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The Hard Truth About Business Model Innovation

Book Description

“The landscape of failed attempts at business model innovation is crowded -- and becoming more so,” observe authors Clayton M. Christensen, Thomas Bartman, and Derek van Bever. In order to change this, the authors argue, executives need to understand that business models develop through predictable stages over time -- and that each business model stage is associated with certain business priorities. Executives should evaluate whether a business model innovation they are considering is consistent with the current priorities of their existing business model. This analysis matters greatly, the authors write, since it drives a whole host of decisions about where the new initiative should be housed, how its performance should be measured, and how the resources and processes at work in the company will either support it or extinguish it. Business models, the authors point out, “by their very nature are designed not to change, and they become less flexible and more resistant to change as they develop over time.” Interdependencies between different elements of the business model grow over time, and the business unit develops increasingly ingrained approaches to solving problems. The authors describe the development of a business model across time as a journey whose progress and route are predictable -- although the time that it takes a business model to follow this journey will differ by industry and circumstance. In the authors’ view, a business model, which in an established company is typically embodied in a business unit, travels a one-way journey, beginning with the creation of the new business unit and its business model, then shifting to sustaining and growing the business unit, and ultimately moving to wringing efficiency from it. Each stage of the journey supports a specific type of innovation, builds a particular set of interdependencies into the business model, and is responsive to a particular set of performance metrics. The authors argue that this road-map view of business model evolution helps explain why most attempts to alter the course of existing business units fail. Unaware of the interdependencies and rigidities that constrain business units to pursuing their existing journey, managers attempt to compel existing business units to pursue new priorities or attempt to create a new business inside an existing unit. Instead, the authors recommend that when considering an innovation opportunity, executives determine how consistent the opportunity is with the priorities of the existing business model. The only types of innovation you can perform naturally within an existing business model, according to the authors, are those that build on and improve the existing model and accelerate its progress. They also recommend that executives focus on creating new business models rather than changing existing ones. Based on their research on business model innovation, the authors offer additional recommendations for companies that seek to turn the act of creating a new business and a new business model into a repeatable process at the corporate level. The authors conclude that “over the long term, the greatest innovation risk a company can take is to decide not to create new businesses that decouple the company’s future from that of its current business units.”