9 Innovative Business Model

V. Abirami

1.0 Introduction

Every business has a unique model which is involved in the creation and delivery of value to the clients which leads to a sustainable growth. When there is a pressing need to look out for more sustainability for the beneficiaries, scale up the impact of the product or the service offered at a reduced cost, then one should analyse the existing gaps and identify ways and means to introduce an innovative business model.

Innovation in Business models is essentially rethinking and realigning one’s business approach with respect to resources, process, client, profit formula and creation of value. It is a challenging endeavour to promote a new approach to the existing business model especially using the available resources in an effective manner. While a fresh approach could be brought to the existing model, business innovation also refers to the revamping the basic structure of the business, commonly known as disruptive innovation.

2.0 Disruptive Business Model

Disruptive business models bring a sea change to the traditional business practices, policies and processes. An oft-quoted common example of disruptive innovative business model is Uber creating a common platform for the cab drivers and people on the lookout for a cab. This online meeting point has redefined the service industry to a great extent. On the other hand, the innovation brought about by Dell Computers brought a decisive impact on the business. In order to strongly establish in the highly competitive computer hardware industry, Dell redesigned its business process by getting into Direct sales to service of Dell Computers removing the distributor and the retailer from the business chain who did not add value to the client or the end-user.

3.0 Traditional versus New Players

Business models are undergoing rapid transformation and disruption more often than ever before and hence in order to sustain and be successful in this highly competitive market, the rule of the game should be relooked, revised and if necessary revamped to avoid decadence. For instance, with the advent of online MOOC (Massive Open Online Courses), several premier universities across the world are vying with one another to offer courses on this platform. For any new player in the market, innovation in business model is yet another experiment as they are radical in outlook and are passionate to explore the heights of the possibilities. But the well-established business houses are hesitant and reluctant to change their strategies in order to try an innovative business approach. The established companies usually take efforts to study the possibilities for innovation, but rarely put it into practice for the fear of failure. It is important to restructure the thought process or the belief system of the established companies in order to stimulate innovation.

4.0 Innovation in the Corporate World

Innovative Business Model is the need of the hour. But statistics reveals that though the corporate world is aware of the pressing need for innovation in business models, they do not focus on systematic application of innovative business model. Also in their annual budgeting, the corporate institutions do not allot more than 10% for designing innovative business models. On the other hand, the innovative business model designing that comes out of academic research is still looked upon as a young, while a silos model of innovation has a lesser reach in the industry.

5.0 Belief Systems in the Business World

Every business plan is essentially built on a belief system that governs the profit made out of the business model. The belief system associated with every business is unique and significant. For instance, in the filmdom or the media world, fame and TRB are believed to define success whereas retention of clients is observed to be the reason for success. Such belief systems are usually considered to be non-negotiable until a disruptive innovator comes to shatter or violate this belief system for better prospects. In the present scenario, in order to ensure sustainable success, one should be ready to take a bold move to reframe the belief system that is primarily considered to be the most important contributing factor for successful business prospects.

For the successful business operation, a business model should have a fool-proof economic model for investments and revenue generation, strategies to maintain customer relationship, key operations and the like. For each of these features, a number of innovative business models are available.

5.1 From Competence to Astuteness

The driving force behind any successful business enterprise is the constant improvement and revamping of efficiency. In terms of both product and service, the client requirements are constantly changing and hence even before a product is well-reached in the market, it demands innovation in terms of improved efficiency, additional features and the like. Hence the companies should be proactive to foresee the future requirements, interests and progress, and plan well in advance.

Companies have move from efficient working principle to intelligent working principle. While designing a product for instance, the company should ensure the flexibility of embedding intelligence for future requirements so that the product can be upgraded without becoming obsolete. Though it requires phenomenal intelligence to anticipate the challenges and address the same during the present, it is becoming more and more common to adopt to such innovations. For instance, Anab Jain, Designer, futurist and Cofounder of Superflux, translates the uncertainties of the future in the present and works for solution. By creating new ways if seeing, being and acting, she inspires and challenges us to have a critical approach to the decisions made in the present day world.

Another real world example is how the Changi Airport in Singapore uses quick feedback cycles to reframe the services offered by the airport authorities from efficiency to user satisfaction, thereby opening new vistas of business opportunities. Every service offered in the Airport is regulated and improvised by the quick feedback from the clients which has effectively contributed to the winning of the World’s Best Airport Award. Hence from the efficient functional service called customer feedback, today, it has innovatively moved to an intelligent winning customer experience.

5.2 Trust to Empowerment:

Cornerstone of any successful business enterprise is the retention of the loyalty of the customers. Till date, in spite of the advent of digital technology, the most reliable form of advertisement is the positive feedback of loyal customers. Companies also cash in on the feedback from the clients, which positively contribute to the progress of the organisation. Though companies ensure the retaining of loyal customers by addressing their customised requirements, the present day digital technology has open the flood gates of opportunities which has not only displaced the role of companies, but has enhanced the outcome.

Earlier, the companies, based on the feedback, led the customers to choose the correct product or service. But the present day technology has equipped the customers to pick and choose, design and collaborate to reach their desired outcome. For instance, an architect may listen to the requirements of a client and prepare a number of models accordingly and present it to the client. The client chooses one among the proposed designs. But the present day innovation involves the client in designing the building, though he or she might lack technical expertise.

A number of online platforms guide people by offering interactive design build collection, along with the requisite expertise and tools so that, the clients are empowered to create or their own design pattern. For instance, it is a common scenario to observe in an investment firm, the ways and means adopted by financial experts in guiding their clients in investments. But it is not too far to have an interactive platform for financial expertise where the clients will be offered tools for decision-making and the associated risks that one must anticipate during investments coupled with general investment information. This innovation of empowering the clients offers a sense of liberty tot them who feel better connected with the organisation as their choice and decision was recognized and accepted.

5.3 Possession to usage:

It has been a traditional belief that the company’s reputation is built on the assets and resources owned which are generally scarce and find an indispensible place in the progress of the organisation. In order to keep the competition at bay, it was considered that the best way to ensure total and thorough access to the assets and resources is ownership. In the traditional business approach, the extent of exclusive access to resources was correlated to the success of the organisation.

In the recent times, it has been observed that most of the monopolised resources are under-utilized or sometimes go unutilized. Furthermore the digital age has been constantly advocating transparency and the key to succeed is efficient collaboration. For instance, Tesla did not patent or restrict its electric vehicle design to itself. In order to promote more electric vehicles, Elon Musk has offered the innovative design for any vehicle manufacturer to switch over to cleaner vehicle production. Also Uber, and other Housing service companies are cashing in on the attitude of the clients to effectively use the existing resource rather than owning an asset.

Such innovative business models shake the very belief system of the owning and monopolising assets and instead push them to reframe the belief system of effective management of shared resources which promotes a healthy competition and augments overall growth of the industry.

5.4 No cost service/product:

Goods and service have been traded for centuries together with a traditional belief system that in order to sell more, one has to proportionately increase the production. An increase in production translates to increase in resources, labour and equipment. Though the increase in production will result in lower cost per unit, still there is a cost factor involved.

This very belief system has been shaken in the present times due to digitization. This has been rated as one of the one important disruptive innovation in business model, moving from low cost to no cost. Instead of one customer using the product or service at time, no cost innovation model promotes the simultaneous use of product or service by multiple customer, resulting in zero production cost. MOOC Courses, one of the most well-received innovation is a standard illustration of providing quality education at almost zero cost.

Another Indian example in the telecommunication Industry is the launching of JIO by Reliance. JIO offers unlimited voice plans and 4G connectivity which has been well received by the customers and in future, if the network reaches its expected return, it could even offer incremental data service, free of cost so as to retain the customers.

6.0 The Business Model Navigator

The Business Model Navigator is a successful Business Model practised in a number of successful corporate in order to create successful business model.

6.1 Four Dimensions of Innovation

There are four dimensions attributed to the different phases of innovation in business model namely, the What, the Who, the How and the Why. The What refers to the product or service offered to the clients. The Who refers to customer profile that the business model caters to. The How represents the means by which value is crated for the business and the Why elaborates on the revenue model of the business firm.

The design model elaborates on a four-step process which includes three phase-business model designing and the final phase of realization of the designed innovative model.

6.2 Initiation Phase

In the first phase of innovative business model, the Initiation Phase, an understanding of the business eco-system coupled with the analysis of the relationship of the business firm with its clients, competitors, and partners is done. Also the identification of business model change drivers, which is a crucial step in implementing the innovative business model, is done during this initiation phase. The model change drivers could range from technological to behavioural changes to drive the innovative business model. The objective of the initiation phase is to gain a thorough comprehension of the existing business model and identify the focus areas in the current model which has a potential for implementing innovation.

6.3 Ideation Phase

In the ideation phase, based on the outcomes of the initiation phase, the objective is to create innovative business model ideas. Innovative business ideas from various industries are drawn and the team is made aware of various innovative solutions from different industries which have resolved challenges similar to theirs. Ideas are pooled in from different industries and those ideas which could be could be put into practice are sieved through and such selected ideas are taken forward for the next phase for implementation.

6.4 Integration Phase

In the integration phase, the chosen ideas are taken forward and developed further. During the ideation phase, ideas are randomly pooled and the selected ideas focus on one or two dimensions of a business model. Hence, in the integration phase, the focus is to streamline these ideas and assimilate it to the next higher level. The correct form of resources and processes required to translate these innovative business ideas are explored and ensure that the proposed innovative business model fits into the existing business ecosystem that includes customers, business partners and competitors.

6.5 Implementation Phase

The next phase gets into an action mode where the integrated phase moves further for implementation. A pilot project that introduces the streamlined idea in the integration phase in order to test the market is called the implementation phase. The learning from this implementation phase helps in re-designing the innovative business model and the objective of this phase to release a tested and proven innovative business model that fits best in the existing business ecosystem.

The Business Model Navigator Source: Gassmann, Frankenberger, & Csik (2014, p.24)

7.0 Successful Business Model Innovation

There are a number of innovative business models available so as to ensure extended business opportunities, prevention of wastage of resources, extending the product life, thereby leading to a sustainable and successful business model. Some of the successful business model innovation are discussed subsequently.

7.1 Product Service System (PSS)

In the present scenario, customers are keen on utilizing the function or service offered by a product but not on the ownership of the product. As an innovative business model, companies can offer these desired functions on a service contract instead of selling the product to the customer. When the product is still controlled by the company, the utility or service can be maximized by constant monitoring, servicing and upgrading the service as per the client requirements. Such an innovative business model has already been practised by some of the reputed firms such as InterfaceFLOR is offering flooring service through lease option. The tiles are designed based on biomimicry and hence could be re-manufactured when they are worn out.

Digital Lumens is offering intelligent lighting services aspiring to reduce energy-consumption related to lighting by 90% and its future plan is to rather offer only service instead of selling the device or equipment to the client.

7.2 Dematerialized services

An innovative business plan wherein a company offers product benefits to the clients though the company may not own or manufacture any physical product by itself. Instead, through collaboration, by means of sharing and grouping of resources from different service providers, looking at the requirements of the clients, potential service is offered even without producing the actual physical product.

For instance, NetFlix offers music and film by means of mail or internet through outsourced infrastructure.

7.3 Collaborative Consumption

The usage of products and service among business organizations and public at a predetermined cost leads to collaborative consumption which leads to income generation for the product owner and better and easy access to the product for the users. The extent to which this innovative business model can work, ranges from peer to peer consumption in an organisation to services offered online or through cloud.

For instance, Warp it encourages its employees to sell and buy products among themselves by offering a platform. Swapstyle is an online portal that permits swapping of clothing and bags for free.

7.4 Resource Management

In order to augment the profit of an organisation, and to reduce the usage of raw materials for production, many companies adopt an innovative business model called the Resource Management wherein the company motivates its employees to re-scale and re-furbish the used-product. By adopting such sustainable innovative models, it leads to the reduction in production cost.

There are a number of business enterprises which adhere to such innovations. For instance, RDC, an IT asset Disposition Company had been a market leader in recycling the used computer equipment. FLOOW2 is an innovative business model where a platform or space is created for the sharing of physical resources and man power among companies and institutions.

7.5 Sustainable Model Production

Products are designed to have a high shelf life period than the usual, thereby increasing the durability of the product which leads to the reduction in consumption. For instance, instead of replacing the whole toner cartridge of the printer, Kyocera has come out with an innovative approach wherein only the toner needs to be replaced, significantly reducing the cost, and continue printing 500, 000 pages without disturbing the cartridge.

8.0 IBM’s Three Ways to Innovate the Existing Business Model

Three main types of Innovations proposed by IBM Institute for Business Value and IBM Global Business Services are

   (i) Industry Model

(ii) Revenue Model

(iii) Enterprise Model

8.1 Industry Model Innovation:

Innovation in the industry value chain by means of moving into new industries, re-vamping the existing industries and creating a new industry altogether refers to Industry Model Innovation.

8.2 Revenue Model Innovation

Re-orienting the product, service along with the pricing models is referred as revenue model innovation

8.3 Enterprise model Innovation

This model refers to the changing of the extended enterprise and networking with the employees, customers and suppliers.

9.0 Conclusion:

In the last decade, many companies have entered the Fortune 500 List due to the innovative business model that they have adopted, which has resulted in the total transformation in the business process, policy and procedure, bringing a global visibility to the organisation. Innovative business model can be extended all types of businesses and it is the acumen and expertise of the business leaders to identify the ways and means of unlocking those innovative business opportunities, thereby emerging as a global leader.

Web links

• https://daim.idi.ntnu.no/masteroppgaver/006/6339/masteroppgave.pdf
• https://www1.unisg.ch/www/edis.nsf/SysLkpByIdentifier/4334/$FILE/dis4334.pdf
• http://www.iese.edu/research/pdfs/di-0870-e.pdf
• https://www.nri.com/global/opinion/papers/2002/pdf/np200249.pdf
• http://onlinelibrary.wiley.com/doi/10.1002/bse.1939/full