7 Myths About Business Model Innovation

26 February 2020 | There are 7 myths about business model innovation. (Business Model Navigator).

The Initial Ascent myth: ‘Commercial success comes with ideas no one has ever had before.’ The fact is that new business models frequently borrow from other industries. For example, Charles Merrill purposely applied concepts used in supermarkets to the banking industry when he founded Merrill Lynch. In so doing, he created the financial Supermarket business model.

The ‘Think Big’ myth: ‘Business model innovations are always radical and new to the world.’ Most people associate new business models with the giant leaps taken by Internet companies. The fact is that business model innovation, in the same was as product innovation, can be incremental. For instance, Netflix’s business model innovation of mailing DVDs to customers was undoubtedly incremental and yet brought great success to the company. The Internet opened up new avenues for Netflix that allowed the company to steadily evolve into an online streaming service provider.

The Technology myth: ‘Every business model innovation is based on fascinating new technology that inspires new products.’ The fact is that while new technologies can indeed drive new business models, they are often generic in nature. Where creativity comes in is in applying them to revolutionize a business. It is the business application and the specific use of the technology which makes the difference Technology for technology’s sake is the number one flop factor in innovation projects. The truly revolutionary act is that of uncovering the economic potential of a new technology.

The Luck myth: ‘Business model innovation is just a matter of luck and cannot be undertaken systematically.’ But the fact is that you will have to put in as much hard work into creating new business models as into new products, technologies, after-sales processes or logistics concepts. Business model innovation requires persistence and drive. You must plan and prepare for it as you would for an expedition into an unknown land. Being systematic about it is no guarantee, but it will increase the probability of success dramatically.

The Einstein myth: ‘Only creative geniuses can come up with truly innovative ideas.’ Today, success depends less and less on individual masterminds. Interdisciplinary teams that reach across functional silos and companies have replaced the ivory-tower inventors such as Edison and Wright of the past. Innovation is no longer a matter of individual performance, it’s a team sport. This is especially true for business model innovation, where a lack of cooperation means that a single person’s good idea will remain just that, an idea.

Contrary to popular belief, Steve Jobs didn’t invent the iPod all by himself. Tony Fadell, an external IT freelancer, developed the idea of the iPod and iTunes and approached Apple with it. Afterwards, a team of 35 people created the first prototype under Apple’s guidance. The ream was made up of employees of Apple, design firm IDEO, Connectix, General Magic, WebTV, and Philips. The consortia of Wolfson, Toshiba, and Texas Instruments took charge of the technical design of the portal player and earned $15 on every iPod sold. The iPod’s success story was written by a diverse team of people whose competences were instrumental in bringing the project together.

Management gurus may well write myths about individual geniuses and eureka moments because this lets us celebrate heroes. The truth is that these people hardly ever succeed without the crucial input of others.

The Size myth: ‘Big breakthrough requires big resources.’ Fact: small startups are responsible for the most important business model revolutions. Just look at the most clicked-on websites in the world and the companies behind them: the top three sites are owned by firms that were all outsiders to the industry. Google was founded by Larry Page and Sergey Brin in 1998, Facebook by Mark Zuckerberg in 2004, and YouTube by Chad Hurley, Steve Chen, and Jawed Karim in 2005. The highest ranked ‘old economy’ company is BBC Online, coming in at number 40(!) of the most clicked-on websites. All other companies began as startups. Implementing and diffusing these business models required huge investments, but most successful Internet companies started off small and smart. Joachim Schoss successful serial entrepreneur and founder of AutoScout24 ,once told us: ‘Established corporations can’t do it, precisely because they have so many resources.’ The right idea and a healthy dose of courage are much more important than resources.

The R&D myth: ‘R&D departments are the source of important innovation.’ The fact is that business model innovation is profoundly interdisciplinary in nature. Technology can certainly play a crucial role, but only in connection with the business model. The impetus for change can come from anywhere within an organization, as is demonstrated by the four dimensions of a business model (who-what-how-why). Innovation doesn’t come from just the R&D department, which traditionally has take charge of new product development. Other departments including strategy, marketing, after-sales, IT, production, logistics, and purchasing are becoming increasingly important. ‘Business model innovation is a part of every single person’s job description – be he a shareholder or a janitor,’ proclaims Festo Didactic’s managing director Theodor Niehaus.

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