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).

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