Abstract 5: Business Model Innovation
Business models are the framework by which the enterprise links ideas, market change forces and technologies to yield a favorable economic outcome. Every company has a business model be it articulated or latent. Further each business model ahs certain unique characteristics to the enterprise that can create competitive advantage or be a liability. Sometimes both occur depending on circumstances and timing.
Historically business models have been “closed” in that they evolved over time from within the enterprise in response to opportunities and threats. With the advent of the information age and the “Silent Revolution” internally derived business models are losing effectiveness and are being shaped by external forces under the umbrella of “open models”.
All business models have 6 basic and often critical elements including the:
- Value Proposition
- Market Segmentation
- Value Chain
- Cost Structure and Profit Potential descriptions
- Value Network
- Competitive Strategy
The Value Proposition and Market Segmentation describe what value will be created and for whom – the customer(s). The Value Chain describes how that value will be delivered with the Cost Structure and Profit Potential estimates assessing how much it will be worth to the enterprise. The Value Network holds who are the direct and indirect stakeholders in the market and how they’ll be considered or linked facilitating the enterprise in being successful. Finally, the Competitive Strategy describes how the enterprise will create and defend their competitive advantage.
Depending on the nature of the business, and the enterprise within in it, these 6 basic elements can describe a simple undifferentiated business (e.g., Mom and Pop restaurant) to one that defines the marketplace (e.g., Wal*Mart).
The fully developed business model, sometimes called a Platform Player, which shapes the market, has the following characteristics:
- Directs the evolution of the market in their favor
- Encourages those in the value network to fit their business models to the Platform Player’s model.
- Drives investment in furthering the Platform Players model and strategy
- Integrates their business model with customers and suppliers
- Uses the business model as a driver of innovation
- Partners share risks and investments with the Platform Player’s innovation process
- IP is managed as a strategic asset
- Innovation and IP management is embedded in every business unit