Monday, July 29, 2019

Three Pitfalls of Business Model Innovation

A business model should not only be used for describing, analyzing, and predicting the evolution of a business system, but also provide a framework for managing its performance throughout the business growth life cycle.

The business model describes the rationale of how an organization creates, delivers, and captures the multidimensional value. Look at the business model as the “what” the business is all about or what it will do for customers. It’s an entire frame of elements that describe the intents and constraints of a business. The digital business world nowadays is so information-oriented and change-intensive, tuning business model is all about foreseeing and applying emerging trends, that’s where you win the competitive advantage. But business innovation overall has a very low success rate. How to avoid the following pitfalls to lead successful business model innovation?

Either too abstract or lack of focus: Business models should be simple, intuitive, but it doesn’t mean it should be too abstract to come up with a step-wise approach. At the high level of abstraction, it could be a sentence long or many paragraphs, but behind the scenes, there’s a lot of “homework” to be done for getting the executive sponsorship and buy-in. At the detailed level, the management needs to emphasize analytic information or it requires that there would be any formal analysis of the business model practicability. Too abstract or lack of focus means that the business model innovation is not goal-congruent with the business strategy; there is a lack of alignment of people, process or technology; lack of resources, or lack of expertise to truly deliver it. A real business model is an analytical model that lists all of the sources of value, cost, and risk, and contains formulas to interconnect them. Business models can be holistically evolved through feedback and probes, subjectively and objective evolved, refined, changed, measured, and then repeated. The challenging part of the real business model is to model a particular business growth scenario by capturing the business trends and evolving the emerging events; also be careful of what cost optimization/restructuring/performance measures need to be considered, and focus on delivering the business results in a consistent way.

Business model designers may speak in different languages: Business model innovation usually involves different departments of the company to build cohesive business competency for creating differentiated business value and benefit for the entire company. One of the many paths to attempt to avoid innovation pitfall is the mindset, words, and concept descriptions used, which often cause misinterpretation because each functional executive or manager speaks in their own dialect without the common understanding. For example, people from IT tend to want to create taxonomies all the time. People in business care more about the actual concepts and the numbers. People from different departments usually have different perspectives and some of them perhaps don't realize how extremely important a quantitative model is. It is important to speak the common business language, facilitate the digital dialogues between organizational decision-makers, enhance cross-functional business coordination, develop knowledge & expertise to make business model innovation really working and ensure the business as a whole is superior to the sum of pieces.

Culture eats business model innovation for lunch: No matter where you start your business model from (customer needs, technological leaps, market gaps, etc.) will mean very little unless you can simultaneously build a culture that can execute and support the new business models. The business model is not static, but a living thing, to enable organizations to renew themselves for generating new revenue stream and business value. Keep in mind, there are tensions between old and new business models, and there is the culture inertia existing in may well-established companies. Thus, strategizing the process of business model innovation should start with understanding the style of the leadership, what the leadership preaches, and what it actually promotes. It’s also important to design structural or nonstructural processes that enable business model innovation, as well as hire and promote people with a growth mindset to learn the new way of delighting customers or exploring the new marketing territories. The business model needs to allow space for innovation and explore the varying possibilities. Strategy, structure, and culture must be developed in tandem for real sustainability.

A business model should not only be used for describing, analyzing, and predicting the evolution of a business system, but also provide a framework for managing its performance throughout the business growth life cycle. A strong business model is difficult to copy and it is differentiated in the marketplace. But there are also numerous barriers or pitfalls to make it work and sustain its value. Organizations just have to overcome the challenge to improve business profitability and renew business competitiveness.


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