By: Chuck Frey
According to a recent survey of 65 senior executives of global companies, the large majority of firms are looking for innovation to drive growth. But they’re not necessarily looking for the next great product or product feature. Instead, companies are putting greater focus on business models that create value for customers in new ways.
The road to growth is paved with good innovations. And for many companies in this post-recession economy, new business models will provide the fuel.
According to my firm’s recent survey of 65 senior executives of global companies, the large majority of firms – fully 80 percent – are looking for innovation to drive growth. But they’re not necessarily looking for the next great product or product feature. Instead, they are putting greater focus on business models that create value for customers in new ways.
Previously, the companies that experimented with new business models were few and far between – Apple’s iTunes and Southwest Airlines’ low-cost, high-quality service come to mind. The exciting news is all that’s about to change. But here’s the sobering part:
Executives said that issues around execution keep them up at night. Over 60 percent expressed difficulties with translating innovation strategies into profitable growth. They are concerned that the complexity associated with growth-oriented portfolios and business model innovation could swamp their execution capabilities.
There are many different kinds of high-octane business model innovations. Three are getting the most attention:
Roughly 25 percent of companies we surveyed are developing bundled products and services to provide solutions, a la Xerox.
Another 25 percent are developing B2B offerings to improve their customers’ business performance. For example, ABB, a leader in power automation and technology, manages its customers’ process-intensive industrial operations to help them improve productivity.
Nearly 25 percent of companies are investing in innovations to anticipate entirely new customer needs, such as the tourist space flights planned by Virgin Galactic.
Fourteen percent of companies we surveyed are significantly expanding the boundaries of their offerings. Expanding their business boundaries, Marvel Comics moved into feature films with creation of Marvel Studios. That entity produced the blockbuster Spiderman movies by leveraging Marvel’s core strengths — its brand and intellectual property — in an adjacent entertainment industry. We expect to see more companies following Marvel’s example and leveraging their core strengths, whether in technology, operations, intellectual property, or brand, in an adjacent industry.
One other business model innovation is rapidly gaining traction. Over ten percent of companies we surveyed are changing the scale of the offering – for example, creating an extremely affordable version of a product that was previously out of reach for less affluent consumers or.
Following the lead of Tata Motors, which made waves with its $2,500 Nano, Renault Nissan announced it will soon introduce its own low-priced vehicle. GE is using a variation of this business model to develop products for customers in emerging economies like China and India; the company will then adapt the products for customers in the mature economies of the U.S. and Europe.
As consumer demand in emerging markets continues to grow, this type of innovation may well become the dominant area of focus.
Reaching the destination
Developing the right business model, however, is only part of the equation. A successful outcome also depends on solid execution — which, according to our survey, is the number one challenge. It’s easy to see why.
New business models often introduce a lot of complexity that can be very hard to manage. In our experience, companies that take an expansive approach get the best results. Here are some guidelines to follow:
Develop solutions, not individual products.
Starting with a clean slate, identify your customers’ unmet needs. To address those needs, think in terms of comprehensive solutions rather than individual products. This approach will help you provide the value proposition that works best for them – and for you.
Make innovation a team sport. Form partnerships with the firms in your ecosystem that have assets or capabilities that complement your own. This is critical for commercializing solutions with minimal cost or risk.
Organize to deliver value. Innovation should be a team sport within your own company as well. Make sure the people responsible for developing new business models and those responsible for developing new products and services are aligned and collaborating closely.
Otherwise, they could easily end up working at cross-purposes, and have little to show for the effort. For companies in search of growth, business model innovation is critical. As the recovery goes into full gear, it may well be what puts them ahead of the pack.