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2014.04.04.I author: European Association of Development Agencies -

Business Model Innovation: When the Game Gets Tough, Change the Game by Boston Consulting Group

Business model innovation (BMI) means more than a brilliant insight coming at the right place and the right time. To confer a reliable competitive advantage, BMI must be systematically cultivated, sufficiently supported, and explicitly managed. In this paper, Boston Consulting Group argue that BMI is highly relevant in the current business environment, describe some of the circumstances in which BMI has proved valuable, identify common pitfalls, and discuss how companies can develop a competitive capability in BMI.

 

 

 

Examples include companies such as General Electric, TaTa Motors, Facebook, Zara, Nestlé Nespresso, Apple, etc.

Business model innovation is especially valuable in times of instability. BMI can provide companies a way to break out of intense competition, under which product or process innovations are easily imitated, competitors’ strategies have converged, and sustained advantage is elusive. It can help address disruptions - such as regulatory or technological shifts—that demand fundamentally new competitive approaches.

 

What Is Business Model Innovation?

A business model consists of two essential elements — the value proposition and the operating model - each of which has three subelements.

The value proposition answers the question, What are we offering to whom? It reflects explicit choices along the following three dimensions:

  • Target Segment(s): Which customers do we choose to serve? Which of their needs do we seek to address?
  • Product or Service Offering: What are we offering the customers to satisfy their needs?
  • Revenue Model: How are we compensated for our offering?

The operating model answers the question, How do we profitably deliver the offering? It captures the business’s choices in the following three critical areas:

  • Value Chain: How are we configured to deliver on customer demand? What do we do in-house? What do we outsource?
  • Cost Mode: How do we configure our assets and costs to deliver on our value proposition profitably?
  • Organization: How do we deploy and develop our people to sustain and enhance our competitive advantage?

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