In the modern sense, innovation means new technologies. However, in economics and business, not any innovation can be called innovation, but only one that qualitatively increases the efficiency of the current system.
The headman under whose leadership the innovative business model is being developed must clearly understand the following:
- the results of the creation of an innovative business models include new types of activities, new activities or changes in the part of the ongoing activities;
- within the framework of one organization, business models change quite rarely;
- innovation, insularity, complementarity and efficiency are the main value drivers.
Let’s take a closer look at value drivers. Business innovation describes the degree of novelty of the business model applied in the company’s activities.
Closure implies the creation of barriers and/or incentives for participants in the business model to keep their activities within the system. So the manufacturer obliges the consumer to use original consumables when operating his equipment, which increases the company’s profit. For example, a customer who buys a Nespresso coffee machine must use coffee capsules from the same company.
Complementarity is based on the effect of increasing value due to the interdependence of activities carried out within the business model. For example, eBay provides an online platform for transactions between users. eBay users can use the PayPal payment system. Without the ability to use this system, users without access to bank cards would not be able to buy and sell on eBay.
Efficiency can be attributed to the saving of resources due to interconnections in the activities of the system. The business model example is when the WallMart system supports a low price strategy. One of the most important elements of this system is logistics. WallMart has developed the concept of crossdocking – the process of receiving and shipping goods directly through the warehouse, without placing them in a long-term storage area. These and a number of other WalMart-developed options significantly reduce costs, thereby creating a competitive advantage.
An innovative business model is important for entrepreneurs, managers and scientists for the following reasons:
- it often contains a source of future value;
- it is much more difficult for competitors to copy an entire system than a specific product or process. In addition, innovation has a potential productivity advantage;
- since an innovative business model is a potent competitive tool, management must be prepared for the potential increase in competition in the industry. But the threat may also come from another industry.
There was conducted a study that showed that in today’s world, in which all processes are interconnected, resources are very limited, entrepreneurs and managers need not to get hung up on the familiar, but to focus on development by adopting innovative business models. The creation of an innovative business model can be carried out in several ways – by adding new types of activity by working in new directions or by changing one or more components of one or another existing activity. First of all, you need to answer the following questions to do this:
- What customer needs will be met by the new business model?
- What new activities will help meet these needs? (the content of the innovative business model)
- How can actions be connected in a new way? (structure of the innovative business model)
- Who should carry out any activity that is part of the business model? Will it be a company? Partner? Client? What new governance mechanisms can be included in the new structure? (business model innovation management)
- How will value be created for each of the participants?
- How does the revenue model align with the company’s business model in terms of the total value it helps create?
Answers to these questions will help managers to look at the state of affairs with a “sober” look, to identify the company in the surrounding space. Without a promising business model, a company is just a legal entity, one of many on the market. Adopting a promising business model allows you to purposefully structure company systems. The main task of an entrepreneur or manager is the purposeful development and structuring of the company’s business model. This activity allows you to see the source of innovation, expand the pools of partners and customers, and also identify competitors.