Innovation Value is in Business Models, Not Products

18 09 2008

BusinessWeek has some data in this week’s issue on revenue and profit growth for companies named to its Most Innovative Companies list, with some clear dominance from companies seen as innovating business models (in yellow below) – as opposed to customer experiences (green), business processes (purple), or products (blue).


Source: BusinessWeek

This is in line with research from innovation consultancy Doblin, which finds a bit of an 80-20 rule about innovation: ~80% of innovation is in products that account 20% of the value growth, while ~20% of innovation is in business models and other more lucrative areas that generate 80% of the growth.  Doblin’s reasoning: product innovation is often needed just to keep up, while business models can revolutionize value creation.

Business model innovation has led to a host of recent developments, including software-as-a-service (SaaS), fractional ownership, pay per use/rental/subscription services in music and movies, and even advertising (witness Microsoft’s cashback Search).




2 responses

19 09 2008
Alex Osterwalder

Hi Michael, interesting data! The big question is actually: how can companies systematically tackle the challenge of business model innovation…
Regards from Swizterland, Alex

19 09 2008

You are absolutely right Alex. This data is a fine observation of past performance but says very little about predictive behaviors. The first outcome of this data should just be to recognize that product development efforts alone will not create the differentiating value customers seek.

To get to the next step of HOW to systematically lead business model innovation, I’ve been following an emerging discipline of strategy as design that lends itself well to creative innovation and risk management in new ventures. The practices of design – anthropologic and ethnographic studies, rapid prototyping and practical experimentation, and value creation structures built from what is possible (as opposed to constraints or current capabilities) – have a great deal to inform corporate strategists, management consultants, and executives looking to transform and grow their core.

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