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Chances are, you’ve heard of business model innovation. But what is it, really? Peter Skarczynski and Rowan Gibson, in their new book, Innovation to the Core: A Blueprint for Transforming How Your Company Innovates, provide a very clear and understandable explanation of this concept.

Chances are, you’ve heard of business model innovation. But what is it, really? Peter Skarczynski and Rowan Gibson, in their new book, Innovation to the Core: A Blueprint for Transforming How Your Company Innovates, provide a very clear and understandable explanation of this concept.

First, before we can tackle the concept of business model innovation, it helps to have a clear definition of what a business model is. The authors defined it as “a conceptual framework for identifying how company creates, delivers and extracts value. It typically includes a whole set of integrated components, all of which can be looked on as opportunities for innovation and competitive advantage.”

Next, the authors unpack the concepts that are contained within this definition and provide us with questions (based on their work with innovation consulting firm Strategos) that youe can ask to more deeply understand your organization’s current business model:

Who do we serve?

  • Who are our customers?
  • What market segments do we serve, in which geographies?
  • Who are the buyers of our products and services?

What do we provide?

  • What are the products and services we sell?
  • What benefits and solutions do we offer to our customers?

How to we provide it?

  • What distribution channels to we use?
  • How is our value chain configured?
  • What are the core processes and activities that translate our competencies, assets and other inputs into value for customers (outputs)?
  • Who are our partners?
  • How do our suppliers and partners help us to deliver value?

How we make money?

  • What do we charge or customers for?
  • What are the major costs we incur in delivering our offering?
  • How do we extract value?
  • What is our pricing model?

How do we differentiate and sustain an advantage?

  • How are we different from competitors?
  • How do customers experience this difference?
  • What differences do they value most?
  • How sustainable is our differentiation?  Is it protected by core competencies and strategic assets that we and only we have?

The point of this question matrix is that business model innovation doesn’t just mean looking for opportunities along one dimension of your existing business model, but rather to enhance it at multiple levels.

“To build a breakthrough business model that rivals cannot easily emulate, you’ll need to integrate a whole series of complementary, value creating components so the effect is cumulative,” they explain.

As you work your way through this thinking process, Skarczynski and Gibson strongly recommend that you think holistically. This helps you to avoid innovation blind spots that could be exploited by competitors.  Most companies have innovation “hot spots” were they focus a significant amount of investment and attention, while other areas hardly get any attention.  Smart rivals will attempt to outflank you in an area that has been overlooked, in order to gain an advantage.

In short, the authors urge the reader to view every component of your existing business model as a potential opportunity to create value, as well as a potential blind spot or Achilles heel that competitors could use to undermine or devalue your competitive position.

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