Business model innovation is the core that fuels the growth and sustenance in a market-driven economy. This is in contrast to the planned economy, where macroeconomic plans and policy combined with structured investments in capital and labor create infrastructure and fuel transformation. While it is true that no entity operates exclusively within the realm of either model, management selection and cultural bias has a significant impact on long-term outcome.
Experience suggests that business model innovation is superior in its microeconomic adaptation, in creating new economic DNA and in generating new value chains. Over the long-term this leads to a strong, diverse and resilient economic system. The long-term potential driven by consistent business innovation is substantially superior to that of planned outcomes. Planned responses are intellectually more appealing to management since they create a misplaced sense of purpose, structure and security. It is therefore not surprising that many of today’s large enterprises that operate externally in a market-driven economy, operate internally as planned economies and scarcely foster a culture of business innovation.
While these firms were built on solid foundations of customer value and business innovation, over time these genes were lost to onerous management. This bias towards planned models leads to seemingly predictable, short-term business performance but threatens the very existence of the business in the mid-to-longterm. Under threat of survival, some firms recover their long lost innovative genes and reinvent themselves.
To foster business innovation, experience suggests that leadership needs to focus on a few key areas.
The first step is for the organization to be customer-centric and value-centric. This means all aspects of the business need to be customer-focused rather than internally focused, and all functional groups should be aware and conscious of the promise of the brand, and their own impact on this promise. Building and maintaining customer awareness, and organizing people and processes around the customer in all areas of the company, is crucial to achieve this.
The next step is for corporate leadership to develop a better understanding of the innovation spectrum, and broaden their own view of what represents innovation within their business. Most organizations limit their view of innovation to something that occurs at their research labs or sometimes the strategic discussions in the board rooms. The most valuable innovations occur day after day, embedded deep in the functional processes, operations and within the supply-chain. It is these innovations that transform core strategies and ideas into defensible and measurable customer value.
It is also important to recognize the distinction between innovation and business innovation. Business innovation is the process that transforms market opportunities, in combination with individual strands of technical and functional innovation, into sustainable business models. This requires efforts that go far beyond labs and research facilities. It requires the deep awareness, commitment and involvement on the part of all areas of the business to recognize market needs.
It is critical for management to recognize the key role of the human capital both within their company, and within their extended supply-chain. Processes do not innovate nor does technology. In many ways the need for understanding the customer, supporting business innovation and preserving the value of the firm should be the fundamental expectation from each individual in the firm, no matter their functional role.
Our perspective of several industrial sectors suggests that a critical understanding of the role and the effective practice of business innovation differentiates the high-performance sectors and players. Successful players are effective at evolving a series of innovation strands to create reinforcing patterns that become a source of extreme value. IBI