Business Model Innovation

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Because our website is dedicated to showing you the basics of business in terms of both theory and practice, we thought many of you might find it useful to learn more about business model innovation. This concept can be useful in any type of business that looks to reinvent itself and come up with new practices, or new products or services. A business model is the template, or the skeleton of a business, and it shows that business’ philosophy and means of achieving its goals. Thus, business model innovation refers to the creation, innovation or reinvention of a given business model.

The purpose of this practice is to expand the business, to find new avenues of activity, to attract new customers or business partners, or to change the modus operandi in a way that plies to new concepts, new needs or a new market. Other purposes may include surpassing or eliminating competition by coming up with a formula they cannot beat at the moment. There are four key principles of business model innovation and, if applied together, they can result in a successful company:

  • Customer value propositionA company becomes successful when it manages to create something of value for its customers; this usually refers to a service rather than a product, and it is supposed to be a service many if most people need and require. Thus, a company’s goal should be delivering said service at the best possible quality and the lowest possible cost, thus reducing competition and increasing the overall value of its service.
  • Profit formula – This is similar to the business model; it is actually just a part of it and it calculates the costs a company should suffer, together with the estimated profits. The profit formula should include the following concepts: revenue model, margin model, cost structure and resource velocity. The formula is successful when it all adds up to profit for the company.
  • Key resources – A company is nothing without its resources, and these are usually the people, the products, the equipment, technology, research, facilities and a brand. All these resources must work together to create the value product or service that the company intends on selling. As for the brand, it helps make the product or service recognizable, it creates an image or identity that the customer can relate to and which makes it trustworthy.
  • Key processes These refer to the managerial and operational processes that any company has to deal with in order to be in constant growth. These key processes have to do with marketing, budgeting, development, planning, training, manufacturing, selling and so on.

Business model innovation is, in fact, starting to gain more and more advantage, and leading people in the business industry have stated that they see it becoming even more important in the future, so much so that it will surpass the importance of creating new products or services. A related concept in business says that you create the market or audience for your product instead of creating a product for an existing market. For example, most of the companies that sought business model innovation were focused on finding solutions to providing products or services to areas of the market that generally find them expensive. Such is the Indian conglomerate Tata Group, which now prepares an automobile that could be so cheap it would present as a major competition to all auto manufacturers.

December 2017
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