The recent HBR blog post, Why Large Companies Struggle With Business Model Innovation (http://blogs.hbr.org/2013/09/why-large-companies-struggle-with-business-model-innovation/?utm_source=Socialflow&utm_medium=Tweet&utm_campaign=Socialflow) does a great job of highlighting the importance of business model innovation and highlighting three barriers: Lack of top management support and attention; reluctance to experiment and failure to pivot.
I couldn’t agree more with the importance of business model innovation – it’s central to our work at enlight becasue business model definition, refinement and (often) innovation is critical to positioning a company for long-term value creation. I applaud the authors for identifying the three barriers. However, in our experience there are two more barriers that are preventing companies from innovating their business models:
1) Lack of understanding
‘Business model’ is one of the most over-used and ill-understood terms in business. If you ask ten different people to define the term, you will undoubtedly get at least ten different answers…plus a couple of blank stares. A business model, as the post suggests, is simply how the company makes money delivering value to customers. It is determined by the revenue and cost drivers of the business. At enlight, we view defining the business model as one of the three critical elements of determining the company’s strategy. (The other two elements are: 1) target customers and 2) the unique value you deliver to customers.)
2) Lack of customer intimacy
The end of the post hints at this one, but it is not called out as being critical to business model innovation. Not only will customer intimacy reveal flaws in business models (as the post mentions), it will reveal opportunities for innovation. Unfortunately, most companies are too busy trying to control the message or convince customers that they don’t take time to listen. Really listen. Embrace complaints and praise equally. Ask questions. Observe. Learn from your customers. Learn about them. The investment is invaluable. Countless opportunities to innovate will reveal themselves.
At enlight, defining our client’s business model and exploring ways to innovate it is central to our work to position companies for long-term value creation. Once we define the business model, we begin to get to know the company and customers to identify ways to refine it and/or innovate.