Business Model Innovation:

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Some companies come up with a revolutionary business models that attract huge demands to their services or products. For example, Apple was not the first company that introduced digital music in 2003. Diamond Multimedia introduced the Rio in 1998 and Best Data introduced the Cabo 64 in 2000. What made Apple to succeed in this sector was its innovative business model; make downloading digital music easy and convenient.

Before we get into innovative business model to address permanent shifts in their market landscape, we need to understand the definition of the business model and it’s components. It starts with thinking about the opportunity to satisfy a real customer who needs a job done. The second step is to construct a blueprint laying out how the company will fulfill that need at a profit. Every successful company is already fulfilling a real customer need with an effective business model, whether that model is explicitly understood or not.

There are four concepts in defining business model:

  1. Customer Value Proposition: it is the way a company creates values for customers. This may be through a new product or a service that brings satisfaction and value-added sense to the customer.
  2. Profit formula: it’s a blueprint that defines how the company creates value for itself while providing value to the customer. It usually contains revenue model, cost structure, margin model and resource velocity.
  3. Resources: the key resources are assets such as the people, technology, products, facility, and brand required to deliver the value proposition to the target customer.
  4. Processes: successful companies have operational and managerial processes that allow them to deliver value in a way they can successfully repeats and increase in scale. These include such recurring tasks as training, development, manufacturing, budgeting, planning, sales and service.

The customer value proposition and the profit formula define value for the customer and the company, respectively. Resources and processes describe how that value will be delivered to both the customer and the company. It seems this framework simple, however, it’s power lies in the complex interdependencies of its parts. Major changes to any of these four elements affect the others and the whole.

Any innovation in any of the components should be assessed by the impact to the integral four components. As innovation is a systemic change and improvement, any positive change that can alter the balanced dynamics of these four components can lead to an innovative business model. It is probably the reason that it is really harder for existing companies to revise their business model tremendously as they need to implement a huge change in their organization that may not necessarily be successful. However, if it is done successfully like what Apple did, it generates a synergy and market share domination.

 



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