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The Importance of an Innovative Business Model Issue: #31
July 2010: The Importance of an Innovative Business Model


The Importance of an Innovative Business Model July 2010

In this day and age companies are looking for any way to have a competitive advantage over the competition. One of the best ways to achieve this competitive advantage is to have a clearly defined business model. The term business model is actually a very ambiguous concept to most people. What actually makes up a company’s business model? According to Mark W. Johnson, chairman and co-founder of Innosight, an innovative consulting and investing company, a business model is defined in three ways:

Why would someone want to buy something from you?

How will you make money selling it?

What, exactly, are the important things that you need to do to pull off the plan?

According to an article that was written by Clayton Christensen, the other founder of Innosight, there are four important elements that help a business model create and deliver value to the consumer. Value proposition, the first criteria, is the way in which a company is going to provide a product or service that will solve a problem. This criterion gives a company a chance to define itself and show consumers how it is different from the other companies in the industry. Another important criteria is the profit formula, which is how the company plans to make money through the use of their new business model. This includes finding out specifics about the products that are going to be sold including the price, volume, demand, cost, and how quickly the inventory will turnover. The third important aspect involved in building a new business model is the key resources that are going to be needed in order to get the job done. This includes things such as the employees, facilities, equipment, and the technology that will be needed to produce the product or service. The final elements that embody the business model are the key processes that are set in place to either produce the product or set the service apart from other companies in the same industry.

A perfect example of how a successful business model can really set one organization apart from another and drive sales, took place with the introduction of the digital music player. The Rio was the first product introduced in this industry by a company known as Diamond Multimedia, in 1998. This was an excellent product and a very innovative idea, so why then is this product not a well know competitor in today’s marketplace? The reason behind the lack of success for the Rio is that it was just a product and was not backed up by an innovative business plan. Although it was a creative idea that would be sure to catch on with the right triggers in place, consumers were still left with many unanswered questions.

When Apple entered the market with its iPod in 2003, they had more than just an excellent product. Apple had developed a business model to support and drive the sales of their brand new iPod. It was not simply the product itself that drove the sales of the iPod to record highs, or its sleek, sexy design. It was the entire package that Apple had developed to provide support for the iPod. The driving force behind Apple’s success included the ability for consumers to download new songs and upload them onto their iPods from the comfort of their own homes.

Apple was able to find a way to link all of their products together and use their brand name to drive the success of their products. They had created an aesthetic product that played digital music, which needed a specific software, iTunes, in order to upload the music, which could easily be installed on personal Apple computers. With all of these products so closely linked together Apple was able to create a business model around this innovative, and efficient way of buying and playing new music, on a device that could easily fit in the pocket of your pants.

With the level of competition that is currently engulfing any new products that are developed, especially in the technology industry, it is going to become crucial for companies to develop a business model that clearly defines success for the organization. Success is really going to come from companies that are able to create a business model that is centered around the efficiency of a product or service. Companies are going to have to establish a business model that satisfies a niche market and does it in a way that is convenient for the customer and is not similar to any other companies’ process. Moving into the future, consumers will begin to see companies that have innovative ideas, but no business model to back it up, flounder. The companies that will really begin to drive success will not only have innovative products, but also innovative processes for creating these products and providing them to consumers.


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