Business Model Innovation

Business model innovation is about new ways that an organization creates, delivers and captures value. More specifically, business model innovation refers to the creation of a unique and differentiated business, or the reinvention of an existing business to enhance its value proposition, capture new market opportunities and achieve competitive advantage.

Business model innovation is of particular relevance during times of economic turbulence and intense competition. For example, business survival during a downturn in the economy will require either consolidation, organizational innovation or the reinvention of the business. Changing market forces and changes in the external environment can also influence how a business delivers value to the market, and this has the potential to trigger the need for business model innovation. Osterwalder proposed and described the nine dimensions (orange boxes) of a business model as outlined in the diagram below:

A brief description of each dimension of a business model is outlined below:

1. Core Capabilities – An organization’s key activities in relation to its products and services.
2. Partner Network – The business alliances and collaborations that an organization establishes.
3. Value Configuration – The resources the organization requires to deliver value to the customer.
4. Value Proposition – The differentiated offer of products and services that an organization provides to its target customers to deliver value.
5. Target Customer – The group of customers targeted within a market segment.
6. Customer Relationship – The links and relationships established between an organization and its customers.
7. Distribution Channel – The means by which an organization delivers its products and services to the target market segment.
8. Cost Structure – The costs associated with delivering products and services.
9. Revenue Stream – The way an organization generates a variety of income flows.

Modifying one or more of the nine dimensions of the business model through implementing and recombining innovative approaches to increase value, can result in the reinvention of a business and thus a business model innovation. Amazon.com and Dell computers are two great examples of business model innovation. Amazon gave us a new way to purchase books and other products, while Dell created a business model to quickly deliver made-to-order computers through customers placing orders through the internet.

Osterwalder’s business model canvas is a great template that can be used to design, develop and review an organization’s business model.

Dr John Kapeleris