Getting Started in Business Model Innovation

Global delivery system business model

Global delivery system business model (Photo credit: Wikipedia)

What is a business model?

Business model innovation is the new management buzz word these days but a lot of managers are still clueless about what it really means, and even after getting past all the academic terms and definitions, they remain nonplussed with regard to where to start. Having been through the academic part of learning and multiple conversations with top executives, I will strip the term, ‘business model’, to its basic essence before moving to exciting part about ‘business model innovation’.  Here is exactly how I explain business model to managers.

The term ‘business model’ refers to these three components:

1. Value Proposition

The value proposition refers to the value you want to sell to your customers. It could be tangible or intangible value. The way you think about your products or services should ideally be in terms of the value it offers, such as utility, convenience, comfort, beauty, confidence, etcetera.

The second essential component of any business model is,

2. Revenue model

The revenue model refers to who and how you achieve revenue. This is different from pricing model. There are terms to describe a few of these popular revenue models that you probably already heard of. A company can earn revenue from any of the following models: Subscription, advertising, rental/lease model, freemium models, affiliation, commission, etcetera. This list is not exhaustive. Familiar examples to illustrate this would be Linkedin that uses a freemium model. Users can use it for free but a premium is charged for additional services or features. Facebook on the other hand uses the advertising model.

And the last component is

3. Business Process and System

Business process refers to the methods and infrastructure you use to execute the first two components above: customer value proposition and revenue model. This is where you get a lot of management frameworks which talk about how you can deliver your value proposition and earn your revenue in a more efficient and scalable manner. You probably have heard of the Lean Six Sigma, Michael Porter’s strategic forces and so on. But, business process and system goes beyond the managerial framework you use. It also refers to the infrastructure, technology and other factors of production that you employ to deliver the value and to collect revenue. Amazon for example uses a combination of the ‘brick and click’ system to ‘deliver’ (literally) convenience to their customers over the internet while running a highly efficient warehouse that where they store their inventory. eBay on the other hand, executes its auction revenue model and delivers choices and variety to its customers via a platform on the internet, without having to worry about physical inventory storage.

All three components should reinforce each other to ensure that the business model is effective and sustainable. This means that your team needs to evaluate the value proposition, revenue model and the business process and systems constantly to ensure that your company stays ahead of the competition.

From: Taryn Augustina Mook. Taryn is a Business Strategy and Development Analyst. Prior to her current post, she was a graduate researcher in business model innovation

Follow the Magazine:
(After you have filled in your email address in the column at the right hand side of the screen, a confirmation email will sent to your email address. You will have to confirm it before subscription begins)

Follow us on Twitter:

Like us on Facebook:

**As part of the Magazine’s drive to reward subscribers/followers, we will be providing subscribers/followers special access to exclusive content which will not be otherwise available to normal visitors. Please be sure to subscribe to the Magazine. Many visitors have given us positive comments that they will be bookmarking the site, but as the system is unable to capture a working email address to which the passcodes for exclusive content will be sent, they will miss out on this content. Do note that passcodes are locked to each exclusive content, not a one-for-all access, so do provide a working email address that you check regularly so as not to miss out on them!

One thought on “Getting Started in Business Model Innovation

  1. Pingback: Discount Water Heater | Water Heater Problems

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s