Business Model Innovation

Business Model Innovation

Have you ever wondered why hyper successful
companies like Nokia or Kodak suddenly lose their edge?
Or how could firms like Commodore Computers, Grundig, Nakamichi, Newsweek or
Polaroid possibly fail? Did they not have abundant R&D resources,
top employees and profound knowledge of their markets?
Yes, but they had another thing in common: They all missed the moment when they should
have left their successful path to rethink their business model.
They missed out on radical innovation because they were too busy managing daily business
and serving current clients – instead of envisioning future opportunities.
In other words: Today‘s success is the enemy of tomorrow‘s success! The innovation cycle spins faster than ever
in nearly all industries. Innovation either increases the customer value
of a product or service or it lowers their costs – and therefore creates a competitive advantage.
Apple, for instance, creates a high perceived customer value with its innovative new
products. And Dell reduces its costs and working capital through build-to-order-processes. But even though its importance is undisputed,
there are many misconceptions about innovation. Three myths are particularly pervasive: First, innovation stems from ideas nobody
has had before. Second, big success requires big resources. And third, innovation breakthroughs are always
based on fascinating technologies. Luckily, they are all wrong! IBM did not invent the Personal Computer,
Apple did not invent MP3 technology, and Amazon did not invent the online book store.
Successful innovators learn and recombine – whereas the pioneers get eaten by the
wolves. Cisco had virtually non-existent R&D resources,
but out-innovated the largest research lab in
the world, AT&T’s Bell labs. 14 of todays 25 most innovative firms have
innovated their business model – and not just
their technology! Take firms such as Google, Amazon, or Ebay.
Great algorithms, yes, but it is the business model not just the technology that is responsible
for their success. So, what exactly is a business model innovation? A business model provides answers to four
questions: Who is your target customer?
What do you offer to the customer? How do you create the value proposition?
And how do you generate revenue? And a business model innovation changes at
least two of these four dimensions! In our research, we have looked at all major
business model innovations in the past 50 years.
They have all revolutionised one or several industries. For instance, Ikea has redefined
the way we buy furniture, TomTom has transformed
the navigation business, or Ebay has changed the world of trade.
Yet only 10% of these business model innovations were novel and introduced new business
model patterns.The other 90% merely adapted, refined or combined these patterns. For
instance, innovative companies often apply creative imitation.They ask themselves: How
could a business model innovation from another industry revolutionise our own industry? In total, we have identified 55 business
model patterns that are responsible for all business
model innovations. For example Flatrate, Supermarket, Rent Instead
of Buy, Experience Selling, E-Commerce or the Razor and Blade Pattern. Let‘s have a look at this one:
Since 1904, Gillette has been giving away Razors for next to nothing, but selling its
blades at obscenely high prices.
Nespresso creatively imitated this pattern, selling cheap coffee machines and expensive
coffee – and revolutionised the coffee industry. And many other companies applied the Razor
and Blade Pattern, too. Remember Apple’s iTunes, Amazon’s Kindle
or Hewlett Packard‘s Inkjet-Printers? Now, what do YOU have to do to innovate YOUR
business model? We advise you to follow four steps: Initiation,
ideation, integration, and implementation. During Initiation, you analyse your current
business model. Again: Who is your target customer?
What do you offer to the customer? How do you create the value proposition?
And how do you generate revenue? During Ideation you confront this business
model with the 55 business model innovation patterns and develop new models.
How would Nespresso conduct your business? Or is there a match between your product and
the experience selling pattern?Challenge your basic assumptions and the dominant logic of
your industry. But don’t try to reinvent the wheel.
Instead, use analogies and learn from other industries. During Integration you need to check the consistency
of the business model. This is important detail work where you examine
all four questions regarding organizational fit. Finally, during Implementation, it is time
to awaken the beast. But be careful!
In iterative cycles, you design a business model, build a pilot, test the pilot and return
to the design phase.
It is important to not only gain qualitative and quantitative data to verify or falsify
your assumptions about your new business model
but also not to forget about the soft factors of
innovation! Thanks to incorrect management behaviour and
organisational resistance more than 70% of all change initiatives fail! Therefore, keep
a few rules in mind: First, only implement one business model at
the time. Second, clearly communicate the new business
model and the need for change. Third, don’t overemphasise short term KPIs.
Innovation needs time. Fourth, get top management commitment. Without
their sponsorship,s business model innovation is doomed to fail!
And finally, overcome the not-invented-here syndrome! Got that? Let‘s wrap it up then.
Innovation is THE key factor to defeat path dependency and stay competitive in today‘s
economy. Yet,innovation is not necessarily about new
technologies, excessive research and development, or about creating completely
new ideas. Most of the time, innovation is about
learning from others and reinventing your business model – not just your technology.
This can be done in a structured process of initiation, ideation, integration, and
implementation: You analyse your business model, apply the 55 innovation patterns, check
for inconsistencies and start implementing carefully – keeping in mind success factors
and pitfalls. Are you ready then to revolutionize your own
industry? Try to creatively learn from the giants whose
shoulders you are standing on! Think big and think different. Steve Jobs
did it – so why can‘t you?

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About the Author: Oren Garnes


  1. HI this is great …. you guys have done a good job. Only few minutes to understand business model innovation … GREAT Keep it up

  2. Great video! What are the 55 business model patterns? Is there an overview available of? 
    P.S Johanna is stunning <3

  3. Hi!! I'm a huge fan of St Gallen teams' work on videos. I always visit your channel to get some inspiration (I work on digital education/training but for corporates). How do you do the animations? what do you use as software? please send me a PM or email. Thanks 🙂

  4. Hey there, I like this video. When you going to have more of these type of videos?

    If you want to add some really cool videos, that are animated and get customers to call you, then check out my videos and website.

    Bests Regards and keep adding videos.

  5. I kinda think that in the business mode, the question ' what do u provide for your customer' is a little similar to 'how do u create your value proposition'

  6. I watched this video 3 times, but I don't understand about 2/3 of the entire video. That girl distracted me so much.

  7. HSGUni–this is all that is needed to be known. It needs 3 views to take it all in and if the girl distracts some -so be it. But it needs more videos on each sub set as each revolution you point to needs more detail –BTW -lets get away from Steve–there are many more innovators than just him and when you are in manufacturing with a CNC lathe it is very hard to relate to IT

  8. Great info.  Too bad they felt the need to stick a guy in a dress and the need to ruffle the feathers of half the potential American audience by having to slide the picture of BO and how he is the brand of change.  I guess keeping politics out of business was just too much for the academic.

  9. I would like to thank you for this video beautifuly designed, i want to ask you just about the software that you used to make animations of this video. thkx

  10. I would like to thank you for this video beautifuly designed, i want to ask you just about the software that you used to make animations of this video. thkx

  11. For anyone who has ever felt that the system is stifling innovation or that the bottleneck is at the top of the bottle, Management Innovation is the key to unlocking the shackles that bind us to legacy management practices and beliefs

  12. That was the clearest and the best video i ve ever seen. Man that should take so much of time. Cutting the small papers clouring and drawing the stuffs

  13. HSGUniStGallen could you please post the SAME video without the GIRL.. She distracted me A LOT… prettiest girl (falling in love) Cheers thanks for the info

  14. What is the source used in the statement that 70% of innovations fail due to incompetent management or organisational resistance? Good video, good information, thank you!

  15. Excellent video. I am looking forward to watching more of your videos

    Would be great if you would check out my channel and videos as well.

  16. Hey, check out a game I made for android:

  17. Hmm.. Apples sells the same devices back to its customer over and over again lol. they work just a little faster. Now thats a great model.

  18. very amazing video ,, i need to make something like this video but i need to know what is the program you use in the video .. plz ??

  19. thanks for the video.
    but i think this video is too fast.

    but really i appreciate this video.
    big thanks.

  20. concentrate, concentrate, concentrate….oh cute girl…concentrate, concentrate,concentrate….oh cute girl…etc…8mins later, didn't learn a thing.

  21. Excellent video on the current research and principles of Innovation. I think today we have to also examine purpose within the framework of innovation. What we are seeing today is a generation who seek purpose in life. Why do we seek purpose (fulfillment)? Our needs are met to such a level that what is left to fill is a sense of fulfillment. Organizations desiring to attract the best talent will have to have a compelling purpose too. Money can only coerce someone to stay for so long.

  22. the cute girl kept me rewinding to the last part before she entered, every single time she appeared! gaddamit focus! focus! LOLs!

  23. What a shitty interpretation of company failures. The main reason of Kodak failure not the luck of innovation. They invented digital cameras.The reason of their failure was the pressure of investors demands for quarterly profits and unclear future. How many days CEO of the successful public company would stay on his position after he tells that he is going to disrupt existing growing business for some uncertain future? These business school theorists are trying to package into their nice business case reality which is not always conform to their theory. Kodak was in the digital cameras market. And had the same chances to survive as Olympus. But rigid structure, slow and unresponsive company management didn't allow them to create a products customer want's at the speed customer want's. And note that Kodak demise happened before smartphone cameras have taken market.The IBM, Kodak, Xerox, Motorola, Nortel, Nokia were all times innovators with more patents granted then most of their competitors combined. What they luck this is speed in implementation, empathy to the customers needs and the most important courage to make a serious bets against stable future.This is rarely possible in public company without majority stakeholder who would support such plan. Michael Dell should make company private to pursue his vision. HP at the same time is on the road to irrelevance, because they are listening to the MBA accountants who favor short-term quarterly profits in favor of company future.

  24. Check out our new 55+ Business Model Pattern Cards on Amazon. Based on dozens of workshops with companies we identified a few new patterns.
    Good luck with implementation!

  25. The business model framework that I know of has the key question "Why" in the middle". I find it much more relevant actually. Anything that is done without the human element of the creator, the meaning one puts behind creating a business model is only partial. The other questions remain, of course. 1.Why? 2. Who? 3. What (a) do I offer, b) is my value proposition)? and 4. How?… What'do you think?

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