Business Model Innovation is important for companies that are seeing diminishing returns from getting better at what they do. This 5 Step business model innovation process is a comprehensive methodology for developing robust business models to test and validate.
As markets become more competitive and the pace of technology increases what worked in the past to make money is increasingly unreliable.
At the same time huge new opportunities are opening up in many sectors and industries that offer the prospect of huge growth to companies that can find the right business models to exploit them
In my business model innovation process we take companies through a 5 step process that reliably creates new business models that can be tested, validated and scaled.
It is based on the business model canvas developed by Alexander Osterwalder and then extensively expanded and deepened through my work with hundreds of startups through 500 Startups and MaGIC, the Malaysian Global Innovation and Creativity Centre.
Companies going through the business model innovation process get two key benefits. First they get many actionable insights from the approach. These can be immediately applied by operational teams to improve corporate performance and deliver ROI.
Secondly they get a number of potential business models that reflect their businesses strengths and weaknesses, those of the market environment and their capability for change.
This is the 5 Step Process of Business Model Innovation
Step 1 – The Business Model Canvas
In Step 1 we capture the existing business model of the business on the business model canvas. This provides a baseline and common agreement among all stakeholders about what we are working on.
The business model canvas allows us to quickly and uncontroversially say, we create this value for these customers to generate this revenue by selling to them through these channels.
We deliver this through the key resources we have access to and the key activities that we and our partners do. When we set the costs of delivery against our sales we can see how well we perform.
The business model canvas captures this in a single page of A4 and cuts across the artificial boundaries imposed by corporate structure
Step 2 – Business Model Performance
In Step 2 we map business model performance onto the business model canvas that we developed in Step 1. We are often concerned with corporate performance, but this is often not the same as the performance of the business model.
By making the business model performance explicit we create a power tool to identify weaknesses and diagnose failure states.
Performance can be captured using managers subjective feedback. This is often used for a first take. Existing KPIs are also mapped back onto the business model and this gives a powerful view of how well the business model works.
It provides a similar type of holistic understanding of the company as the balanced scorecard does, albeit with a very different focus and layout.
Step 3 – Business Model Threats & Market Disruption
In Step 3 we move away from what the performance is to understanding why it is that way, and how it is going to change in the future.
Using a battery of 60 tests we look at every aspect of the business model and the larger disruptive forces working on the market that the business model operates in.
This makes it clear that in some cases performance failures are due to changing market forces, rather than to the ability of managers to execute. It is a clear signal to change the way that things are done, rather than to continue trying to make them faster, better or cheaper.
We also review competitors business models during Step 3 and look at their performance and susceptibility to the same threats that the business faces.
Step 4 – Change Makers & Structural Resistance
In Step 4 we look back at the company now that we have a good understand of its performance and the pressures on it to change. Business model innovation is often touted as ‘the’ solution. In reality many change programmes falter on the lack of change makers or their poor distribution across the business model.
Many companies have become admirably efficient in delivering their business model but in doing so part of the organisation can become so specialised that they are highly resistant to change.
By understand which parts of the business model can be changed and which are unchangeable we are able to significantly increase the likelihood of successful business model innovation.
Step 5 – Business Model Innovation
Business Model Innovation is at the heart of step 5. In this stage we draw on the situational analysis that we have undertaken in steps 1 – 4 to develop a range of new business models.
These business models may be modifications of the existing business model, typically suitable for turnaround situations or startups pivoting. They may be entirely new business models, which are suitable for startups, corporate incubators or companies facing business model failure events, such as Kodak and the Music Industry in the early 2000s.
A Deeper Dive into the 5 Step Business Model Innovation Process
Here’s a 15 minute video talking through the 5 step business model innovation process. and also the slides used for it