One of the great lessons the pandemic taught us is that the survival of a business in today’s world is contingent on its ability to innovate fast. And one of the best ways to improve the agility of an organization is through business model innovation.
When I founded Solveo 5 years ago (at the time – the first Innovation agency in the region), I found inspiration for the initial business model in my all-time favorite read: Business Model Generation by Alexander Osterwalder & Yves Pigneur.
Over the past five years, I explored and applied many of the ideas they covered, and I helped clients do the same. After the significant shift the pandemic produced in most businesses, I want to share what I’ve found to work and what doesn’t work for business model innovation in 2021 in terms of:
– What are the future business models?
– Which major forces drive Business Model Innovation?
– How is design thinking the link between people and business model innovation?
What are the future business models?
When thinking of future business models, terms like digital platforms, open innovation, and the sharing economy comes to mind. These ideas have genuine potential, and many companies are heavily investing in moving toward them, but these concepts are not a “one size fits all” type of model.
Osterwalder & Pigneur (from here on referred to as O&P) define three core business types in Business Model Generation. Therefore, it’s crucial to understand the differences between the three to understand the possibilities for business model innovation in each one.
Product innovation and customer relationship management are the two business types with the most significant potential for business model innovation. Product innovation’s core type is employee-centered- the innovation derives from human resources and creative “star” employees. At the same time, customer relationship management is service-oriented and nurtures the “customer-comes-first” mentality. In both cases, the focus is not on technology, but the people and the shifts in their habits, preferences, and goals create opportunities for business model innovation. These developments are enabling innovation to evolve and models like digital platforms and the sharing economy to grow.
People are at the core of every business, whether as customers we are trying to please or employees we motivate. And besides the apparent global imprint the pandemic will leave on everyone (like working from home and becoming more comfortable with online shopping), there are other ongoing changes in the people that influence business model innovation. For example, one of the generational differences Gen Z is bringing to the workplace is starting now and will continue to impact the culture for the coming decades.
Which major forces drive Business Model Innovation?
“10 years in 10 weeks. It’s not very often that this happens. But it happened last year when the pandemic hit the world. We were able to transform 2020 into 2030 in so many aspects.” – this is how economist K. Nordström defined the pandemic in his recent webinar on the Post-Pandemic world. Seeing all the changes that happened over a brief period, both in business and people, he referred to the pandemic as a “time machine.”
We can’t dismiss the pandemic as a significant catalyst for change, but it’s also important to acknowledge that other facts also impact the evolution of business models.
1. The strategy
O&P differentiate four epicenters of business model innovation:
- resource-driven,
- offer-driven,
- customer-driven and
- finance-driven.
Each (or several) of these epicenters can serve as an ignition for business model innovation. Understanding these “sources of inspiration” (or, in most cases, pain) is essential because you need a strategy to deal with them.
In reality, the process of finding new possibilities and creating innovative business models is rarely straightforward. It usually includes a lot of people (as it should) and a lot of brainstorming. A handy tool can help bring more clarity in this stage and make sure everyone is on the same page (literally), and it’s known as the Business Model Canvas.
It brings me a lot of joy to see how widespread the Business Model Canvas has become. However, most people don’t know that it was none other than Alex Osterwalder, one of the authors of the Business Model Generation book, who created it. It captures all of the vital parts (the building blocks) of the business idea. As the world has evolved since Alex started the original business model, it too has been updated to consider aspects that have a growing importance in business model conceptualization. For example, his new version of Sustainable Business Model Canvas motivates us to think about sustainability and social responsibility in the early business model ideation.
One great example of disruptive business model innovation that led to sustainability is when Apple “de-materialized” one aspect of the entertainment industry- by introducing the iPod and eliminating polymer CDs. Wal-Mart, too used its relationships with customers and suppliers as a lever to support sustainability by implementing environmental standards. And one of my favorite examples for using the business model canvas right is Denis Oakley’s take on improving Uber’s existing business model.
Other than having the right approach to come up with the right strategy, there is one other driver of business model innovation that we already mentioned (in a way), but that’s just as important for accelerating the business model innovation process. And that is – the people.
2. The Team
Employees are one of the major drivers of innovation. The most enlightening thing I have learned from Business Model Generation was how to compose the A- team, a.k.a.- the winning team. Business model innovation requires people from different areas of expertise, cultural backgrounds, and business units. Other than looking at the situation from different perspectives, they can also come up with different types of solutions that, when combined, have a greater chance of being a success.
Imagine a team made of a designer, R&D expert, a millennial, generation Z creative employee, an outsider, CEO, HR specialist, etc. The mixture of experience and the cultural, professional, and age differences can create a powerful task force that can generate new business model ideas.
Including different perspectives when thinking about business model innovation is the key. Employees are on the front line, constantly in constant contact with various aspects of the customer experience. They are the touchpoints the customers have with your brand and organization. It’s foolish to think you can get the “gist of it” from numbers and graphs. Our employees have the whole picture, and inviting them in on the conversation can reveal incredible possibilities for business model innovation.
But there is also another perspective you need to consider. Any shift in the organizational blueprint, structure, or model impacts the employees day-to-day more than anyone else’s. Therefore, their cooperation is vital for the success of the change in the business model. To succeed, you need to bring them on board before the ship has sailed. I’ve personally seen many business ideas with great potential that have tried to implement a new business model because they were trying to “puppeteer” the employees.
Simply put, your employees need to believe in whatever you’re doing, and the best way I’ve found to achieve that change is by using the Design Thinking methodology.
Design Thinking and Business Model Innovation
My years of experience in implementing Design Thinking have only proven the effectiveness of this approach over and over. Design thinking enables that fundamental shift in the way your employees work and think. It is a very inclusive process, and it creates an atmosphere of sharing, collaboration, and trust that is pivotal to important strategic changes within any organization.
Design Thinking is an excellent all-around methodology for fostering innovation. It’s also applicable to every industry in the two core business types mentioned above (Product innovation and customer relationship management). And above all, it reminds us all of the importance of constantly testing and improving.
If I had to choose a single lesson that the Business Model Generation book taught me, it would be that you have to keep trying, testing, and improving.
Solveo’s business model has evolved so much during the past five years. It’s almost hard to believe we’ve come so far and changed so much, but also grown, improved, and created a business that can withstand a global crisis. And in truth, I think we owe it all to this inclusive and adaptive mindset we established from the beginning. It made every team member more creative, loyal, passionate about our cause, and willing to change as the company moves toward new mountains and rivers.
So, what business models work in 2021?
Ones that recognize people as the core of every business and the benefits of considering strategic decisions together.
