Excursion 64
BMI Stage 2: Drivers of successful business model innovation
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In Stage 2, there are four factors linked to successful business model innovation. You will need to maintain a creative climate, strive to simplify organizational structures, partner for knowledge about opportunities, and ensure self-reliance for innovations.
Firms implementing business model innovation tend to use one of three structural change processes. Business model innovation tends to completely realign how companies operate and interact with customers and markets; it is not surprising that structural changes are required.
We found that firms use three types of structural change. Some firms Delegate: they outsource non-core activities to domestic partners, create shared facilities and services arrangement, and even utilize third-party infrastructure where possible. It is important to note that Delegators are accomplishing two things at once. They relinquish some responsibility for certain business model activities but without giving up control or access to information. Some firms go further and Consolidate. Consolidators outsource offshore and spin-off non-core functions. Consolidators do not get involved in partnerships. Finally, some business model innovators Reconfigure. Firms that Reconfigure emphasise internal reorganization; they stick with the activities, processes and resources already in place but seek to find more optimal divisions and connections.
Two other elements also need to be considered. The first is whether the organization has a creative, innovative climate. The second is whether the organization should partner with other organizations to implement business model innovation.
Finally, we need to consider if and how any of the drivers mentioned earlier (sector, size, experience with innovation, leadership, external forces) impact the success of business model innovation. Some of the results are certain to surprise you!
Business model innovation is tough. There are fine balances between:
focus versus insularity,
partnering for knowledge versus partnering for innovation, and
creative climate versus narrow leadership.
First, we learned that an innovative and creative climate is consistently an important factor during business model innovation. It helps organisations initiate BMI and it helps them succeed. This is not surprising: BMI requires the organisation to engage in new actions and use new resources. Flexibility and openness to new ideas helps firms adapt to the unfamiliar.
Of all the external forces that firms face when considering business model innovation, only globalization is consistently linked to successful outcomes. That does not mean that BMI always fails when it addresses other challenges. It does mean that firms using BMI to address challenges at the largest scale have the highest success rate. We call this “distant exploration,” and it is a significant departure from most business strategy, which tends to encourage incremental change. The “Blue Ocean” strategy is somewhat similar, but it is focused on finding markets with limited competition. Business model innovation goes even further-- it challenges firms to explore product-market opportunities that do not currently exist, and to consider customer and market needs that will only emerge as a result of the BMI effort.
The impact of structural change process was also very interesting. We learned that Delegators were more successful business model innovators than Consolidators. Simply getting rid of nonessential functions or activities does not help; successful BMI comes from focusing on core activities without losing control of non-core activities. Interestingly, companies that Reconfigured their activities had significantly worse BMI outcomes. BMI is clearly totally different from business process re-engineering (BPR) and other purely internally focused innovation efforts.
One of the most surprising results was that CEO leadership did not consistently result in successful BMI. This may be difficult to understand at first-- remember that CEO leadership was important for initiating BMI. We do not know for certain, but we suspect that executive leadership is important to launch BMI because there needs to be a single vision for the BMI goal. Remember that EU-based and global firms tended not to initiate BMI? We suspect these effects are connected. Launching BMI requires a clear vision, which may be more easily propagated through a homogenous organization. But once BMI has been launched, CEO leadership is not enough. A creative culture is more important for ensuring that the organisation can adopt and implement systemic change.
Finally, the most surprising result of all has to do with partnerships. On the one hand, we already know that clear visions is essential-- that might argue against partnerships. On the other hand, we already know that Delegators are more successful, so some partnership is clearly beneficial. How can we interpret this?
The key is the difference between knowledge and innovation. To successfully implement BMI, the firm must have continuously updated knowledge about markets and customers. Partnering for that knowledge leverages the firm’s information resources. This is why Delegators are successful-- they delegate non-core activities but retain access to developing information. At the same time, successful business model innovators do not rely on partners for innovation. BMI is a complex and idiosyncratic process, and there is no guarantee that a partner will have the same goals. Partnering for innovation locks the firm into some of the partner’s interests, limiting the firm’s ability to adjust as new information emerges.