible, it also needs to be sustainable. You must consistently produce or deliver designs over extended periods for them to be viable.

Consider these characteristics when problem-solving, as each is necessary for successful innovation.

The Operational and Innovative Worlds

Creativity and idea generation are vital to innovation, but you may encounter situations in which pursuing an idea isn't feasible. Such scenarios represent a conflict between the innovative and operational worlds.

The Operational World

The operational world reflects an organization's routine processes and procedures. Metrics and results are prioritized, and creativity isn't encouraged to the extent required for innovation. Endeavors that disrupt routine—such as risk-taking—are typically discouraged.

The Innovative World

The innovative world encourages creativity and experimentation. This side of business allows for open-endedly exploring ideas but tends to neglect the functional side.

Both worlds are necessary for innovation, as creativity must be grounded in reality. You should strive to balance them to produce human-centered solutions. Design thinking strikes this balance by guiding you between the concrete and abstract.

Which HBS Online Entrepreneurship and Innovation Course is Right for You? | Download Your Free Flowchart

Learning the Ropes of Innovation

Innovation is easier said than done. It often requires you to collaborate with others, overcome resistance from stakeholders, and invest valuable time and resources into generating solutions. It can also be highly discouraging because many ideas generated during ideation may not go anywhere. But the end result can make the difference between your organization's success or failure.

The good news is that innovation can be learned. If you're interested in more effectively innovating, consider taking an online innovation course. Receiving practical guidance can increase your skills and teach you how to approach problem-solving with a human-centered mentality.

Eager to learn more about innovation? Explore Design Thinking and Innovation ,one of our online entrepreneurship and innovation courses. If you're not sure which course is the right fit, download our free course flowchart to determine which best aligns with your goals.

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50+ business model examples

Discover innovative business models, see visualizations of their different revenue streams, and copy ideas for your startup.

  • Who is this guide for?

How to choose the right business model

Business model inspiration, companies to learn from, who is this guide for.

When in need of a business model for your next startup or corporate venture, there are more than a couple of options to explore. To make your decision-making a little easier, we’ve analyzed 50 innovative revenue models and partnership ideas. 

Browse these business model examples to spot the ideas that are fit for your company’s needs, and let these use cases inspire you to start building your own business plan.

At Board of Innovation, we specialize in innovation and business design. If you feel you need help moving forward, you can dive deeper into how we do business model innovation or get in touch .

In this deck, you will find a comprehensive guide through business models from different companies and industries.

This guide will help you understand how each business model works, the products or services they offer, and what makes it unique. These key insights will help you in the selection process of a business model that works best for you.

Have you ever wondered how some companies are profitable?

In this deck, we deep dive into business models used by companies in multiple industries. Using our Business Model Kit , we offer a visual overview of how each business profits from the model that drives it. .

Free (or nearly free) for the user:

  • Early exit strategy
  • Pay-what-you-want (PWYW)
  • Tip jar/donation
  • Freemium model
  • Barter or swapping for services
  • Barter or swapping for products

Third party options:

  • Advertisement (ad-based) model
  • Affiliate/referral fee
  • Get-one-give-one model (G1G1)
  • Franchise model

Mixed business model:

  • Razor and blade model
  • Crowdfunding
  • Open source model
  • No frills model (discount or budget model)

Broker/matchmaking:

  • Commission-based model:
  • Auction model

Paid (direct sales business model):

  • Subscription model
  • Premium model
  • Pay-per-use model
  • Add-ons/In-app purchases
  • License fees
  • Single purchase model
  • Pay-as-you-go model (PAYG)

what is an example of a business model innovation

Grab is an on-demand ride service that has since expanded to everyday services like deliveries, financial services and more – making it a superapp. It charges a service fee of 20% ~ 30% for every transaction that goes through its platform.

what is an example of a business model innovation

Hubs charges clients for each industrial manufacturing job they begin through the platform. Prices are determined by a machine learning algorithm.

what is an example of a business model innovation

Patients Like Me offers a free health community service to its users. They make money by selling the data, generated by the community, to pharmaceutical companies.

what is an example of a business model innovation

WHOOP offers a wearable fitness gadget that gives personalized recommendations and feedback. WHOOP charges a monthly subscription fee to access the data on the platform, while the first device is free.

what is an example of a business model innovation

Digit is a financial service application that monitors financial behavior and automates its users’ savings. Digit receives a fixed monthly fee of $5 from its users. On top of that, it can leverage the funds it has under management for greater returns

what is an example of a business model innovation

Kiva is the first online non-profit lending platform for underserved populations.As a non-profit, Kiva doesn’t profit from loans received — lenders donate to Kiva to cover operating costs. The remainder of costs are covered through grants, supporters, and field partners.

what is an example of a business model innovation

Appear Here is the Airbnb of retail spaces — an online marketplace to list, find, and book short-term retail spaces. After the landlord sets a daily, weekly and monthly price, Appear Here takes commission between 12% - 15% on a completed transaction, while the space owners pay no listing fee.

what is an example of a business model innovation

Kaggle makes money in two ways: With Kaggle competition, they receive a “listening fee” for each competition posted on the platform. Also, they provide a service for matching companies to the top 0.5% of their community, which they call Kaggle Connect.

23andMe makes money with personal genetic tests, providing reports on lineage discovery & +240 health conditions. It’s believed that their DNA research studies & surveys will soon be an additional way of making money, with a mainly B2B focus instead of B2C.

what is an example of a business model innovation

Friendsurance works as a broker between Policy Holders and existing Insurance Partners. They’re letting customers share risks with friends, allowing them to lower prices due to reduced fraud & process costs, better risk pools, etc.

what is an example of a business model innovation

AliveCor makes money by selling ECG devices ($199) that fit on existing smartphones and via their AliveInsights Service – a professional analysis service that makes it easy to get expert insight on your ECG readings.

what is an example of a business model innovation

Glow sells “data insights” regarding conceiving to Research Institutions & gives exposure to trustworthy Infertility Treatment Clinics. The data is generated by users who use the Glow free fertility-tracking app.

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Business model innovation: What it is and why it matters

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As we become more and more involved in the changing world, businesses need to adapt to new demands and trends. Any profitable business needs to be innovative in order to survive. In many industries, new products or services are essential.

A useful trick to use when thinking of becoming an entrepreneur is the business model innovation. It helps you understand what the core of your business, and its strengths, are. By using it, you will be able to structure better everything you need to do.

Keep reading more about this topic in this article created by our team at TMS , and let’s discover more about it, and the details that make it special.

What is Business Model Innovation?

what-is-a-business-model Business model innovation: What it is and why it matters

The beginning of business model innovation

Over the last five decades, the lifespan of a business model has gone from 14 years to five . This is why business model innovation is essential to organize the details around your idea.

The business model innovation shows how a company is delivering value to its customers. It does not matter if we are talking about the development of a new revenue stream or another distribution channel.

Business model innovation is a fast process where the main goal is continued learning. The easiest way to start is by analyzing your customer’s point of view. This will help you understand what is important to them and how you can improve what the business is doing. However, simply having an idea is not enough. You will also need to understand consumer behaviors, test prototypes, and update the entire concept.

So, why should you consider an innovative business model? Well, at the core of it, the main idea is to bring a change. A change that cannot be seen so fast. Most companies that go for business model innovation reach success, only after this change gets detected. This is why it is very hard to copy it.

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Business model innovation: a review and research agenda

New England Journal of Entrepreneurship

ISSN : 2574-8904

Article publication date: 16 October 2019

Issue publication date: 13 November 2019

The aim of this paper is to review and synthesise the recent advancements in the business model literature and explore how firms approach business model innovation.

Design/methodology/approach

A systematic review of business model innovation literature was carried out by analysing 219 papers published between 2010 and 2016.

Evidence reviewed suggests that rather than taking either an evolutionary process of continuous revision, adaptation and fine-tuning of the existing business model or a revolutionary process of replacing the existing business model, firms can explore alternative business models through experimentation, open and disruptive innovations. It was also found that changing business models encompasses modifying a single element, altering multiple elements simultaneously and/or changing the interactions between elements in four areas of innovation: value proposition, operational value, human capital and financial value.

Research limitations/implications

Although this review highlights the different avenues to business model innovation, the mechanisms by which firms can change their business models and the external factors associated with such change remain unexplored.

Practical implications

The business model innovation framework can be used by practitioners as a “navigation map” to determine where and how to change their existing business models.

Originality/value

Because conflicting approaches exist in the literature on how firms change their business models, the review synthesises these approaches and provides a clear guidance as to the ways through which business model innovation can be undertaken.

  • Business model
  • Value proposition
  • Value creation
  • Value capture

Ramdani, B. , Binsaif, A. and Boukrami, E. (2019), "Business model innovation: a review and research agenda", New England Journal of Entrepreneurship , Vol. 22 No. 2, pp. 89-108. https://doi.org/10.1108/NEJE-06-2019-0030

Emerald Publishing Limited

Copyright © 2019, Boumediene Ramdani, Ahmed Binsaif and Elias Boukrami

Published in New England Journal of Entrepreneurship . Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

1. Introduction

Firms pursue business model innovation by exploring new ways to define value proposition, create and capture value for customers, suppliers and partners ( Gambardella and McGahan, 2010 ; Teece, 2010 ; Bock et al. , 2012 ; Casadesus-Masanell and Zhu, 2013 ). An extensive body of the literature asserts that innovation in business models is of vital importance to firm survival, business performance and as a source of competitive advantage ( Demil and Lecocq, 2010 ; Chesbrough, 2010 ; Amit and Zott, 2012 ; Baden-Fuller and Haefliger, 2013 ; Casadesus-Masanell and Zhu, 2013 ). It is starting to attract a growing attention, given the increasing opportunities for new business models enabled by changing customer expectations, technological advances and deregulation ( Casadesus-Masanell and Llanes, 2011 ; Casadesus-Masanell and Zhu, 2013 ). This is evident from the recent scholarly outputs ( Figure 1 ). Thus, it is essential to comprehend this literature and uncover where alternative business models can be explored.

Conflicting approaches exist in the literature on how firms change their business models. One approach suggests that alternative business models can be explored through an evolutionary process of incremental changes to business model elements (e.g. Demil and Lecocq, 2010 ; Dunford et al. , 2010 ; Amit and Zott, 2012 ; Landau et al. , 2016 ; Velu, 2016 ). The other approach, mainly practice-oriented, advocates that innovative business models can be developed through a revolutionary process by replacing existing business models (e.g. Bock et al. , 2012 ; Iansiti and Lakhani, 2014 ). The fragmentation of prior research is due to the variety of disciplinary and theoretical foundations through which business model innovation is examined. Scholars have drawn on perspectives from entrepreneurship (e.g. George and Bock, 2011 ), information systems (e.g. Al-debei and Avison, 2010 ), innovation management (e.g. Dmitriev et al. , 2014 ), marketing (e.g. Sorescu et al. , 2011 ) and strategy (e.g. Demil and Lecocq, 2010 ). Also, this fragmentation is deepened by focusing on different types of business models in different industries. Studies have explored different types of business models such as digital business models (e.g. Weill and Woerner, 2013 ), service business models (e.g. Kastalli et al. , 2013 ), social business models (e.g. Hlady-Rispal and Servantie, 2016 ) and sustainability-driven business models ( Esslinger, 2011 ). Besides, studies have examined different industries such as airline ( Lange et al. , 2015 ), manufacturing ( Landau et al. , 2016 ), newspaper ( Karimi and Walter, 2016 ), retail ( Brea-Solís et al. , 2015 ) and telemedicine ( Peters et al. , 2015 ).

Since the first comprehensive review of business model literature was carried out by Zott et al. (2011) , several reviews were published recently (as highlighted in Table I ). Our review builds on and extends the extant literature in at least three ways. First, unlike previous reviews that mainly focused on the general construct of “Business Model” ( George and Bock, 2011 ; Zott et al. , 2011 ; Wirtz et al. , 2016 ), our review focuses on uncovering how firms change their existing business model(s) by including terms that reflect business model innovation, namely, value proposition, value creation and value capture. Second, previous reviews do not provide a clear answer as to how firms change their business models. Our review aims to provide a clear guidance on how firms carry out business model innovation by synthesising the different perspectives existing in the literature. Third, compared to recent reviews on business model innovation ( Schneider and Spieth, 2013 ; Spieth et al. , 2014 ), which have touched lightly on some innovation aspects such as streams and motivations of business model innovation research, our review will uncover the innovation areas where alternative business models can be explored. Taking Teece’s (2010) suggestion, “A helpful analytic approach for management is likely to involve systematic deconstruction/unpacking of existing business models, and an evaluation of each element with an idea toward refinement or replacement” (p. 188), this paper aims to develop a theoretical framework of business model innovation.

Our review first explains the scope and the process of the literature review. This is followed by a synthesis of the findings of the review into a theoretical framework of business model innovation. Finally, avenues for future research will be discussed in relation to the approaches, degree and mechanisms of business model innovation.

2. Scope and method of the literature review

Given the diverse body of business models literature, a systematic literature review was carried out to minimise research bias ( Transfield et al. , 2003 ). Compared to the previous business model literature, our review criteria are summarised in Table I . The journal papers considered were published between January 2010 and December 2016. As highlighted in Figure 1 , most contributions in this field have been issued within this period since previous developments in the literature were comprehensively reviewed up to the end of 2009 ( Zott et al. , 2011 ). Using four databases (EBSCO Business Complete, ABI/INFORM, JSTOR and ScienceDirect), we searched peer-reviewed papers with terms such as business model(s), innovation value proposition, value creation and value capture appearing in the title, abstract or subject terms. As a result, 8,642 peer-reviewed papers were obtained.

Studies were included in our review if they specifically address business models and were top-rated according to The UK Association of Business Schools list ( ABS, 2010 ). This rating has been used not only because it takes into account the journal “Impact Factor” as a measure for journal quality, but also uses in conjunction other measures making it one of the most comprehensive journal ratings. By applying these criteria, 1,682 entries were retrieved from 122 journals. By excluding duplications, 831 papers were identified. As Harvard Business Review is not listed among the peer-reviewed journals in any of the chosen databases and was included in the ABS list, we used the earlier criteria and found 112 additional entries. The reviewed papers and their subject fields are highlighted in Table II . Since the focus of this paper is on business model innovation, we selected studies that discuss value proposition, value creation and value capture as sub-themes. This is not only because the definition of business model innovation mentioned earlier spans all three sub-themes, but also because all three sub-themes have been included in recent studies (e.g. Landau et al. , 2016 ; Velu and Jacob, 2014 ). To confirm whether the papers addressed business model innovation, we examined the main body of the papers to ensure they were properly coded and classified. At the end of the process, 219 papers were included in this review. Table III lists the source of our sample.

The authors reviewed the 219 papers using a protocol that included areas of innovation (i.e. components, elements, and activities), theoretical perspectives and key findings. In order to identify the main themes of business model innovation research, all papers were coded in relation to our research focus as to where alternative business models can be explored (i.e. value proposition, value creation and value capture). Coding was cross checked among the authors on a random sample suggesting high accuracy between them. Having compared and discussed the results, the authors were able to identify the main themes.

3. Prior conceptualisations of business model innovation

Some scholars have articulated the need to build the business model innovation on a more solid theoretical ground ( Sosna et al. , 2010 ; George and Bock, 2011 ). Although many studies are not explicitly theory-based, some studies partially used well-established theories such as the resource-based view (e.g. Al-Debei and Avison, 2010 ) and transaction cost economics (e.g. DaSilva and Trkman, 2014 ) to conceptualise business model innovation. Other theories such as activity systems perspective, dynamic capabilities and practice theory have been used to help answer the question of how firms change their existing business models.

Using the activity systems perspective, Zott and Amit (2010) demonstrated how innovative business models can be developed through the design themes that describe the source of value creation (novelty, lock-in, complementarities and efficiency) and design elements that describe the architecture (content, structure and governance). This work, however, overlooks value capture which limits the explanation of the advocated system’s view (holistic). Moreover, Chatterjee (2013) used this perspective to reveal that firms can design innovative business models that translate value capture logic to core objectives, which can be delivered through the activity system.

Dynamic capability perspective frames business model innovation as an initial experiment followed by continuous revision, adaptation and fine-tuning based on trial-and-error learning ( Sosna et al. , 2010 ). Using this perspective, Demil and Lecocq (2010) showed that “dynamic consistency” is a capability that allows firms to sustain their performance while innovating their business models through voluntary and emergent changes. Also, Mezger (2014) conceptualised business model innovation as a distinct dynamic capability. He argued that this capability is the firm’s capacity to sense opportunities, seize them through the development of valuable and unique business models, and accordingly reconfigure the firms’ competences and resources. Using aspects of practice theory, Mason and Spring (2011) looked at business model innovation in the recorded sound industry and found that it can be achieved through various combinations of managerial practices.

Static and transformational approaches have been used to depict business models ( Demil and Lecocq, 2010 ). The former refers to viewing business models as constituting core elements that influence business performance at a particular point in time. This approach offers a snapshot of the business model elements and how they are assembled, which can help in understanding and communicating a business model (e.g. Eyring et al. , 2011 ; Mason and Spring, 2011 ; Yunus et al. , 2010). The latter, however, focuses on innovation and how to address the changes in business models over time (e.g. Sinfield et al. , 2012 ; Girotra and Netessine, 2014 ; Landau et al. , 2016 ). Some researchers have identified the core elements of business models ex ante (e.g. Demil and Lecocq, 2010 ; Wu et al. , 2010 ; Huarng, 2013 ; Dmitriev et al. , 2014 ), while others argued that considering a priori elements can be restrictive (e.g. Casadesus-Masanell and Ricart, 2010 ). Unsurprisingly, some researchers found a middle ground where elements are loosely defined allowing flexibility in depicting business models (e.g. Zott and Amit, 2010 ; Sinfield et al. , 2012 ; Kiron et al. , 2013 ).

Prior to 2010, conceptual frameworks focused on the business model concept in general (e.g. Chesbrough and Rosenbloom, 2002 ; Osterwalder et al. , 2005 ; Shafer et al. , 2005 ) apart from Johnson et al. ’s (2008 ), which is one of the early contributions to business model innovation. To determine whether a change in existing business model is necessary, Johnson et al. (2008) suggested three steps: “Identify an important unmet job a target customer needs done; blueprint a model that can accomplish that job profitably for a price the customer is willing to pay; and carefully implement and evolve the model by testing essential assumptions and adjusting as you learn” ( Eyring et al. , 2011 , p. 90). Although several frameworks have been developed since then, our understanding of business model innovation is still limited due to the static nature of the majority of these frameworks. Some representations ignore the elements and/or activities where alternative business models can be explored (e.g. Sinfield et al. , 2012 ; Chatterjee, 2013 ; Huarng, 2013 ; Morris et al. , 2013 ; Dmitriev et al. , 2014 ; Girotra and Netessine, 2014 ). Other frameworks ignore value proposition (e.g. Zott and Amit, 2010 ), ignore value creation (e.g. Dmitriev et al. , 2014 ; Michel, 2014 ) and/or ignore value capture (e.g. Mason and Spring, 2011 ; Sorescu et al. , 2011 ; Storbacka, 2011 ). Some conceptualisations do not identify who is responsible for the innovation (e.g. Casadesus-Masanell and Ricart, 2010 ; Sinfield et al. , 2012 ; Chatterjee, 2013 ; Kiron et al. , 2013 ). Synthesising the different contributions into a theoretical framework of business model innovation will enable a better understanding of how firms undertake business model innovation.

4. Business model innovation framework

Our framework ( Figure 2 ) integrates all the elements where alternative business models can be explored. This framework does not claim that the listed elements are definitive for high-performing business models, but is an attempt to outline the elements associated with business model innovation. This framework builds on the previous work of Johnson et al. (2008) and Zott and Amit (2010) by signifying the elements associated with business model innovation. Unlike previous frameworks that mainly consider the constituting elements of business models, this framework focuses on areas of innovation where alternative business models can be explored. Moreover, this is not a static view of the constituting elements of a business model, but rather a view enabling firms to explore alternative business models by continually refining these elements. Arrows in the framework indicate the continuous interaction of business model elements. This framework consists of 4 areas of innovation and 16 elements (more details are shown in Table IV ). Each will be discussed below.

4.1 Value proposition

The first area of innovation refers to elements associated with answering the “Why” questions. While most of the previously established models in the literature include at least one of the value proposition elements (e.g. Brea-Solís et al. , 2015 ; Christensen et al. , 2016 ), other frameworks included two elements (e.g. Dahan et al. , 2010 ; Cortimiglia et al. , 2016 ) and three elements (e.g. Eyring et al. , 2011 ; Sinfield et al. , 2012 ). These elements include rethinking what a company sells, exploring new customer needs, acquiring target customers and determining whether the benefits offered are perceived by customers. Modern organisations are highly concerned with innovation relating to value proposition in order to attract and retain a large portion of their customer base ( Al-Debei and Avison, 2010 ). Developing new business models usually starts with articulating a new customer value proposition ( Eyring et al. , 2011 ). According to Sinfield et al. (2012) , firms are encouraged to explore various alternatives of core offering in more depth by examining type of offering (product or service), its features (custom or off-the-shelf), offered benefits (tangible or intangible), brand (generic or branded) and lifetime of the offering (consumable or durable).

In order to exploit the “middle market” in emerging economies, Eyring et al. (2011) suggested that companies need to design new business models that aim to meet unsatisfied needs and evolve these models by continually testing assumptions and making adjustments. To uncover unmet needs, Eyring et al. (2011) suggested answering four questions: what are customers doing with the offering? What alternative offerings consumers buy? What jobs consumers are satisfying poorly? and what consumers are trying to accomplish with existing offerings? Furthermore, Baden-Fuller and Haefliger (2013) made a distinction between customers and users in two-sided platforms, where users search for products online, and customers (firms) place ads to attract users. They also made a distinction between “pre-designed (scale) based offerings” and “project based offerings”. While the former focuses on “one-size-fits-all”, the latter focuses on specific client solving specific problem.

Established firms entering emerging markets should identify unmet needs “the job to be done” rather than extending their geographical base for existing offerings ( Eyring et al. , 2011 ). Because customers in these markets cannot afford the cheapest of the high-end offerings, firms with innovative business models that meet these customers’ needs affordably will have opportunities for growth ( Eyring et al. , 2011 ). Moreover, secondary business model innovation has been advocated by Wu et al. (2010) as a way for latecomer firms to create and capture value from disruptive technologies in emerging markets. This can be achieved through tailoring the original business model to fit price-sensitive mass customers by articulating a value proposition that is attractive for local customers.

4.2 Operational value

The second area of innovation focuses on elements associated with answering the “What” questions. Many of the established frameworks included either one element (e.g. Sinfield et al. , 2012 ; Taran et al. , 2015 ), two elements (e.g. Mason and Spring, 2011 ; Dmitriev et al. , 2014 ). However, very few included three or more elements (e.g. Mehrizi and Lashkarbolouki, 2016 ; Cortimiglia et al. , 2016 ). These elements include configuring key assets and sequencing activities to deliver the value proposition, exposing the various means by which a company reaches out to customers, and establishing links with key partners and suppliers. Focusing on value creation, Zott and Amit (2010) argued that business model innovation can be achieved through reorganising activities to reduce transaction costs. However, Al-Debei and Avison (2010) argued that innovation relating to this dimension can be achieved through resource configuration, which demonstrates a firm’s ability to integrate various assets in a way that delivers its value proposition. Cavalcante et al. (2011) proposed four ways to change business models: business model creation, extension, revision and termination by creating or adding new processes, and changing or terminating existing processes.

Western firms have had difficulty competing in emerging markets due to importing their existing business models with unchanged operating model ( Eyring et al. , 2011 ). Alternative business models can be uncovered when firms explore the different roles they might play in the industry value chain ( Sinfield et al. , 2012 ). Al-Debei and Avison (2010) suggested achieving this through answering questions such as: what is the position of our firm in the value system? and what mode of collaboration (open or close) would we choose to reach out in a business network? Dahan et al. (2010) found cross-sector partnerships as a way to co-create new multi-organisational business models. They argued that multinational enterprises (MNEs) can collaborate with nongovernmental organisations (NGOs) to create products/or services that neither can create on their own. Collaboration allows access to resources that firms would otherwise need to solely develop or purchase ( Yunus et al. , 2010 ). According to Wu et al. (2010) , secondary business model innovation can be achieved when latecomer firms fully utilise strategic partners’ complementary assets to overcome their latecomer disadvantages and build a unique value network specific to emerging economies context.

4.3 Human capital

The third area of innovation refers to elements associated with answering the “Who” questions. Most of the established frameworks in this field tend to focus less on human capital and include one element at most (e.g. Wu et al. , 2010 ; Kohler, 2015 ). However, our framework highlights four elements, which include experimenting with new ways of doing business, tapping into the skills and competencies needed for the new business model through motivating and involving individuals in the innovation process. According to Belenzon and Schankerman (2015) , “the ability to tap into a pool of talent is strongly related to the specific business model chosen by managers” (p. 795). They claimed that managers can strategically influence individuals’ contributions and their impact on project performance.

Organisational learning can be maximised though continuous experimentation and making changes when actions result in failure ( Yunus et al. , 2010 ). Challenging and questioning the existing rules and assumptions and imagining new ways of doing business will help develop new business models. Another essential element of business model design is governance, which refers to who performs the activities ( Zott and Amit, 2010 ). According to Sorescu et al. (2011) , innovation in retail business models can occur as a result of changes in the level of participation by actors engaged in performing the activities. An essential element of retailing governance is the incentive structure or the mechanisms that motivate those involved in carrying out their roles to meet customer demands ( Sorescu et al. , 2011 ). For example, discount retailers tend to establish different compensation and incentive policies ( Brea-Solís et al. , 2015 ). Revising the incentive system can have a major impact on new ventures’ performance by aligning organisational goals at each stage of growth ( Roberge, 2015 ). Zott and Amit (2010) argued that alternative business models can be explored through adopting innovative governance or changing one or more parties that perform any activities. Sinfield et al. (2012) suggested that business model innovation only requires time from a small team over a short period of time to move a company beyond incremental improvements and generate new opportunities for growth. This is supported by Michel’s (2014) finding that cross-functional teams were able to quickly achieve business model innovation in workshops through deriving new ways to capture value.

4.4 Financial value

The final area of innovation focuses on elements associated with answering the “How” questions. Previously developed frameworks tend to prioritise this area of innovation by three elements (e.g. Eyring et al. , 2011 ; Huang et al. , 2013 ), and in one instance four elements (e.g. Yunus et al. , 2010 ). These elements include activities linked with how to capture value through revenue streams, changing the price-setting mechanisms, and assessing the financial viability and profitability of a business. According to Demil and Lecocq (2010) , changes in cost and/or revenue structures are the consequences of both continuous and radical changes. They also argued that costs relate to different activities run by organisations to acquire, integrate, combine or develop resources. Michel (2014) suggested that alternative business models can be explored through: changing the price-setting mechanism, changing the payer, and changing the price carrier. Different innovation forms are associated with each of these categories.

Business model innovation can be achieved through exploring new ways to generate cash flows ( Sorescu et al. , 2011 ), where the organisation has to consider (and potentially change) when the money is collected: prior to the sale, at the point of sale, or after the sale ( Baden-Fuller and Haefliger, 2013 ). Furthermore, Demil and Lecocq (2010) suggested that changes in business models affect margins. This is apparent in the retail business models, which generate more profit through business model innovation compared to other types of innovation ( Sorescu et al. , 2011 ).

5. Ways to change business models

From reviewing the recent developments in the business model literature, alternative business models can be explored through modifying a single business model element, altering multiple elements simultaneously and/or changing the interactions between elements of a business model.

Changing one of the business model elements (i.e. content, structure or governance) is enough to achieve business model innovation ( Amit and Zott, 2012 ). This means that firms can have a new activity system by performing only one new activity. However, Amit and Zott (2012) clearly outlined a systemic view of business models which entails a holistic change. This is evident from Demil and Lecocq’s (2010) work suggesting that the study of business model innovation should not focus on isolated activities since changing a core element will not only impact other elements but also the interactions between these elements.

Another way to change business models is through altering multiple business model elements simultaneously. Kiron et al. (2013) found that companies combining target customers with value chain innovations and changing one or two other elements of their business models tend to profit from their sustainability activities. They also found that firms changing three to four elements of their business models tend to profit more from their sustainability activities compared to those changing only one element. Moreover, Dahan et al. (2010) found that a new business model was developed as a result of MNEs and NGOs collaboration by redefining value proposition, target customers, governance of activities and distribution channels. Companies can explore multiple combinations by listing different business model options they could undertake (desirable, discussable and unthinkable) and evaluate new combinations that would not have been considered otherwise ( Sinfield et al. , 2012 ).

Changing business models is argued to be demanding as it requires a systemic and holistic view ( Amit and Zott, 2012 ) by considering the relationships between core business model elements ( Demil and Lecocq, 2010 ). As mentioned earlier, changing one element will not only impact other elements but also the interactions between these elements. A firm’s resources and competencies, value proposition and organisational system are continuously interacting and this will in turn impact business performance either positively or negatively ( Demil and Lecocq, 2010 ). According to Zott and Amit (2010) , innovative business models can be developed through linking activities in a novel way that generates more value. They argued that alternative business models can be explored by configuring business model design elements (e.g. governance) and connecting them to distinct themes (e.g. novelty). Supporting this, Eyring et al. (2011) suggested that core business model elements need to be integrated in order to create and capture value ( Eyring et al. , 2011 ).

6. Discussion and future research directions

From the above synthesis of the recent development in the literature, several gaps remain unfilled. To advance the literature, possible future research directions will be discussed in relation to approaches, degrees and mechanisms of business model innovation.

6.1 Approaches of business model innovation

Experimentation, open innovation and disruption have been advocated as approaches to business model innovation. Experimentation has been emphasised as a way to exploit opportunities and develop alternative business models before committing additional investments ( McGrath, 2010 ). Several approaches have been developed to assist in business model experimentation including mapping approach, discovery-driven planning and trail-and-error learning ( Chesbrough, 2010 ; McGrath, 2010 ; Sosna et al. , 2010 ; Andries and Debackere, 2013 ). Little is known about the effectiveness of these approaches. It will be worth investigating which elements of the business model innovation framework are more susceptible to experimentation and which elements should be held unchanged. Although business model innovation tends to be characterised with failure ( Christensen et al. , 2016 ), not much has been established on failing business models. It is interesting to explore how firms determine a failing business model and what organisational processes exist (if any) to evaluate and discard these failed business models. Empirical studies could examine which elements of business model innovation framework are associated with failing business models.

Another way to develop alternative business models is through open innovation. Although different categories of open business models have been identified by researchers (e.g. Frankenberger et al. , 2014 ; Taran et al. , 2015 ; Kortmann and Piller, 2016 ), their effectiveness is yet to be established. Further research is needed to examine when can a firm open and/or close element(s) of the business model innovation framework. Future studies could also examine the characteristics of open and/or close business models.

In responding to disruptive business models, how companies extend their existing business model, introduce additional business model(s) and/or replace their existing business model altogether remains underexplored. Future research is needed to unravel the strategies deployed by firms to extend their existing business models as a response to disruptive business models. In introducing additional business models, Markides (2013) suggested that a company will be presented with several options to manage the two businesses at the same time: create a completely separate business unit, integrate the two business models from the beginning or integrate the second business model after a certain period of time. Finding the balance between separation and integration is of vital importance. Further research could identify which of these choices are most common among successful firms introducing additional business models, how is the balance between integration and separation achieved, and which choice(s) prove more profitable. Moreover, very little is known on how firms replace their existing business model. Longitudinal studies could provide insights into how a firm adopts an alternative model and discard the old business model over time. It may also be worth examining the factors associated with the adoption of business model innovation as a response to disruptive business models. Moreover, new developments in digital technologies such as blockchain, Internet of Things and artificial intelligence are disrupting existing business models and providing firms with alternative avenues to create new business models. Thus far, very little is known on digital business models, the nature of their disruption, and how firms create digital business models and make them disruptive. Future research is needed to fill these important gaps in our knowledge.

6.2 Degrees of business model innovation

Business models can be developed through varying degrees of innovation from an evolutionary process of continuous fine-tuning to a revolutionary process of replacing existing business models. Recent research shows that survival of firms is dependent on the degree of their business model innovation ( Velu, 2015, 2016 ). This review classifies these degrees of innovation into modifying a single element, altering multiple elements simultaneously and/or changing the interactions between elements of the business model innovation framework.

In changing a single element, further research is needed to examine which business model element(s) is (are) associated with business model innovation. It is not clear whether firms intentionally make changes to a single element when carrying out business model innovation or stumble at it when experimenting with new ways of doing things. It may also be worth investigating the entry (or starting) points in the innovation process. There is no consensus in the literature on which element do companies start with when carrying out their business model innovation. While some studies suggest starting with the value proposition ( Eyring et al. , 2011 ; Landau et al. , 2016 ), others suggest starting the innovation process with identifying risks in the value chain ( Girotra and Netessine, 2011 ). Dmitriev et al. (2014) suggested two entry points, namely, value proposition and target customers. In commercialising innovations, the former refers to technology-push innovation while the latter refers to market-pull innovation. Also, it is not clear whether the entry point is the same as the single element associated with changing the business model. Further research can explore the different paths to business model innovation by identifying the entry point and subsequent changes needed to achieve business model innovation.

There is little guidance in the literature on how firms change multiple business model elements simultaneously. Landau et al. (2016) claimed that firms entering emerging markets tend to focus on adjusting specific business model components. It is unclear which elements need configuring, combining and/or integrating to achieve a company’s value proposition. Furthermore, the question of which elements can be “bought” on the market or internally “implemented” and their interplay remains unanswered ( DaSilva and Trkman, 2014 ). Casadesus-Masanell and Ricart (2010) argued that “[…] there is (as yet) no agreement as to the distinctive features of superior business models” (p. 196). Further research is needed to explore these distinctive elements of high-performing business models.

In changing the interactions between business model elements, further research is needed to explore how these elements are linked and what interactions’ changes are necessary to achieve business model innovation. Moreover, the question of how firms sequence these elements remains poorly understood. Future research can explore the synergies created over time between these elements. According to Dmitriev et al. (2014) , we need to improve our understanding of the connective mechanisms and dynamics involved in business model development. More work is needed to explore the different modalities of interdependencies among these elements and empirically testing such interdependencies and their effect on business performance ( Sorescu et al. , 2011 ).

It is surprising that the link between business model innovation and organisational performance has rarely been examined. Changing business models has been found to negatively influence business performance even if it is temporary ( McNamara et al. , 2013 ; Visnjic et al. , 2016 ). Contrary to this, evidence show that modifying business models is positively associated with organisational performance ( Cucculelli and Bettinelli, 2015 ). Empirical research is needed to operationalise the various degrees of innovation in business models and examine their link to organisational performance. Longitudinal studies can also be used to explore this association since it may be the case that business model innovation has a negative influence on performance in the short run and that may change subsequently. Moreover, it is not clear whether high-performing firms change their business models or innovation in business models is a result from superior performance ( Sorescu et al. , 2011 ). Further studies are needed to determine the direction of causality. Another link that is worth exploring is business model innovation and social value, which has only been explored in a few studies looking at social business models (e.g. Yunus et al. , 2010 ; Wilson and Post, 2013 ). Further research is needed to examine this link and possibly examine both financial and non-financial business performance.

6.3 Mechanisms of business model innovation

Although we know more about how firms define value proposition, create and capture value ( Landau et al. , 2016 ; Velu and Jacob, 2014 ), what remains as a blind spot is the mechanism of business model innovation. This is due to the fact that much of the literature seems to focus on value creation. To better understand the various mechanisms of business model innovation, future studies must integrate value proposition, value creation and value capture elements. Empirical studies could use the business model innovation framework to examine the various mechanisms of business model innovation. Also, the literature lacks the integration of internal and external perspectives of business model innovation. Very few studies look at the external drivers of business model innovation and the associated internal changes. The external drivers are referred to as “emerging changes”, which are usually beyond manager’s control ( Demil and Lecocq, 2010 ). Inconclusive findings exist as to how firms develop innovative business models in response to changes in the external environment. Future studies could examine the external factors associated with the changes in the business model innovation framework. Active and reactive responses need to be explored not only to understand the external influences, but also what business model changes are necessary for such responses. A better understanding of the mechanisms of business model innovation can be achieved by not only exploring the external drivers, but also linking them to specific internal changes. Although earlier contributions linking studies to established theories such as the resource-based view, transaction cost economics, activity systems perspective, dynamic capabilities and practice theory have proven to be vital in advancing the literature, developing a theory that elaborates on the antecedents, consequences and different facets of business model innovation is still needed ( Sorescu et al. , 2011 ). Theory can be advanced by depicting the mechanisms of business model innovation through the integration of both internal and external perspectives. Also, we call for more empirical work to uncover these mechanisms and provide managers with the necessary insights to carry out business model innovation.

7. Conclusions

The aim of this review was to explore how firms approach business model innovation. The current literature suggests that business model innovation approaches can either be evolutionary or revolutionary. However, the evidence reviewed points to a more complex picture beyond the simple binary approach, in that, firms can explore alternative business models through experimentation, open and disruptive innovations. Moreover, the evidence highlights further complexity to these approaches as we find that they are in fact a spectrum of various degrees of innovation ranging from modifying a single element, altering multiple elements simultaneously, to changing the interactions between elements of the business model innovation framework. This framework was developed as a navigation map for managers and researchers interested in how to change existing business models. It highlights the key areas of innovation, namely, value proposition, operational value, human capital and financial value. Researchers interested in this area can explore and examine the different paths firms can undertake to change their business models. Although this review pinpoints the different avenues for firm to undertake business model innovation, the mechanisms by which firms can change their business models and the external factors associated with such change remain underexplored.

what is an example of a business model innovation

The evolution of business model literature (pre-2000 to 2016)

what is an example of a business model innovation

Business model innovation framework

Previous reviews of business model literature

Reviewed papers and their subject fields

Source of our sample

Business model innovation areas and elements

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Further reading

Weill , P. , Malone , T.W. and Apel , T.G. ( 2011 ), “ The business models investors prefer ”, MIT Sloan Management Review , Vol. 52 No. 4 , pp. 17 - 19 .

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The Hard Truth About Business Model Innovation

Many attempts at business model innovation fail. To change that, executives need to understand how business models develop through predictable stages over time — and then apply that understanding to key decisions about new business models.

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Hard Truth Business Model Innovation

Surveying the landscape of recent attempts at business model innovation, one could be forgiven for believing that success is essentially random. For example, conventional wisdom would suggest that Google Inc., with its Midas touch for innovation, might be more likely to succeed in its business model innovation efforts than a traditional, older, industrial company like the automaker Daimler AG. But that’s not always the case. Google+, which Google launched in 2011, has failed to gain traction as a social network, while at this writing Daimler is building a promising new venture, car2go, which has become one of the world’s leading car-sharing businesses. Are those surprising outcomes simply anomalies, or could they have been predicted?

To our eyes, the landscape of failed attempts at business model innovation is crowded — and becoming more so — as management teams at established companies mount both offensive and defensive initiatives involving new business models. A venture capitalist who advises large financial services companies on strategy shared his observation about the anxiety his investors feel about the changes underway in their industry: “They look at the fintech [financial technology] startups and see their business models being unbundled and attacked at every point in the value chain.” And financial services companies are not alone. A PwC survey published in 2015 revealed that 54% of CEOs worldwide were concerned about new competitors entering their market, and an equal percentage said they had either begun to compete in nontraditional markets themselves or considered doing so. 1 For its part, the Boston Consulting Group reports that in a 2014 survey of 1,500 senior executives, 94% stated that their companies had attempted some degree of business model innovation. 2

We’ve decided to wade in at this juncture because business model innovation is too important to be left to random chance and guesswork. Executed correctly, it has the ability to make companies resilient in the face of change and to create growth unbounded by the limits of existing businesses. Further, we have seen businesses overcome other management problems that resulted in high failure rates. For example, if you bought a car in the United States in the 1970s, there was a very real possibility that you would get a “lemon.” Some cars were inexplicably afflicted by problem after problem, to the point that it was accepted that such lemons were a natural consequence of inherent randomness in manufacturing. But management expert W. Edwards Deming demonstrated that manufacturing doesn’t have to be random, and, having incorporated his insights in the 1980s, the major automotive companies have made lemons a memory of a bygone era. To our eyes, there are currently a lot of lemons being produced by the business model innovation process — but it doesn’t have to be that way.

In our experience, when the business world encounters an intractable management problem, it’s a sign that business executives and scholars are getting something wrong — that there isn’t yet a satisfactory theory for what’s causing the problem, and under what circumstances it can be overcome. This is what has resulted in so much wasted time and effort in attempts at corporate renewal. And this confusion has spawned a welter of well-meaning but ultimately misguided advice, ranging from prescriptions to innovate only close to the core business to assertions about the type of leader who is able to pull off business model transformations, or the capabilities a business requires to achieve successful business model innovation.

The hard truth about business model innovation is that it is not the attributes of the innovator that principally drive success or failure, but rather the nature of the innovation being attempted. Business models develop through predictable stages over time — and executives need to understand the priorities associated with each business model stage. Business leaders then need to evaluate whether or not a business model innovation they are considering is consistent with the current priorities of their existing business model. This analysis matters greatly, as it drives a whole host of decisions about where the new initiative should be housed, how its performance should be measured, and how the resources and processes at work in the company will either support it or extinguish it.

This truth has revealed itself to us gradually over time, but our thinking has crystallized over the past two years in an intensive study effort we have led at the Harvard Business School. As part of that research effort, we have analyzed 26 cases of both successful and failed business model innovation; in addition, we have selected a set of nine industry-leading companies whose senior leaders are currently struggling with the issue of conceiving and sustaining success in business model innovation. (See “About the Research.”) We have profiled these nine companies’ efforts extensively, documented their successes and failures, and convened their executives on campus periodically to enable them to share insights and frustrations with each other. Stepping back, we’ve made a number of observations that we hope will prove generally helpful, and we also have a sense of the work that remains to be done.

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There are a number of lessons that managers can learn from past successes and failures, but all depend on understanding the rules that govern business model formation and development — how new models are created and how they evolve across time, the kinds of changes that are possible to those models at various stages of development, and what that means for organizational renewal and growth.

The Business Model’s Journey

The confusion surrounding business model innovation begins, appropriately enough, with confusion about the term “business model.” In our course at the Harvard Business School, we teach students to use a four-box business model framework that we developed with colleagues from the consulting firm Innosight LLC. This framework consists of the value proposition for customers (which we will refer to as the “job to be done”); the organization’s resources , such as people, cash, and technology; the processes 3 that it uses to convert inputs to finished products or services; and the profit formula that dictates the margins, asset velocity, and scale required to achieve an attractive return. 4 (See “The Elements of a Business Model.”) Collectively, the organization’s resources and processes define its capabilities — how it does things — while its customer value proposition and profit formula characterize its priorities — what it does, and why. 5

This way of viewing business models is useful for two reasons. First, it supplies a common language and framework to understand the capabilities of a business. Second, it highlights the interdependencies among elements and illuminates what a business is in capable of doing. Interdependencies describe the integration required between individual elements of the business model — each component of the model must be congruent with the others. They explain why, for example, Rolls-Royce Motor Cars Ltd. is unable to sell cheap bespoke cars and why Wal-Mart Stores Inc. is unable to combine low prices with fancy stores.

Understanding the interdependencies in a business model is important because those interdependencies grow and harden across time, creating another fundamental truth that is critical for leaders to understand: Business models by their very nature are designed not to change, and they become less flexible and more resistant to change as they develop over time. Leaders of the world’s best businesses should take special note, because the better your business model performs at its assigned task, the more interdependent and less capable of change it likely is. The strengthening of these interdependencies is not an intentional act by managers; rather, it comes from the emergence of processes that arise as the natural, collective response to recurrent activities. The longer a business unit exists, the more often it will confront similar problems and the more ingrained its approaches to solving those problems will become. We often refer to these ingrained approaches as a business’s “culture.” 6

In fact, this pattern is so consistent and important that we’ve begun to think of the development of a business model across time as resembling a journey whose progress and route are predictable — although the time that it takes a business model to follow this journey will differ by industry and circumstance. (See “The Three Stages of a Business Model’s Journey.”) As the diagram depicts, a business model, which in an established company is typically embodied in a business unit, 7 travels a one-way journey, beginning with the creation of the new business unit and its business model, then shifting to sustaining and growing the business unit, and ultimately moving to wringing efficiency from it. Each stage of the journey supports a specific type of innovation, builds a particular set of interdependencies into the model, and is responsive to a particular set of performance metrics. This is the arc of the journey of virtually every business model — if it is lucky and successful enough to travel the entire length of the route. Unsuccessful business units will falter before concluding the journey and be absorbed or shuttered. Now, let’s explore each of the three stages and how the business model evolves through them.

1. Creation

Peter Drucker once said that the purpose of a business is to create a customer. 8 That goal characterizes the first stage of the journey, when the business searches for a meaningful value proposition, which it can design initial product and service offerings to fulfill. This is the stage at which a relatively small band of resources (a founding team armed with an idea, some funding and ambition, and sometimes a technology) is entirely focused on developing a compelling value proposition — fulfilling a significant unmet need, or “job.” 9 It’s useful to think of the members of the founding team as completely immersed in this search. The information swirling around them at this point in the journey — the information they pay the most attention to — consists of insights they are able to glean into the unfulfilled jobs of prospective customers.

We emphasize the primacy of the job at this point of the journey because it is very difficult for a business to remain focused on a customer’s job as the operation scales. Understanding the progress a customer is trying to make — and providing the experiences in purchase and use that will fulfill that job perfectly — requires patient, bottom-up inquiry. The language that is characteristic of this stage is the language of questions, not of answers. The link between value proposition and resources is already forming, but the rest of the model is still unformed: The new organization has yet to face the types of recurrent tasks that create processes, and its profit formula is nascent and exploratory. This gives the business an incredible flexibility that will disappear as it evolves along the journey and its language shifts from questions to answers.

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2. Sustaining Innovation

Business units lucky and skilled enough to discover an unfulfilled job and develop a product or service that addresses it enter the sustaining innovation phase of the business model journey. At this stage, customer demand reaches the point where the greatest challenge the business faces is no longer determining whether the product fulfills a job, but rather scaling operations to meet growing demand. Whereas in the creation phase the business unit created customers, in the sustaining innovation phase it is building these customers into a reliable, loyal base and building the organization into a well-oiled machine that delivers the product or service flawlessly and repeatedly. The innovations characteristic of this phase of the business model journey are what we call sustaining innovations — in other words, better products that can be sold for higher prices to the current target market.

A curious change sets in at this stage of the journey, however: As the business unit racks up sales, the voice of the customer gets louder, drowning out to some extent the voice of the job. Why does this happen? It’s not that managers intend to lose touch with the job, but while the voice of the job is faint and requires interrogation to hear, the voice of the customer is transmitted into the business with each sale and gets louder with every additional transaction. The voice of the job emerges only in one-to-one, in-depth conversations that reveal the job’s context in a customer’s life, but listening to the voice of the customer allows the business to scale its understanding. Customers can be surveyed and polled to learn their preferences, and those preferences are then channeled into efforts to improve existing products.

The business unit is now no longer in the business of identifying new unmet needs but rather in the business of building processes — locking down the current model. The data that surrounds managers is now about revenues, products, customers, and competition. While in the creation phase, the founding team had to dig to discover data, data now floods the business’s offices, with more arriving with each new transaction. Data begs to be analyzed — it is the way the game is scored — so the influx of data precipitates the adoption of metrics to evaluate the business’s performance and direct future activity to improving the metrics. The performance metrics in this phase focus on the income statement, leading managers to direct investments toward growing the top line and maximizing the bottom line.

3. Efficiency

At some point, however, these investments in product performance no longer generate adequate additional profitability. At this point, the business unit begins to prioritize the activities of efficiency innovation, which reduce cost by eliminating labor or by redesigning products to eliminate components or replace them with cheaper alternatives. (There is, however, always some amount of both types of innovation — sustaining and efficiency — occurring at any point of a business’s evolution.) Broadly, the activities of efficiency innovation include outsourcing, adding financial leverage, optimizing processes, and consolidating industries to gain economies of scale. While many factors can cause businesses to transition into the efficiency innovation phase of their evolution, one we have often observed is the result of performance “overshoot,” in which the business delivers more performance than the market can utilize and consumers become unwilling to pay for additional performance improvement or to upgrade to improved versions. Managers should not bemoan the shift to efficiency innovation. It needs to happen; over time, business units must become more efficient to remain competitive, and the shift to efficiency innovations as the predominant form of innovation activity is a natural outcome of that process.

To managers, the efficiency innovation phase marks the point where the voice of the shareholders drowns out the voice of the customer. Gleaning new understanding of that initial job to be done is now the long-lost ambition of a bygone era, and managers become inundated with data about costs and efficiency. The business unit frequently achieves efficiency by shifting to a modular structure, standardizing the interdependencies between each of the components of its business model so that they may be outsourced to third parties. In hardening these interdependencies, the business unit reaps the efficiency rewards of modularization but leaves flexibility behind, firmly cementing the structure of its business model in place. Deviations from the existing structure undermine the modularity of the components and reduce efficiency, so when evaluating such changes, the business will often choose to forsake them in pursuit of greater efficiency.

Now, when the business unit generates increasing amounts of free cash flow from its efficiency innovations, it is likely to sideline the capital, to diversify the company, or to invest it in industry consolidation. This is one of the major drivers of merger and acquisition (M&A) activity. Whereas the sustaining innovation phase was exciting to managers, customers, and shareholders, the efficiency innovation phase reduces degrees of managerial freedom. Efficiency innovations lure managers with their promises of low risk, high returns, and quick paybacks from cost reduction, but the end result is often a race to the bottom that sees the business’s ability to serve the job and customers atrophy as it improves its service to shareholders.

The natural evolution of business units occurs all around us. Consider the case of The Boeing Co. and its wildly successful 737 business unit. The 737 business was announced in 1965 and launched its first version, the 737-100, in 1967, with Lufthansa as its first customer. With orders from several additional major airlines, the new business unit demonstrated that its medium-haul plane fulfilled an important job to be done. Before even delivering the first -100, Boeing began improving the 737 and launched a stretched version, the -200, with a longer fuselage to meet demands from airlines requiring greater seating capacity. Boeing entered the sustaining innovation phase and continued to improve its product by developing several generations of new 737s, stretching the fuselage like an accordion while nearly doubling the plane’s range and more than doubling its revenue per available seat mile. The business continued to improve how it served customers with the Next Generation series in the 1990s, which offered even bigger aircraft and better avionics systems.

Facing increased competition and demands for improved financial performance, the 737 business shifted its focus to efficiency innovation in the early 2000s. To free resources and liberate capital, Boeing began to outsource aspects of 737 production. Most notably, Boeing sold a facility in Wichita, Kansas, that manufactured the main fuselage platform for the 737 to the Toronto-based investment company Onex Corp. in 2005. Outsourcing subsystem production allowed the business to improve its capital efficiency and deliver improved returns on capital. 10

Given that road map, what is the hope for companies that seek to develop new business models or to create new businesses? Thus far in this article we’ve explored the journey that business units take over time. And while we’re not sure that a business unit can break off from this race, we know that its parent companies can — by developing new businesses. Although the processes of an individual business unit’s business model propel it along this journey, the opportunity exists to develop a process of business creation at the corporate level. But doing so successfully requires paying careful attention to the implications of the business model road map.

Implications For Business Model Innovation

It’s worth internalizing the road map view of business model evolution because it helps explain why most attempts to alter the course of existing business units fail. Unaware of the interdependencies and rigidities that constrain business units to pursuing their existing journey, managers attempt to compel existing business units to pursue new priorities or attempt to create a new business inside an existing unit. Using the road map as a guiding principle allows leaders to correctly categorize the innovation opportunities that appear before them in terms of their fit with their existing business model’s priorities. Several recommendations for managers emerge from this insight.

Determine how consistent the opportunity is with the priorities of the existing business model. The only types of innovation you can perform naturally within an existing business model are those that build on and improve the existing model and accelerate its progress along the journey — in other words, those innovations that are consistent with its current priorities — by sharpening its focus on fulfilling the existing job or improving its financial performance. Therefore, a crucial question for leaders to ask when evaluating an innovation opportunity is: To what degree does it align with the existing priorities of the business model?

Many failed business model innovations involve the pursuit of opportunities that appear to be consistent with a unit’s current business model but that in fact are likely to be rejected by the existing business or its customers. (See “Evaluating the Fit Between an Opportunity and an Existing Business.”) To determine how consistent an opportunity is with the priorities of the existing business model, leaders should ask: Is the new job to be done for the customer similar to the existing job? (The greater the similarity, the more appropriate it is for the existing business to pursue the opportunity.) How does pursuit of the opportunity affect the existing profit formula? Are the margins better, transaction sizes larger, and addressable markets bigger? If so, it is likely to fit well with the existing profit formula. If not, managers should tread with caution in asking an existing business to take it on — and should instead consider creating a separate unit to pursue the new business model.

This distinction helps explain the performance of the two innovations with which we opened this article. Google saw Google+ as an extension of its search business and chose to integrate Google+ into its existing products and business. Google+ accounts were integrated into other Google products, and the business saw the incorporation of information from users’ social networks as a way to generate improved, tailored search results. Viewed through the lens of Google’s business model, a social network allowed the business to generate greater revenue and profitability by better targeting advertisements and delivering more advertisements through increased usage of its product platform. However, consumers apparently didn’t see the value from combining search and social networking; to the consumer, the jobs are very different and arise in different circumstances in their lives. So while Google maintains its exceptional search business, its social network failed to gain momentum.

Contrast Google’s experience to that of Daimler, which recognized that car2go was a very different business and established it far afield from the home office and existing business. Daimler started car2go as an experiment tested by its employees working in Ulm, Germany. It housed the business in a corporate incubator that does not report to the existing consumer automotive businesses and designed it from the outset to fulfill Daimler’s core job of providing mobility, but without the need to convince consumers to purchase vehicles. Recognizing that the priorities of a business that rents cars by the minute are very different from those involved in selling luxury vehicles, Daimler has kept car2go separate and allowed it to develop a unique business model capable of fulfilling its job profitably. However, car2go benefits from Daimler’s ownership by using corporate resources where appropriate — for example, car2go rents only vehicles in the Daimler portfolio, principally the Smart Fortwo.

To achieve successful business model innovation, focus on creating new business models, rather than changing existing ones. As business model interdependencies arise, the ability to create new businesses within existing business units is lost. The resources and processes that work so perfectly in their original business model do so because they have been honed and optimized for delivering on the priorities of that model. The classic example of this was the movie rental company Blockbuster, which attempted to develop a new DVD-by-mail business in response to the rise of Netflix Inc. by integrating that offering with its existing store network. This “bricks-and-clicks” combination made perfect sense to Blockbuster’s managers, but what became obvious only in hindsight was that the two models would be at war with each other — the asset velocity required to maintain a profitable store network was incompatible with the DVD-by-mail offering. The paradox that managers must confront is that the specialized capabilities that are highly valuable to their current business model will tend to be unsuitable for, or even run counter to, the new business model.

Building a Business Creation Engine

For some time, we’ve argued that companies should build a business creation engine, capable of turning out a steady stream of innovative new business models, but to date no company we know of has built an enduring capability like that. We think that such an engine of sustained growth would quickly prove to be a company’s most valuable asset, providing growth and creating new markets. But unleashing this growth potential requires very different behaviors than those required to successfully exploit existing markets.

The challenge, as the journey metaphor we’ve developed here should make clear, is that what is necessary is to turn an event — the act of creating a new business and a new business model — into a repeatable process at the corporate level. It must be a process because events are discrete activities with definitive start and end points, whereas processes are continuous and dynamic. Learnings from a previous event do not naturally or easily flow to subsequent events, causing the same mistakes to be repeated over and over. In contrast, processes by their nature can be learning opportunities that incorporate in future attempts what was discovered in previous iterations. Enacted as a process, the act of creation will improve over time and refine its ability to discover unfulfilled customer jobs and create new markets; the success rate will improve alongside the process, creating a virtuous cycle of growth.

While we have not discovered a perfect exemplar of this discipline, we have been tracking the efforts of some leading companies that are intent on building such a capability. While it is too early to hold any of them up as success stories, we can nonetheless discern five approaches that we believe have the potential to lead to success. Let’s look at each of these approaches in turn.

Spot future growth gaps by understanding where each of your business units is on the journey. In our course at Harvard Business School, we teach students to use a tool called the aggregate project plan to allocate funding to different types of innovation. 11 Such a plan categorizes innovations by their distance from existing products and markets and specifies a desired allocation of funding to each bucket. We see application for this tool here as well.

The innovation team at Carolinas HealthCare System, a not-for-profit health care organization based in Charlotte, North Carolina, performed this type of analysis and identified a need to field additional innovation efforts that reflected the organization’s belief that hospitals will be less central in the health care system of the future. Armed with this view, Carolinas HealthCare System has been able to plan innovation activity by type, ensuring that the organization invests appropriately across all three categories of the business model journey. As Dr. Jean Wright, chief innovation officer at Carolinas HealthCare System, said, “The strength of the journey framework is that it allowed us to see that our investments in business creation are very different from our investments in our existing businesses. More importantly, it has helped us see that both types are important.”

Run with potential disruptors of your business. Another approach is to create incentives and channels for entrepreneurs to bring new and, in some cases, potentially disruptive business models to you, either as potential customers or as ecosystem partners. ARM Holdings plc, a developer and licenser of system-on-chip semiconductors, headquartered in Cambridge, U.K., has had success viewing itself as the central, coordinating node of a symbiotic ecosystem of independent semiconductor manufacturers and consumer products companies, rather than as a traditional semiconductor company that develops and manufactures proprietary, standard products. Today, nearly every smartphone and mobile device includes at least one ARM design. The company achieved this ubiquity by inviting customers and consumers into its development process so that it will be the first company called by customers seeking to design a new chip. It does this in two ways: first, by incorporating knowledge across its entire ecosystem that allows it to develop optimized end-to-end solutions for customers, and second, by employing a royalty-based revenue model that ensures ARM’s incentives are aligned with those of its customers.

Start new businesses by exploring the job to be done. When identifying new market opportunities, it’s critical that you begin with a focus on the customer’s job to be done, rather than on your company’s capabilities. It’s tempting to look at your capabilities as the starting point for any expansion, but capabilities are of no use without a job for them. For incumbents, this requires staying focused on the job rather than the market or capability. One example of this discipline is Corning Inc., the manufacturer of specialty glass and ceramic materials based in Corning, New York. When it becomes apparent that a Corning business can no longer generate a premium price from its technical superiority — when it reaches the efficiency innovation stage, in our framework — the company divests that business and uses the proceeds to expand businesses in the sustaining stage and to create new ones. For example, when Corning realized that liquid crystal display (LCD) would eventually replace cathode ray tube (CRT) technology to become the future of display, the company focused on the job to be done — display — rather than just on the CRT market, which at the time was important to the company. Corning began inventing products to enable the growth of the LCD industry and eventually decided to exit the CRT market. 12 To Corning, businesses serve needs, not markets, and as technological or market shifts occur, the company continues to grow by remaining focused on the need, which we call the job.

Resist the urge to force new businesses to find homes in existing units. When executives start new businesses, they often look at them and wonder, “Where do I stick this in my organization?” They feel pressure to combine new businesses with existing structures to maximize efficiency and spread overhead costs over the widest base, but this can spell doom for the new business. When a new business is housed within an existing unit, it must adopt the priorities of the existing business to secure funding; in doing so, the new business often survives in name but disappears in effect.

Once a new business is launched, it must remain independent throughout the duration of its journey, but maintaining autonomy requires ongoing leadership attention. The forces of efficiency operate 24/7 inside an organization, rooting out any cost perceived to be superfluous; standing against these forces requires the constant application of a counterforce that only the company’s most senior leaders can provide. In the quest for efficiency, what has been somehow forgotten is the vital leadership role that corporate executives can play in fostering organizational innovation by countenancing the creation of multiple profit formulas and housing these different businesses in a portfolio of business models.

Use M&A to create internal business model disruption and renewal. Lastly, while we’ve focused most of our attention on organic activities, there’s a very valuable role for M&A in a business growth engine. 13 Although at the extreme, this approach can result in a quasi-conglomerate structure that history has proved to be ineffective, there are exceptions. EMC Corp., based in Hopkinton, Massachusetts, adopted this approach with the creation of its federation structure when it floated VMware Inc., a company it had acquired three years earlier, as a publicly traded subsidiary in 2007. Much M&A activity designed to change an existing business model fails because it’s done for the wrong reasons and managed in the wrong way, often resulting in the integration of units that should remain autonomous. In contrast, EMC’s federation structure allows each business to pursue its individual objectives while coordinating the company’s activity as a whole. This embedded capability for exploiting existing markets while identifying and investing in new markets allowed EMC to expand out of its traditional memory business into machine virtualization, agile development, and information security.

The Greatest Innovation Risk

Executives sometimes prefer to invest in their existing businesses because those investments seem less risky than trying to create entirely new businesses. But our understanding of the business model journey allows us to see that, over the long term, the greatest innovation risk a company can take is to decide not to create new businesses that decouple the company’s future from that of its current business units.

We take great hope from the insights about business model innovation and corporate renewal that we have explored in this article — not because we believe that business units can evade or escape the journey that we have described, but because we believe that the corporations that house these units can. There remains much to be learned about corporate renewal and the business model journey, but we hope that insights from the business model road map can help companies learn how to create robust corporate-level business creation engines that will renew their organizations and power growth. The challenge is great — but so are the potential rewards.

About the Authors

Clayton M. Christensen is the Kim B. Clark Professor of Business Administration at Harvard Business School in Boston, Massachusetts. Thomas Bartman is a former senior researcher at the Forum for Growth and Innovation at Harvard Business School. Derek van Bever is a senior lecturer of business administration at Harvard Business School, as well as director of the Forum for Growth and Innovation.

1. PwC, “2015 US CEO Survey: Top Findings — Grow and Create Competitive Advantage,” n.d., www.pwc.com.

2. Z. Lindgardt and M. Ayers, “Driving Growth with Business Model Innovation,” October 8, 2014, www.bcg.perspectives.com.

3. See D.A. Garvin, “The Processes of Organization and Management,” Sloan Management Review 39, no. 4 (summer 1998): 33-50. In discussing processes, we refer to all of the processes that Garvin identified in that article.

4. This business model framework was developed in 2008; see M.W. Johnson, C.M. Christensen, and H. Kagermann, “Reinventing Your Business Model,” Harvard Business Review 86, no. 12 (December 2008): 50-59.

5. For more information about organizational capabilities, see C.M. Christensen and S.P. Kaufman, “Assessing Your Organization’s Capabilities: Resources, Processes, and Priorities,” module note 9-607-014, Harvard Business School, Boston, Massachusetts, August 21, 2008, http://hbr.org.

6. See E.H. Schein, “Organizational Culture and Leadership” (San Francisco, California: Jossey-Bass, 1985).

7. It’s worth noting that startups typically begin with one business unit, which is the company. Then as the organization grows, companies typically create corporate offices and business units that separate responsibility for the administration of the organization from the specific business. Today, managers tend to operate lean corporate offices that often function as thin veneers between the business and investors, but we believe that there is a vital role for the corporate office in leading business creation and developing innovation.

8. P.F. Drucker, “The Practice of Management” (New York: Harper & Row, 1954).

9. For a more complete treatment of jobs to be done, see C.M. Christensen, T. Hall, K. Dillon, and D.S. Duncan, “Competing Against Luck: The Story of Innovation and Customer Choice” (New York: HarperCollins, in press).

10. W. Shih and M. Pierson, “Boeing 737 Industrial Footprint: The Wichita Decision,” Harvard Business School case no. 612-036 (Boston, Massachusetts: Harvard Business School Publishing, 2011, revised 2012).

11. S.C. Wheelwright and K.B. Clark, “Creating Project Plans to Focus Product Development,” Harvard Business Review 70, no. 2 (March-April 1992): 70-82.

12. Authors’ teleconference with David L. Morse, executive vice president and chief technology officer, Corning Inc., March 8, 2016.

13. J. Gans, “The Disruption Dilemma” (Cambridge, Massachusetts: MIT Press, 2016).

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50 Innovation Examples: Exciting Innovative Ideas in Business

Published: 26 November, 2023

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Table of Contents

In the Business environment , strategic innovation has taken centre stage as a fundamental catalyst for business success. The ever-changing market conditions and the swift progress of technology require companies to perpetually adjust and introduce innovation to stay ahead of the competition. Within this dynamic environment, the domain of innovation provides an expansive and limitless vista, offering a multitude of prospects that encompass the inception of fresh products and services and the crafting of digital business models. These prospects are virtually boundless, establishing innovation as a foundational element of business strategy .

Creative innovation , characterized by the ability to think outside conventional boundaries and generate new innovative ideas , plays a pivotal role in this landscape. It is the spark that ignites the creation of groundbreaking solutions and fuels the evolution of industries. The significance of creative innovation examples cannot be overstated. They serve as compelling illustrations of how embracing innovation can lead to remarkable success for companies. These real-world instances not only inspire but also provide tangible evidence of how innovation can revolutionize entire industries.

At Digital Leadership, our prowess extends to innovation consulting , where we are dedicated to aiding organizations in unlocking their inherent innovation potential. With a focus on providing an innovation blueprint, our commitment is to guide and support businesses, enabling them to leverage innovation as a powerful catalyst for industry transformation. 

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Corporate training, innovation consulting and much more.

In this article, we will explore some of the most captivating and inspiring innovations in business Examples spanning various industries. We delve into these case studies to gain a deeper understanding of their profound impact on the market, revealing the potential for innovation to reshape the business Environment in remarkable ways.

What is Innovation?

Innovation definition in business is the process through which an individual or organization embarks on creating entirely fresh products, processes, and concepts, or reimagining existing products, processes, and concepts in novel ways. it’s about reshaping how organizations operate, enhance value creation , and interact with stakeholders. 

It revolves around adapting to the ever-changing needs and expectations of customers, adding and creating value to society. The jobs-to-be-done theory stands out as a widely embraced approach to achieving this objective. This theory emphasizes the identification of the specific tasks or “jobs” that customers hire products or services to fulfil, enabling businesses to craft more targeted and customer-centric solutions.

Whether it involves the creation of novel products, enhancements to existing ones, advancements in technologies, or the establishment of business model innovation , an Innovation program becomes indispensable for fostering growth, maintaining co mpetitive advantage , and driving social progress. Many businesses grapple with the challenge of innovating effectively in the absence of a well-defined plan. This underscores the critical importance of understanding the diverse types of innovation.

Complementing the concept of innovation is the crucial component of an innovation strategy . An innovation strategy serves as the blueprint for organizations to systematically foster and harness the power of innovation. It involves a comprehensive plan that outlines how an organization will allocate its resources, identifies potential innovation opportunities , and establishes the necessary processes and structures to support innovation initiatives. A well-defined innovation strategy is crucial for aligning the business goals with its innovative efforts and for ensuring that innovation becomes an integral part of its culture.

Exponentially Accelerating Change is a transformative concept that demands attention from organizations seeking to secure their future in a rapidly evolving landscape. This model emphasizes the urgency of incorporating innovation into the very fabric of  business strategy . Understanding the exponential nature of technological advancement is crucial for anticipating disruptions and staying ahead of the curve.  The ability to navigate and harness the potential of exponentially accelerating change can propel organizations into positions of industry leadership. In a world where staying relevant is synonymous with staying innovative, this model serves as a strategic guide for businesses to not only weather the waves of change but to ride them towards sustained success. You can download it now.

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Successful Corporate Innovative Ideas Examples 

In the corporate business world, success is often synonymous with innovation. It’s not merely about adopting innovation as a concept; it’s about orchestrating innovative ideas into masterpieces that define the very essence of success. As we delve deeper into the realms of corporate innovation and explore exemplary company innovation examples , we uncover the strategies and groundbreaking approaches these companies have employed, dissecting the components of their success symphonies. 

Beyond the surface, we’ll examine the intricate notes of innovation that have propelled these organizations to the summit of their respective industries, and how these companies have transformed the business environment, leaving an indelible mark on the melody of success.

Exploring new innovation ideas , these companies serve as beacons of inspiration in the realm of corporate innovation . From pioneering disruptive technologies to embracing incremental improvements, they showcase the diversity of approaches that contribute to the ever-evolving landscape of business success. These company innovation examples illuminate the path for others to follow, encouraging a culture where new innovative ideas are not only welcomed but celebrated.

Corporate innovation isn’t a one-size-fits-all concept. It’s a symphony where each company plays its unique melody of success. The resonance of their innovative ideas reverberates in the business world, inspiring others to harmonize their strategies and create their own successful symphonies. As we explore these company innovation examples , we witness the transformative power of embracing new innovation ideas, underscoring that the melody of success is ever-evolving and shaped by the continuous pursuit of innovation in all its forms.

Examples of Innovation in Business

In the dynamic landscape of business, the pursuit of innovation is a cornerstone for growth and adaptability. Companies that embrace innovation not only stay relevant in competitive markets but also often become trailblazers that set new industry standards. The essence of innovation lies in the ability to think differently, solve problems creatively, and continuously evolve. 

(1) Product Innovation Examples

Product innovation involves the development of a new product or the enhancement of an existing one, strategically crafted to address customers’ needs in a unique and innovative manner. 

Successful Innovative Products Examples include the introduction of electric cars, smart home technologies, or advancements in medical devices. The process of product innovation involves generating and exploring ideas that challenge the status quo, encouraging creativity and the discovery of solutions that have the potential to revolutionize industries and capture the imagination of consumers. It’s through these forward-thinking endeavours that product innovation truly comes to life, shaping the landscape of markets and paving the way for transformative advancements.

1) Apple Product Innovation:

Apple Company stands as a paramount example of product innovation, redefining the way people interact with mobile devices. Despite not being the initial creator of touchscreen devices, Apple’s distinctive edge lay in its meticulous attention to user interface (UI) and user experience (UX), creating devices that were not only accessible but also garnered a dedicated following. The introduction of the iPhone, with its seamless touch interface and intuitive design, set a new standard for the entire smartphone industry.

2) Ikea Product Innovation

Ikea the global furniture giant revolutionized the furniture industry by selling innovative products in a ‘flat-pack’ format. This not only improved the convenience and logistics of furniture purchasing but also positioned Ikea as the go-to brand for value furniture. Customers could now transport and assemble furniture easily, reducing costs and enhancing the overall customer experience . Ikea’s approach transformed the way people buy and assemble furniture, setting a benchmark for the industry.

3)Toyota Product Innovation

Toyota company renowned Japanese automotive manufacturer, has embraced a continuous improvement philosophy known as kaizen. Instead of pursuing risky radical transformations, Toyota focuses on core developments that compound over time. This approach has allowed Toyota to stay at the forefront of the automotive industry, introducing incremental innovations in manufacturing processes, fuel efficiency, and vehicle safety.

4) Tesla Product Innovation

Tesla’s impact on the automotive industry is profound, stemming from a combination of groundbreaking innovations. At the core of their success is the introduction of electric vehicles (EVs) that transcend traditional automotive norms. 

Tesla’s commitment to sustainability is evident in its battery technology, notably produced at the Gigafactory, which not only enhances the efficiency of EVs but also lowers overall production costs. The Supercharger network addresses EV charging concerns, providing a rapid charging infrastructure for long-distance travel. 

(2) Process Innovation Examples

Process Innovation involves creating and implementing new or improved processes with enhanced capabilities, functionalities, or efficiencies. It focuses on finding better ways to do things, offering useful improvements over previous methods.

1) Ford Assembly Line Process Innovation Examples

An example of process innovation is the Ford automated assembly line. In 1913, Henry Ford introduced the pioneering concept of an assembly line to enhance automobile production. Through innovative practices, Ford successfully slashed the time required to manufacture a car from 12 hours to an astonishingly efficient less than 2 hours.

Beyond the assembly line, Ford has continued to innovate, incorporating automation, advanced materials, and digital technologies into its manufacturing processes. These advancements have not only improved efficiency and product quality but have also allowed Ford to adapt to the evolving landscape of the automotive industry.

2) MBA Polymers Process Innovation Examples

MBA Polymers is an industry leader in plastic recycling, innovating through advanced sorting and separation technologies. Their automated systems efficiently extract high-quality plastics from complex waste streams, including electronic waste. This process results in recycled plastics with properties comparable to virgin materials, reducing environmental impact and promoting a circular economy. MBA Polymers’ continuous investment in research and development ensures ongoing improvement and adaptability to global waste challenges.

3) Starbucks Process Innovation Examples

Starbucks has revolutionized the coffee industry through pioneering process innovations that prioritize efficiency and customer satisfaction. Their commitment to a seamless and customer-centric ordering and fulfilment process stands out prominently. Leveraging cutting-edge digital technology, Starbucks has introduced mobile ordering systems, allowing customers to place orders and make payments conveniently through their smartphones. This not only streamlines the purchasing process but also enhances overall efficiency. 

Additionally, Starbucks has excelled in delivering personalized customer experiences, utilizing data insights to tailor recommendations and promotions. By integrating technology into every facet of its operations, Starbucks has not only set new industry standards but has also created a dynamic and engaging coffee shop environment for its customers.

(3) Business model innovation Examples

Business model innovation empowers companies to distinguish themselves from competitors through the provision of distinctive value propositions, exploration of uncharted market segments, or harnessing emerging technological advancements. You can download it now.

Business Model Innovation Patterns

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This strategic approach not only facilitates the attainment of a competitive advantage but also ensures that businesses remain at the forefront of the market.

1) Airbnb Business Model Innovation

Airbnb’s impact on hospitality goes beyond its peer-to-peer model, relying on process innovations. User-generated reviews build trust, enhancing host accountability. “Instant Booking” streamlines reservations, catering to immediate needs. Safety initiatives like the Host Guarantee and dynamic pricing show commitment. Diversification with “Experiences” and “Airbnb Plus” enhances offerings. A community-centered approach fosters direct communication among hosts. Amidst COVID-19, the “Enhanced Clean” program addresses health concerns, showcasing Airbnb’s dedication to a unique, secure, and community-driven travel experience.

2) Spotify Business Model Innovation:

Spotify’s freemium model offers features such as personalized playlists and recommendations based on individual listening habits. This enhances the overall user experience and encourages users to explore premium features for an even more tailored and enjoyable music streaming experience.

It strategically expanded its content offering beyond music to include podcasts, diversifying its platform and attracting a broader audience. This move positions Spotify as a comprehensive audio streaming platform, showcasing business model innovation in content delivery.

3) Google (AdWords) Business Model Innovation:

AdWords revolutionized digital advertising with the introduction of keyword targeting, enabling advertisers to bid on specific keywords related to their products or services. This precision targeting ensures that ads reach users actively seeking relevant information, enhancing the effectiveness of advertising campaigns.

Google’s continuous innovation with AdWords includes the introduction of ad extensions. These extensions provide additional information such as contact details, location, and site links, elevating the visibility and impact of advertisements. This business model innovation caters to advertisers’ evolving needs for comprehensive and engaging ad formats.

4) AirAsia Business Model Innovation:

AirAsia’s innovative business model relies on diversifying revenue streams beyond ticket sales. Ancillary services, including in-flight meals, seat selection, and baggage fees, contribute significantly to the airline’s revenue. This à la carte approach enables AirAsia to maintain competitive base ticket prices while offering customers flexibility in choosing additional services.

AirAsia’s embrace of digital technologies for ticket sales, check-ins, and customer interactions represents a strategic business model innovation. This digital transformation enhances operational efficiency, reduces costs, and elevates the overall customer experience , showcasing AirAsia’s adaptability in the dynamic aviation industry.

(4) Technological Innovation Examples

Technology Innovation is about creating or improving technologies for enhanced capabilities. It requires substantial investment in research and development, adaptability to market trends, and a focus on delivering value. Success hinges on effective management of intellectual property, talent, and partnerships.

Delivering value is the ultimate goal of technology innovation. Whether it’s enhancing efficiency, improving user experiences, or solving complex problems, innovative technology aims to make a positive impact. This focus on value creation is what drives the adoption of new technologies and positions them as drivers of progress.

`1) Mobile Technology and Smartphones:

The advent of mobile technology, particularly smartphones, has revolutionized communication, entertainment, and productivity. Smartphones are not merely devices for making calls; they serve as portable computers with features like high-quality cameras, powerful processors, and a myriad of applications that have transformed how individuals access information and connect with the world.

2) Electric Vehicles (EVs) Technological Innovation

Electric Vehicles (EVs) stand as a pinnacle of technological innovation within the automotive sector, ushering in a transformative era for transportation. Key advancements in battery technology, notably the adoption of lithium-ion batteries, play a crucial role in extending driving ranges and minimizing charging times. Complementing these innovations are regenerative braking systems that enhance energy efficiency, and the integration of electric motors like Permanent Magnet Synchronous Motors, ensuring superior performance.

Battery Management Systems (BMS) emerge as critical components, actively monitoring and optimizing battery health to contribute to longevity. Beyond their electric prowess, EVs incorporate autonomous driving features and connectivity options, heightening safety and operational efficiency. The concerted efforts to establish a robust fast-charging infrastructure aim to further reduce charging times, while the incorporation of lightweight materials and aerodynamic design bolsters energy efficiency and overall range.

Adding another layer of sustainability, Vehicle-to-Grid (V2G) technology enables bidirectional energy flow, empowering EVs to contribute surplus energy back to the grid. These collective technological innovations position EVs not only as eco-friendly alternatives but also as efficient solutions that are reshaping the landscape of personal transportation for a sustainable future.

3) Information Technology (IT) Innovation

Innovative solutions continually redefine how businesses operate and interact with the digital realm. Here are two compelling examples that showcase the transformative power of IT innovation:

Artificial Intelligence (AI):

AI involves the development of computer systems that can perform tasks that typically require human intelligence. Machine learning, a subset of AI, enables systems to learn and improve from experience. AI is applied in various domains, including natural language processing, image recognition, and autonomous systems. Companies use AI to enhance customer experiences, optimize operations, and drive innovation in products and services.

Internet of Things (IoT):

IoT refers to the interconnectivity of everyday devices, enabling them to send and receive data. This interconnected network allows for real-time monitoring, analysis, and control of devices. In the home, IoT devices include smart thermostats, security cameras, and wearable devices. In industries, IoT is used for predictive maintenance, supply chain optimization, and more.

Cloud Computing:

Cloud computing has transformed the way businesses store, process, and access data. Instead of relying on physical servers, cloud computing provides on-demand access to computing resources, allowing organizations to scale operations seamlessly. It has facilitated innovations such as Software as a Service (SaaS), Infrastructure as a Service (IaaS), and Platform as a Service (PaaS). 

(5) Service Innovation  Examples

Service innovation involves the development and implementation of new and existing innovation ideas and solutions for improved services, with examples such as Netflix, Uber, and Amazon Prime showcasing innovative services that have transformed their respective industries. Innovative solutions address customer problems, enhance customer experiences, and improve the overall quality and value of services.

Netflix Service Innovation:

Netflix revolutionized the entertainment industry by providing a subscription-based streaming service, allowing users to watch a vast library of movies and TV shows on various devices, disrupting traditional cable and satellite television.

Uber Service Innovation:

  • Uber transformed the transportation industry by introducing a convenient and efficient ride-sharing service through a mobile app. It changed the way people hail rides and significantly impacted traditional taxi services.
  • Uber’s impact includes the gig economy transformation, creating flexible earning opportunities for drivers. The app’s integration of features like real-time tracking and cashless transactions further enhanced the overall ride-sharing experience.

Amazon Prime Service Innovation:

  • Amazon Prime offers a subscription service that includes benefits like fast shipping, access to a vast library of movies and TV shows, and exclusive deals on Amazon’s e-commerce platform, providing a comprehensive package for customers.
  • Amazon Prime’s innovative bundling of services not only boosts customer loyalty but also drives sales on the e-commerce platform. The inclusion of services like Prime Video and Prime Music adds significant value, creating a holistic and competitive membership program.

(6) Value Innovation Examples

Value innovation is about creating a unique value proposition . It involves creating new or improved products, services, or business models that deliver unique value to customers while simultaneously reducing costs. Here are some examples of value innovation:

1) Southwest Airlines Value Innovation:

Southwest Airlines pioneered the low-cost, no-frills model in the airline industry. By eliminating unnecessary services and focusing on efficiency, they provided affordable air travel, challenging the traditional airline business model.

2) Cirque du Soleil value innovation examples:

Cirque du Soleil redefined the entertainment industry by combining elements of circus arts with theatre. This innovative approach created a new form of live entertainment that appealed to a broad audience, distinguishing itself from traditional circuses.

3) Nintendo Wii:

Nintendo Wii introduced a motion-sensing gaming console that appealed to a broader demographic, including non-traditional gamers. This innovation expanded the gaming market by making gaming more interactive and accessible.

(7) Social Innovation Examples

Social Innovation involves developing and implementing new ideas, strategies, and solutions that address societal challenges and improve the well-being of communities. It goes beyond traditional approaches, seeking novel ways to tackle social issues such as poverty, inequality, healthcare, and environmental sustainability. 

It often involves collaboration between various stakeholders, including governments, businesses, non-profits, and communities, to create a positive and lasting social impact. The focus is on finding innovative, sustainable, and inclusive solutions that address the root causes of social problems and lead to positive societal change.

1) Grameen Bank Social Innovation:

Founded by Muhammad Yunus in Bangladesh, the Grameen Bank pioneered the concept of microcredit in the 1970s. It extends small loans, often without requiring collateral, to impoverished individuals, particularly women, to support them in starting or expanding small businesses.

  • Grameen Bank’s model emphasizes financial inclusion and social development, focusing on the empowerment of women as key drivers of economic growth.
  • The program’s success in reducing poverty and empowering women has inspired similar microcredit initiatives worldwide, leading to the establishment of microfinance institutions across the globe.

2) Kiva Social Innovation:

Kiva is an online crowdfunding platform that connects individuals who want to lend money to entrepreneurs in developing countries who need microloans.

Borrowers on Kiva typically have small businesses or entrepreneurial endeavours, ranging from agriculture to small-scale manufacturing or retail.

Kiva’s innovative model allows people from around the world to make small contributions (as low as $25) to collective endeavours, creating a global community of lenders who support businesses in underserved areas.

3) Fair Trade Movement Social Innovation:

The Fair Trade movement promotes equitable trading relationships between consumers in developed countries and producers in developing nations.

Fair Trade standards ensure that producers, often small-scale farmers and artisans, receive fair compensation for their products. This fair pricing helps alleviate poverty and improve the quality of life in producer communities.

The movement also emphasizes sustainable and environmentally friendly practices, encouraging responsible agriculture and production methods.

4) Barefoot College Social Innovation:

Barefoot College’s social innovation extends beyond empowering women from marginalized rural communities to become solar engineers. The organization employs a unique model that emphasizes community-driven development and sustainability. It recognizes the significance of local knowledge and cultural context. The training provided not only equips women with the expertise to install and maintain solar panels but also emphasizes the integration of traditional wisdom and practices. This approach fosters a sense of ownership and self-reliance within the communities.

  • Barefoot College’s commitment to sustainability is evident in its emphasis on renewable energy sources. By harnessing solar power, the organization addresses both the energy needs of rural villages and the environmental impact of traditional energy sources. This aligns with global efforts to promote clean energy solutions and mitigate the effects of climate change.
  • The impact of Barefoot College extends beyond the immediate provision of clean energy. By empowering women in rural areas, the organization contributes to gender equality and women’s economic independence. Women trained as solar engineers not only play a crucial role in improving access to electricity but also become catalysts for broader community development.
  • Barefoot College’s innovative approach has gained international recognition, serving as a model for empowering marginalized communities globally. Its emphasis on skill-building, sustainability, and community-led initiatives underscores the potential for social innovation to address pressing challenges and create positive, lasting change.

5) Mobile Money Services Social Innovation:

Mobile money services like M-Pesa in Kenya have transformed the way people in underserved communities access financial services.

These services enable users to send and receive money, make payments, and access basic banking functions through their mobile phones.

By reducing the reliance on physical banks, mobile money services have significantly increased financial inclusion, making it easier for people in remote or rural areas to manage their finances and access economic opportunities.

(8) Breakthrough Innovation Examples

Breakthrough innovation refers to an internal innovation within a company that propels a product, service, or strategy to a higher level. It not only expands the company’s presence into new markets but also fundamentally alters the dynamics of how customers engage with the market or industry. This transformative process, occurring within the company, often results in a significant shift in market perception and customer interaction.

1) SpaceX Breakthrough Innovation:

  • SpaceX’s groundbreaking development of reusable rocket technology has not only significantly slashed the cost of space travel but has also ushered in a new era of sustainability in space exploration. By successfully landing and reusing rocket components, SpaceX has demonstrated the feasibility of cost-effective space missions. This breakthrough innovation not only has immediate financial implications but also fosters the potential for more frequent and ambitious space exploration missions, including those involving human spaceflight and interplanetary travel.

2) (IBM Watson) Breakthrough Innovation:

  • IBM Watson has consistently pushed the boundaries of innovation across various industries. A standout breakthrough lies in its prowess in natural language processing, enabling it to comprehend and generate human-like text. In healthcare, Watson has played a pivotal role in medical research, drug discovery, and personalized medicine by analyzing vast datasets from clinical trials and patient records. 
  • The financial sector has benefited from Watson’s capabilities in risk assessment and fraud detection, while its application in customer service, through virtual assistants and chatbots, has enhanced user interactions. Watson’s strength in data analytics has found applications in diverse fields, from marketing to supply chain optimization. 

3) Blockchain Technology Breakthrough Innovation:

  • Recent breakthroughs in blockchain technology showcase a dynamic landscape marked by innovations addressing key challenges and expanding the technology’s potential applications. Scalability solutions, including layer-two protocols, are enhancing transaction throughput and alleviating congestion on major blockchains. Interoperability protocols are fostering a more interconnected blockchain ecosystem, enabling seamless communication between different networks.
  • Smart contracts, a cornerstone of blockchain functionality, are evolving to become more secure, flexible, and applicable across diverse industries. Privacy and confidentiality features, leveraging advanced cryptographic techniques, facilitate private transactions and secure data sharing on public blockchains. Additionally, there’s a notable emphasis on improving the energy efficiency of blockchain networks, with a shift toward more sustainable consensus mechanisms. The tokenization of assets, encompassing real estate, art, and intellectual property, is gaining traction, providing a liquid and accessible representation of ownership. 
  • The decentralized finance (DeFi) sector continues to flourish, reshaping traditional financial systems through blockchain-based lending, borrowing, and trading. These innovations collectively highlight the ongoing maturation and diversification of blockchain technology, with implications for industries far beyond its initial application in cryptocurrencies. For the latest developments, it’s advisable to refer to recent updates from the blockchain community.

(9)  Organizational Innovation Examples

Organizational Innovation entails creating and adopting new organizational structures, processes, and practices to enhance the efficiency, effectiveness, and sustainability of businesses. It involves reimagining conventional approaches, embracing emerging technologies and systems, and fostering a culture of innovation within the organization.

1) Morning Star’s Colleague Letter of Understanding (CLOU) Organizational Innovation:

  • Decentralized Decision-Making: The CLOU at Morning Star facilitates decentralized decision-making, allowing employees to negotiate and define their roles, responsibilities, and performance expectations. This approach empowers individuals to take ownership of their work and contribute to the organization’s success.
  • Flexibility and Adaptability: The absence of traditional managers encourages a culture of flexibility and adaptability. Employees can quickly adjust their roles and responsibilities based on changing priorities, fostering a dynamic and responsive work environment.
  • Mutual Accountability: The CLOU promotes mutual accountability, as colleagues collaboratively define expectations for each other. This shared understanding of roles and responsibilities enhances communication and accountability at all levels of the organization.

2) W.L. Gore’s Lattice Organizational Innovation:

  • Collaborative Environment: The lattice organizational structure at W.L. Gore promotes a collaborative and non-hierarchical environment. Employees, known as associates, are encouraged to collaborate across functions and departments, breaking down traditional silos.
  • Project-Based Teams: The lattice structure allows employees to work on multiple projects simultaneously, contributing their skills to various initiatives within the company. This flexibility enhances creativity, knowledge sharing, and innovation.
  • Flat Hierarchy: With minimal hierarchy, decision-making is distributed, and associates have the autonomy to make decisions within their areas of expertise. This flat organizational structure supports a culture of trust and empowerment.

Open Innovation vs Closed Innovation Examples

Continuous innovation vs discontinuous innovation examples, 4 types of innovation examples.

Types of Innovation - Innovation Types

(1) Disruptive Innovation Examples

Disruptive innovation is the concept that the introduction of a product or service into an established industry when it outperforms or offers a more cost-effective solution than existing offerings has the potential to replace market leaders and fundamentally reshape the industry.

1) General Electric (GE) Disruptive Innovation 

General Electric (GE), founded in 1892, stands as a disruptive innovation company that has transformed various industries. Pioneering advancements such as the first Radio Corporation, electric motor technology, and lighting fixtures, GE’s innovations have reshaped communication, illumination, and travel. Renowned scientists like Thomas Edison and Michael Faraday played a crucial role in GE’s success, contributing to the electrified and modern world we know today.

  • First Radio Corporation: GE played a pivotal role in the development of the first radio corporation, revolutionizing communication.
  • Electric Motor Technology: GE’s advancements in electric motor technology had a profound impact on various applications, from industrial machinery to household appliances.
  • Lighting Fixtures: GE’s innovations in lighting fixtures contributed to the widespread adoption of electric lighting, fundamentally changing the way we illuminate our world.
  • Scientists like Thomas Edison and Michael Faraday were instrumental in GE’s success, contributing to the electrification of the modern world. GE’s innovations continue to shape modern society, laying the foundation for advancements in technology and infrastructure.

1- Blockbuster vs. Netflix:

Netflix vx. BLOCKBUSTERS Disruption

  • Convenience and Accessibility:

Netflix’s subscription-based model offered customers the convenience of renting and watching movies from the comfort of their homes without the need to visit a physical store. Although Blockbuster had its charm, the convenience of having DVDs delivered to your doorstep by Netflix disrupted the traditional “go to the store” approach.

And Netflix’s introduction of streaming further increased accessibility, allowing users to instantly watch content on various devices. Meanwhile, Blockbuster clung to the familiar routine of browsing physical aisles. The shift from brick-and-mortar to on-demand streaming was a blockbuster move by Netflix.

  • Personalization:  Netflix utilized algorithms to analyze user preferences and provide personalized recommendations, enhancing the overall user experience. This level of personalization was a stark contrast to the more generic recommendations found in traditional video rental stores like Blockbuster. Netflix wasn’t just about movies; it was about a personalized blockbuster of entertainment tailored for you.
  • Original Content Production:  Netflix’s shift into original content production, with series like “House of Cards” and “Stranger Things,” distinguished it from traditional video rental services. While Blockbuster relied on stocking the latest blockbusters, Netflix created its blockbuster content. This strategic move not only attracted new subscribers but also showcased Netflix’s commitment to being a blockbuster creator, not just a distributor.

3) Cryptocurrency Disruptive Innovation 

Cryptocurrency, utilizing decentralized blockchain technology, has disrupted the financial industry by offering faster transactions, lower fees, and enhanced security. This challenges traditional financial systems, enabling peer-to-peer transactions and empowering individuals to have greater control over their finances. Bitcoin, a prominent cryptocurrency, stands out for providing an alternative to traditional banking control, reshaping the dynamics of finance and the broader economy.

Despite the transformative potential, challenges like regulatory considerations and market volatility must be addressed for cryptocurrencies to fully realize their impact on the financial landscape.

(2) Radical Innovation Examples

Radical innovation is an invention that dismantles or replaces an established business model. Unlike architectural, incremental, or disruptive innovations, radical innovation entails a complete overhaul of existing systems and processes, replacing them with entirely new structures.

1) Electric and Autonomous Vehicles Radical Innovation (e.g., Tesla):

  • The development of electric vehicles (EVs) and autonomous driving technology signifies a revolutionary shift in the automotive industry. Electric vehicles leverage electric power, reducing environmental impact and dependence on traditional fuel sources. Simultaneously, autonomous driving technology aims to enable vehicles to operate without direct human control, utilizing advanced sensors and artificial intelligence for navigation.
  • Pioneering companies like Tesla have been instrumental in driving the widespread adoption of EVs. By combining cutting-edge electric vehicle technology with advancements in autonomous driving capabilities, Tesla challenges conventional transportation models. The impact extends beyond individual ownership, influencing discussions on shared mobility, urban planning, and the future of transportation. Tesla’s innovative approach has prompted other automakers to invest heavily in electric and autonomous technologies, shaping the industry’s trajectory toward a sustainable and autonomous future.

2) Robot-Assisted Surgery Radical Innovation (e.g., da Vinci Surgical System):

  • Robot-assisted surgical systems, exemplified by the da Vinci Surgical System, utilize robotic technology to aid surgeons in performing minimally invasive procedures with heightened precision. These systems typically consist of robotic arms controlled by a console, offering surgeons a greater range of motion and enhanced visualization during surgeries.
  • The innovation of robot-assisted surgery has transformed the landscape of medical procedures. By allowing for smaller incisions, reduced scarring, and improved surgical precision, these systems enhance patient outcomes and accelerate recovery times. The da Vinci Surgical System, in particular, has been employed in various surgical specialities, including urology, gynaecology, and cardiovascular surgery, demonstrating the versatility and positive impact of robotic assistance in the medical field.

3) CRISPR-Cas9 Radical Innovation :

  • CRISPR-Cas9 technology, a continually evolving gene-editing tool, showcases ongoing advancements in precision and diverse applications. This revolutionary technology allows scientists to modify DNA sequences with unparalleled accuracy, offering promising avenues for treating genetic disorders, creating genetically modified organisms, and addressing agricultural challenges.
  • Ongoing developments in CRISPR technology underscore its versatility and potential across various fields. In medicine, CRISPR holds promise for personalized therapies and treatments for genetic diseases. In agriculture, it enables the development of crops with desirable traits, contributing to food security. While the technology presents ethical considerations, its ongoing evolution continues to shape genetic research, therapeutic interventions, and the broader landscape of biotechnology.

(3) Incremental Innovation Examples

Incremental innovation involves making a series of small enhancements or upgrades to a company’s existing products, services, processes, or methods. The modifications introduced through incremental innovation typically concentrate on improving the development efficiency, productivity, and competitive differentiation of an existing product.

1) Smartphone Incremental Innovation:

The smartphone industry, known for its dynamic pace, consistently introduces incremental innovations through successive model releases. Each iteration serves as a stepping stone for technological advancement, ushering in improvements in crucial features such as camera quality, processing speed, and battery life. These enhancements not only meet the evolving demands of users but also contribute to the overall refinement of the user experience. From enhanced photography capability to faster processors and extended battery longevity, each iteration represents a strategic response to market trends and user expectations.

2) Software Applications Incremental Innovation:

Companies regularly engage in the practice of releasing incremental updates. These updates are pivotal in maintaining the integrity and functionality of the software by addressing bugs, refining performance, and introducing new features. The iterative nature of these improvements ensures that the software evolves to meet changing user needs and technological standards. Through ongoing updates, companies not only rectify issues but also optimize the user experience, fostering a dynamic and responsive relationship between the software and its users.

3) Automotive Incremental Innovation:

The automotive industry demonstrates a commitment to safety through the continual integration of incremental innovations in safety features. Technologies such as lane departure warnings, adaptive cruise control, and collision detection systems are systematically refined and seamlessly integrated into newer car models. This incremental approach allows manufacturers to enhance vehicle safety without compromising overall design or functionality. As these safety features evolve, they contribute to the industry’s collective goal of creating vehicles that provide not only efficient transportation but also prioritize the well-being of drivers, passengers, and pedestrians.

(4) Architectural Innovation Examples

Architectural innovation takes place when novel products or services leverage existing technology to establish new markets or attract consumers who had not previously considered purchasing that particular item.

1) Valve Corporation Architectural Innovation:

  • Employee Autonomy: Valve’s flat structure empowers employees to choose projects based on their interests and expertise. This autonomy fosters a sense of ownership and accountability, encouraging innovation and creative problem-solving.
  • Elimination of Traditional Hierarchy : Valve does not have traditional managers or hierarchies. This absence of bureaucracy promotes a more fluid and agile decision-making process, enabling the company to respond quickly to market opportunities.
  • Fluid Project Teams: Employees at Valve can move freely between projects, forming dynamic and fluid teams. This promotes knowledge sharing, diverse skill development, and the ability to tackle projects with a fresh perspective.

2) DevOps Architectural Innovation:

  • Integration of Development and Operations : DevOps breaks down silos between development and operations teams, fostering collaboration throughout the software development life cycle. This integration aims to improve communication, efficiency, and the overall quality of software releases.
  • Automation : DevOps emphasizes the automation of manual processes, including code deployment, testing, and infrastructure management. Automation reduces the risk of errors, accelerates release cycles, and enhances overall system reliability.
  • Continuous Integration and Continuous Delivery (CI/CD): DevOps practices promote a continuous integration and continuous delivery pipeline, allowing for the rapid and reliable release of software updates. This approach minimizes downtime and ensures a smoother user experience.

3) HubSpot’s Architectural Innovation:

  • Content-Centric Approach : HubSpot’s Inbound Marketing methodology revolves around creating valuable content to attract, engage, and delight customers. This content-centric approach positions HubSpot as a thought leader in the industry and builds trust with its audience.
  • Digital Channels and Analytics : Inbound marketing leverages digital channels such as blogs, social media, and email, combined with analytics tools to track user behaviour. This data-driven approach allows for targeted and personalized marketing strategies based on customer insights.
  • Customer-Centric Strategy : The methodology places a strong emphasis on understanding and addressing the needs of the customer. By creating content that aligns with customer interests and challenges, HubSpot builds a customer-centric marketing strategy.

Conclusion 

Innovation, in its myriad forms, stands as the driving force behind the ever-evolving landscape of progress. The examples woven throughout this exploration unveil a rich tapestry of creativity, showcasing the profound impact of human ingenuity across diverse domains. From the transformative leaps of disruptive innovations by companies like Tesla and Walmart to the nuanced, iterative advancements seen in the smartphone and software industries, the spectrum of innovation is vast. Beyond technological marvels, the realm of organizational innovation paints a picture of companies like Morning Star and W.L. Gore, exemplifying how flexible structures and collaborative environments can redefine efficiency.

The dichotomy of open and closed innovation strategies emphasizes the strategic choices organizations make to propel themselves forward. As we delve into the dynamic interplay of continuous and discontinuous innovation, we recognize the need for both steady progression and paradigm-shifting leaps in our journey forward. The innovation journey, marked by resilience, adaptability, and creativity, remains an ever-unfolding narrative, with the promise of groundbreaking discoveries and societal transformations on the horizon.

Frequently Asked Questions 

1- what are some innovative ideas.

Innovation is the driving force behind progress, addressing societal needs and pushing the boundaries of what’s possible. Here’s a closer look at the innovative ideas highlighted:

  • Elderly Care Robotics: The idea centres around leveraging robotics to revolutionize elderly care. These robotic companions not only assist with daily tasks but also serve as health monitors and sources of companionship. In an ageing population, this innovation tackles the challenges of elderly care, enhancing the well-being of seniors while easing the burden on caregivers.
  • Sustainable Packaging Alternatives: The focus is on creating eco-friendly packaging solutions, replacing traditional plastics in the food and retail industries with biodegradable or reusable materials. Addressing environmental concerns, this idea responds to the urgent need for sustainable practices in consumer packaging, contributing to a greener future.
  • Virtual Health Assistants : This idea involves implementing AI-driven virtual assistants dedicated to healthcare, offering personalized advice, and medication reminders, and facilitating connections with healthcare professionals. Bridging gaps in healthcare accessibility, this innovation promotes proactive health management and empowers individuals to take charge of their well-being.
  • Blockchain for Supply Chain Transparency : The concept revolves around using blockchain to establish transparent and traceable supply chains, ensuring authenticity and ethical sourcing of products. Combating counterfeiting and promoting fair trade practices, this innovation responds to consumer demands for transparent and ethically produced goods.
  • Community-Based Renewable Energy: This innovative idea centres on empowering communities through shared ownership of renewable energy projects, fostering local sustainability with solar or wind farms. Addressing energy challenges, this approach not only contributes to environmental conservation but also economically empowers communities.

2- How does organizational innovation impact efficiency?

Organizational innovation, particularly through practices like decentralized decision-making, flexibility, and mutual accountability, plays a pivotal role in enhancing efficiency within a company. Here’s a closer look at the impact and significance of these elements:

  • Decentralized Decision-Making : By decentralizing decision-making, organizations empower employees to take ownership of their work. This not only expedites decision processes but also taps into the collective expertise of individuals throughout the organization. Streamlining decision-making enhances overall agility. In a rapidly changing business landscape, the ability to make informed decisions quickly is a key component of staying competitive.
  • Flexibility and Adaptability : The absence of rigid hierarchies allows for a culture of flexibility and adaptability. In this environment, roles and responsibilities can be quickly adjusted to align with changing priorities or market dynamics. In a business landscape characterized by uncertainty and evolving consumer demands, a flexible organizational structure is crucial. It enables companies to respond swiftly to market shifts and stay ahead of the competition.
  • Mutual Accountability: The promotion of mutual accountability ensures that colleagues collaboratively define expectations for each other. This shared understanding of roles and responsibilities enhances communication and accountability at all levels of the organization. Accountability is the bedrock of a high-performing organization. When every team member is accountable not only to their immediate superiors but also to their colleagues, it fosters a collaborative culture that propels efficiency.
  • Dynamic Work Environment: Collectively, decentralized decision-making, flexibility, and mutual accountability contribute to the creation of a dynamic work environment. Teams can adapt quickly to changing circumstances and seize opportunities. A dynamic work environment is not just a response to change but a proactive stance toward innovation. It encourages experimentation, continuous improvement, and the ability to navigate complexity.

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OpenAI teases an amazing new generative video model called Sora

The firm is sharing Sora with a small group of safety testers but the rest of us will have to wait to learn more.

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OpenAI has built a striking new generative video model called Sora that can take a short text description and turn it into a detailed, high-definition film clip up to a minute long.

Based on four sample videos that OpenAI shared with MIT Technology Review ahead of today’s announcement, the San Francisco–based firm has pushed the envelope of what’s possible with text-to-video generation (a hot new research direction that we flagged as a trend to watch in 2024 ).

“We think building models that can understand video, and understand all these very complex interactions of our world, is an important step for all future AI systems,” says Tim Brooks, a scientist at OpenAI.

But there’s a disclaimer. OpenAI gave us a preview of Sora (which means sky in Japanese) under conditions of strict secrecy. In an unusual move, the firm would only share information about Sora if we agreed to wait until after news of the model was made public to seek the opinions of outside experts. [Editor’s note: We’ve updated this story with outside comment below.] OpenAI has not yet released a technical report or demonstrated the model actually working. And it says it won’t be releasing Sora anytime soon. [ Update: OpenAI has now shared more technical details on its website.]

The first generative models that could produce video from snippets of text appeared in late 2022. But early examples from Meta , Google, and a startup called Runway were glitchy and grainy. Since then, the tech has been getting better fast. Runway’s gen-2 model, released last year, can produce short clips that come close to matching big-studio animation in their quality. But most of these examples are still only a few seconds long.  

The sample videos from OpenAI’s Sora are high-definition and full of detail. OpenAI also says it can generate videos up to a minute long. One video of a Tokyo street scene shows that Sora has learned how objects fit together in 3D: the camera swoops into the scene to follow a couple as they walk past a row of shops.

OpenAI also claims that Sora handles occlusion well. One problem with existing models is that they can fail to keep track of objects when they drop out of view. For example, if a truck passes in front of a street sign, the sign might not reappear afterward.  

In a video of a papercraft underwater scene, Sora has added what look like cuts between different pieces of footage, and the model has maintained a consistent style between them.

It’s not perfect. In the Tokyo video, cars to the left look smaller than the people walking beside them. They also pop in and out between the tree branches. “There’s definitely some work to be done in terms of long-term coherence,” says Brooks. “For example, if someone goes out of view for a long time, they won’t come back. The model kind of forgets that they were supposed to be there.”

Impressive as they are, the sample videos shown here were no doubt cherry-picked to show Sora at its best. Without more information, it is hard to know how representative they are of the model’s typical output.   

It may be some time before we find out. OpenAI’s announcement of Sora today is a tech tease, and the company says it has no current plans to release it to the public. Instead, OpenAI will today begin sharing the model with third-party safety testers for the first time.

In particular, the firm is worried about the potential misuses of fake but photorealistic video . “We’re being careful about deployment here and making sure we have all our bases covered before we put this in the hands of the general public,” says Aditya Ramesh, a scientist at OpenAI, who created the firm’s text-to-image model DALL-E .

But OpenAI is eyeing a product launch sometime in the future. As well as safety testers, the company is also sharing the model with a select group of video makers and artists to get feedback on how to make Sora as useful as possible to creative professionals. “The other goal is to show everyone what is on the horizon, to give a preview of what these models will be capable of,” says Ramesh.

To build Sora, the team adapted the tech behind DALL-E 3, the latest version of OpenAI’s flagship text-to-image model. Like most text-to-image models, DALL-E 3 uses what’s known as a diffusion model. These are trained to turn a fuzz of random pixels into a picture.

Sora takes this approach and applies it to videos rather than still images. But the researchers also added another technique to the mix. Unlike DALL-E or most other generative video models, Sora combines its diffusion model with a type of neural network called a transformer.

Transformers are great at processing long sequences of data, like words. That has made them the special sauce inside large language models like OpenAI’s GPT-4 and Google DeepMind’s Gemini . But videos are not made of words. Instead, the researchers had to find a way to cut videos into chunks that could be treated as if they were. The approach they came up with was to dice videos up across both space and time. “It’s like if you were to have a stack of all the video frames and you cut little cubes from it,” says Brooks.

The transformer inside Sora can then process these chunks of video data in much the same way that the transformer inside a large language model processes words in a block of text. The researchers say that this let them train Sora on many more types of video than other text-to-video models, varied in terms of resolution, duration, aspect ratio, and orientation. “It really helps the model,” says Brooks. “That is something that we’re not aware of any existing work on.”

“From a technical perspective it seems like a very significant leap forward,” says Sam Gregory, executive director at Witness, a human rights organization that specializes in the use and misuse of video technology. “But there are two sides to the coin,” he says. “The expressive capabilities offer the potential for many more people to be storytellers using video. And there are also real potential avenues for misuse.” 

OpenAI is well aware of the risks that come with a generative video model. We are already seeing the large-scale misuse of deepfake images . Photorealistic video takes this to another level.

Gregory notes that you could use technology like this to misinform people about conflict zones or protests. The range of styles is also interesting, he says. If you could generate shaky footage that looked like something shot with a phone, it would come across as more authentic.

The tech is not there yet, but generative video has gone from zero to Sora in just 18 months. “We’re going to be entering a universe where there will be fully synthetic content, human-generated content and a mix of the two,” says Gregory.

The OpenAI team plans to draw on the safety testing it did last year for DALL-E 3. Sora already includes a filter that runs on all prompts sent to the model that will block requests for violent, sexual, or hateful images, as well as images of known people. Another filter will look at frames of generated videos and block material that violates OpenAI’s safety policies.

OpenAI says it is also adapting a fake-image detector developed for DALL-E 3 to use with Sora. And the company will embed industry-standard C2PA tags , metadata that states how an image was generated, into all of Sora’s output. But these steps are far from foolproof. Fake-image detectors are hit-or-miss. Metadata is easy to remove, and most social media sites strip it from uploaded images by default.  

“We’ll definitely need to get more feedback and learn more about the types of risks that need to be addressed with video before it would make sense for us to release this,” says Ramesh.

Brooks agrees. “Part of the reason that we’re talking about this research now is so that we can start getting the input that we need to do the work necessary to figure out how it could be safely deployed,” he says.

Update 2/15: Comments from Sam Gregory were added .

Artificial intelligence

Ai for everything: 10 breakthrough technologies 2024.

Generative AI tools like ChatGPT reached mass adoption in record time, and reset the course of an entire industry.

What’s next for AI in 2024

Our writers look at the four hot trends to watch out for this year

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Google’s Gemini is now in everything. Here’s how you can try it out.

Gmail, Docs, and more will now come with Gemini baked in. But Europeans will have to wait before they can download the app.

Deploying high-performance, energy-efficient AI

Investments into downsized infrastructure can help enterprises reap the benefits of AI while mitigating energy consumption, says corporate VP and GM of data center platform engineering and architecture at Intel, Zane Ball.

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IMAGES

  1. Business Model Innovation: 7 Steps To Master BM Innovation

    what is an example of a business model innovation

  2. 50 Types of Innovation in Business- Examples

    what is an example of a business model innovation

  3. Business Model Innovation

    what is an example of a business model innovation

  4. The Innovation Process: Importance, Steps, Types, Examples, and Risks

    what is an example of a business model innovation

  5. 4 Steps to Business Model Innovation

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  6. Business model innovation: What it is and why it matters (2023)

    what is an example of a business model innovation

VIDEO

  1. What is Business Development

  2. TYPES OF BUSINESS MODELS WITH EXPLANATION AND EXAMPLE

  3. Types Of Business Model Discussion in this Video // Business Model Discussion

  4. Different types of business models

  5. Business model doesn't matter

  6. Business model innovation in Hindi (animation)| by Dhaval Dhruv

COMMENTS

  1. What is Business Model Innovation? Definition, Framework, Examples and

    Top 10 Best Practices for Business Model Innovation What is Business Model Innovation? Business model innovation is defined as the process of creating, modifying, or defining the fundamental structure and components of a business model to create new value propositions, capture new market opportunities, and gain a competitive advantage.

  2. Business Model Innovation: Strategies and Examples for Successful

    Conclusion What is Business Model Innovation? Business model innovation is the process of creating new ways of delivering value to customers. It involves making fundamental changes to the way a business operates, including its revenue streams, cost structure, and distribution channels.

  3. Business Model Innovation: What It Is And Why It's Important

    Business Model Innovation Example: The Video Game Industry Amazon is not the only company known for continuously innovating its business model. The video game industry, for example, has gone through a number of periods of business model innovation in recent years, Collier says, by envisioning new ways in which to make money from customers.

  4. Guide to business model innovation: Strategies and examples

    Business model innovation examples. Netflix: Streaming revolution. Uber: Ride-sharing disruption. Blockbuster: A cautionary tale. LEGO: Reinventing the brick. Zipcar: Car-sharing pioneer. Conclusion. In an ever-changing world, business model innovation is something every product manager and entrepreneur should focus on.

  5. Business Model Innovation

    Examples of innovative business models How to create business model innovation Conclusion The Definition of Business Model Innovation One of the common mistakes people make when it comes to business models is that they simply look at them very narrowly as just the pricing model for their products and services.

  6. Four Paths to Business Model Innovation

    An Example. Traditional call centers hire a staff to supply services as needed from a place of work, incurring significant up-front costs and risks. ... Business model innovation is a wonderful ...

  7. Four Business Model Innovation Examples for the Modern Enterprise

    Platforms such as Amazon, Facebook, and Google are prime examples of this approach in practice. These world-renowned brands have created entire ecosystems that enable developers to build on top of their existing infrastructure, creating new products and services to deliver additional value to their customers.

  8. Business Model Innovation : What Is It and Why It Matters

    Another example is Airbnb. It disrupted the hotel industry with innovative peer-to-peer accommodation arrangements and tourism experiences. These companies boldly shook up the status quo and became staples in our lives. Strategies in Business Model Innovation

  9. Business Model Innovation Delivers Competitive Advantage

    Business model innovation is the art of enhancing advantage and value creation by making simultaneous—and mutually supportive—changes both to an organization's value proposition to customers and to its underlying operating model.

  10. Four Steps to Sustainable Business Model Innovation

    Let's consider three examples. The first is Telenor, the leading Norwegian mobile operator. In 2008, having entered Pakistan three years earlier, it joined forces with the microfinance bank Tameer.

  11. Business Model Innovations: Components and Types with Examples

    Example: A firm that produces renewable resources is an example of capability building innovation. The capabilities of this firm will be highly different from the petroleum-based business model. Creating ethanol from sugar cane, sugar beet, corn and sweet potato which is completely from drills, pump out, refine petrol.

  12. What is innovation?

    In a business context, innovation is the ability to conceive, develop, deliver, and scale new products, services, processes, and business models for customers. Successful innovation delivers net new growth that is substantial. As McKinsey senior partner Laura Furstenthal notes in an episode of the Inside the Strategy Room podcast, "However ...

  13. Innovation in Business: What It Is & Why It's So Important

    Innovation can help you stay ahead of the curve and grow your company in the process. Here are three reasons innovation is crucial for your business: It allows adaptability: The recent COVID-19 pandemic disrupted business on a monumental scale. Routine operations were rendered obsolete over the course of a few months.

  14. A guide to innovative business models (with examples)

    Business model innovation can be challenging for a company. Analysing the value proposition and operational strategies might lead to insights that recommend extensive changes to ensure the company has a chance of long-term success. ... This is an example of successful business model innovation by staying close to their customers' needs. It also ...

  15. 50+ business model examples

    50+ business model examples Discover innovative business models, see visualizations of their different revenue streams, and copy ideas for your startup. Download guide Table of content Who is this guide for? How to choose the right business model Business model inspiration Companies to learn from Who is this guide for

  16. Business model innovation: What it is and why it matters

    by Isidora Markovic February 28, 2023 As we become more and more involved in the changing world, businesses need to adapt to new demands and trends. Any profitable business needs to be innovative in order to survive. In many industries, new products or services are essential.

  17. Business Model Innovation: Turning Disruption to Competitive Advantage

    The Covid-19 pandemic and the growing use of A.I. technology are two examples. If you imagine your business model as a house, a disruption is like an earthquake that requires you to rebuild part (or all) of your house. A strong business model is like a good insurance plan-even if the earthquake hits, you won't be left unprotected.

  18. Business Model Innovation: Definition & Example

    Business model innovation is the enhancement of an organization's existing business model to adapt to consumer behavior and external factors. Look into the definition and examples of business ...

  19. Business model innovation: a review and research agenda

    Business models can be developed through varying degrees of innovation from an evolutionary process of continuous fine-tuning to a revolutionary process of replacing existing business models. Recent research shows that survival of firms is dependent on the degree of their business model innovation ( Velu, 2015, 2016 ).

  20. 5 Business Model Innovation that will inspire you

    Guides Diego Geroni on October 12, 2021 5 Business Model Innovation that will inspire you Creating a business model innovation for your organization? Check out some of the notable examples of inspiring business model innovation before you start! Many startups in the past developed solely on the foundation of the introduction of new technology.

  21. The Hard Truth About Business Model Innovation

    The hard truth about business model innovation is that it is not the attributes of the innovator that principally drive success or failure, but rather the nature of the innovation being attempted. Business models develop through predictable stages over time — and executives need to understand the priorities associated with each business model ...

  22. 50 Innovation Examples: Exciting Innovative Ideas in Business

    Check Innovation Blueprint In this article, we will explore some of the most captivating and inspiring innovations in business Examples spanning various industries.

  23. OpenAI teases an amazing new generative video model called Sora

    OpenAI has built a striking new generative video model called Sora that can take a short text description and turn it into a detailed, high-definition film clip up to a minute long.. Based on four ...