The importance of business model innovation

Innovation has always been a guarantee for growth and competitiveness for companies. In the past, success has been achieved by the creations of outstanding technical products and solutions.

The focus on process or products innovation no longer ensures the continuity of a company.

Continual developments lead to a situation where existing products and processes are becoming obsolete and the industry rules are being revolutionized in the long term:[1]

  • Unlocking competition from the Far East
  • Globalization
  • Increasing competitive pressure
  • Devaluation of products to mass-produced goods
  • Change in competition and market conditions
  • Convergence of industrial borders
  • Regulatory changes
  • Implementation of new technologies

Due to their novel capabilities smart connected products have the potential to revolutionize competition within an industry and redefine the industry itself.[2]

Business Model Innovation

Designing innovative business models is one of the central prerequisites for companies in today’s age to ensure their long-term competitiveness. Numerous companies, such as Kodak, Quelle, AEG or Grundig, which had achieved a high level of recognition due to their products and processes, disappeared after decades of success. They had failed to adapt their business models to the changing environment.[3]

Business model innovators achieve an average six-percent higher increase over a five-year period as pure product or process innovators according to a study by “The Boston Consulting Group”.[4]

14 of the 25 most innovative companies in the world are primarily business model innovators.  Although the development of good products and process will continue to be important, they will no longer decide on the fate of the companies. The ability to stand out from masses in the industry through innovative business models will make the difference.[5]

In the future, the products and processes will not determine the competition, but the business models. The current phase of the temporary competitive advantages requires the companies to ask for a certain paranoid mind about the basis of the current success. Even if the current yields do not suggest this, it is recommended to mentally constantly expect the fall.[5]

Blog series: With smart, connected products into a new business era

Part 1: Introduction
Part 2: The importance of business model innovation
Part 3: Laying the foundation through strategic decisions
Part 4: Break the valid industry logic

References list

  1. Gassmann, O., Frankenberger, K., & Csik, M. (2013). Geschäftsmodelle entwickeln: 55 innovative Konzepte mit dem St. Galler Business Model Navigator. München: Hanser, S. 4
  2. Porter, M. E., & Heppelmann, J. E. (2014, November). How Smart, Connected Products Are Transforming Competition. Harvard Business Review, S. 75
  3. Gassmann, O., Frankenberger, K., & Csik, M. (2013). Geschäftsmodelle entwickeln: 55 innovative Konzepte mit dem St. Galler Business Model Navigator. München: Hanser, S. 3
  4.  Lindgardt, Z., Reeves, M., Stalk, G., & Deimler, M. S. (2009). Business Model Innovation When the Game Gets Tough, Change the Game. Abgerufen von https://www.bcg.com/documents/file36456.pdf
  5. Gassmann, O., Frankenberger, K., & Csik, M. (2013). Geschäftsmodelle entwickeln: 55 innovative Konzepte mit dem St. Galler Business Model Navigator. München: Hanser, S. 4-5

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