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).

BusinessWeek

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).

Advertisements




Strategy processes and decision making

16 04 2008

A repeated theme from my business school strategy courses has been to ask the right questions. The seeds of this learning were planted by Clayton Christenson and Michael Raynor who taught me:

  • To decipher contingent circumstances of a theory, ask “When doesn’t this work?”
  • To unmask a correlation impersonating a causal theory, ask “What is the causal mechanism?”

Ask the right questions

Some recent readings expanded my field of application to broader management and strategy development. Bazerman and Chugh’s notion of a devil’s inquisitor”[1] seems like an immensely practical and powerful practice for managers and strategy consultants (whose ranks I will join shortly). A devil’s inquisitor could ask “When doesn’t this work?” to objects far more diverse than a management theory; the inquisitor could challenge hidden assumptions embedded in sales presentations, marketing plans, hiring decisions, and financial forecasts. Read the rest of this entry »