Commentators, critics and governments have been imploring businesses to be more innovative. Although innovation is normally associated with a new product or service, I’m going to look at innovating your business model in this article.
A business model is not focused on what you do but HOW your business creates, delivers and captures value. Much has been written and debated about the impact of online businesses on traditional brick and mortar business. However, going online does not change the core business in many instances, it just adds another communication channel for sales or service.
There’s greater success in doing a business model innovation as this takes a system wide view rather than a typical ‘bolt-on’ view. We’ll look at a diverse range of examples, including gaming, house wares, insurance, software and coffee. Some have an online component and some do not, but in all cases they changed an industry, or delivered a very different value proposition.
One famous company with an innovative business model is IKEA. They offer customers well designed and modern furniture at a competitive price. The furniture’s flat-pack nature means that you will likely find stock in the warehouse; so your impulse buy can be accommodated and loaded directly into your car. Although you need to assemble the furniture, with a bit of luck your new bookcase will be ready by afternoon. Compare this with a typical furniture store offering a limited range, where items need to be ordered, delivered and finally installed a month later.
Gaming consoles such as Xbox and Sony Playstation used to conquer the domain of gamers. When Nintendo brought the Wii to the market, they did not attempt to target the same market but a new market altogether, based on the needs of a family rather than the average gamer. They delivered motion sensing games and accessories to make gaming a social family activity and in turn, created a completely new market.
The essence of business model innovation is identifying your target market, developing a value proposition for it and a business model that can deliver to it. It’s important to decide what you will not do for the customer as it is to identify what you will. For great reading on this, look out for “Business Model Generation” by Alexander Osterwalder et al.
Here’s a simple question: When are drivers most likely to have an accident?
Answer: P-platers have the highest risk of accidents, which is why insurance premiums are so high for young drivers. Insurance companies shy away from this market, either by refusing to write a policy or via expensive premiums.
British car insurer “Insure the Box” has specifically targeted this market. They offer lower premiums than competitors, and adjust premiums over time. They can do this by understanding their customers’ age, where they live, their car type and how they drive every day. They achieve this by installing a telematics monitoring box under the car’s dashboard, which reports in real-time. Drive carefully and premiums go down, drive aggressively and they go up. The device can detect an accident and also track the car if it’s stolen.
Finally, one of the great retail successes of the past decade has been the Nespresso machine and its coffee pods. A decade ago, our choices for a good espresso were limited, either pop over to a local café or use a high tech machine for coffee aficionados.
The Nespresso machine managed to bring decent espresso to the masses with some 1000 patents to its design. The genius of this is we no longer need to buy coffee grounds in bags, but little pods that we can buy online or in beautiful stores. We now buy coffee like we buy razor blades from Gillette!
Many of these examples are from large global brands that you know well. Local examples include car-hire firm GoGet, enterprise software tools from Atlassian, outsourcing services from Freelancer and MicroSourcing and comparison service iSelect for buying health insurance. In each case, they created a new business that challenged the status quo and made household names for themselves.