11 Aug 2020 20:41 IST

Business model innovation: From ‘what is’ to ‘what should be’

Great brands obsessively focus on creating value and delivering an experience for their customers

In the last couple of decades, we’ve seen a sizeable upsurge in the popularity of business model innovation. Thanks to technology, it is simpler than ever to embrace a wide variety of innovative business models efficaciously. In simple terms, a business model is a way an organisation creates and delivers value.

It includes four key components:

First, it’s a representation of how you generate money, as it shows how and why customers pay for your products or services.

The second and the most important component is to provide an experience, and that experience is integral to what people pay for. The difference between The Collective and Pantaloons isn’t just the quality of the merchandise and the prices, it’s the way a customer feels experiencing their services, the ambience at the store, and the vibe. Similarly, the efficacy of Starbucks’ business model was figuring out how to formulate a cup of coffee in a way that people would be willing to pay more, and delivering it in a convivial ambience where people are induced to hang out or work for hours, yet doing this at a remarkably low cost for the company.

The nature of Apple’s business model is also the experience factor, the experience of using its devices, and the attention given to the product and user interface design. Every company delivers an experience of some sort, and the core of the business model innovation is designing those experiences thoughtfully and developing them based on what already exists. This is rather easy to see in a retail store setting, but it’s just as true online.

Google’s search page also extends a unique experience. Its open white space that has been assiduously designed to convey a distinct message — this page tells you that “it’s all about you, and so is whatever you type in the search field.” According to global data web site Worldometers, Google handled over 3.5 billion web searches per day in 2019, which works out to roughly 40,000 searches per second.

The third component of the business model is whatsoever is going on within the organisation, the business model assuredly enables it to create and deliver those experiences.

The fourth and unquestionably vital constituent of the business model is that it determines how you differentiate your company.

In summary, the four key components of a business model tell you:

* How you make money

* How you render experiences to your customer

* How you use products, services, technology, operations, and supply chain to compete

* How you differentiate your company

Every firm has a business model because it’s merely a representation of “what is.” The opportunity in business model innovation is in identifying g “what should be.”


The failure of a business always reflects the failure to innovate, failure to accept and respond to change appropriately. And now as we see, yet another huge wave of new technology is about to strike the global marketplace, with artificial intelligence, machine learning, drones, blockchains, self-driving cars, robots, quantum computing, and so on. All arriving to disrupt every existing business model of every business.

Wouldn’t it be super-beneficial if there was a technique to elucidate all this, to analyse it and make it useful in reality? And indeed, there is a simple, three-factor framework:

The outside: The company renders experiences to customers through the delivery of products and services. The prevailing quality of those experiences is in today’s reality; making it a reliable vision.

The inside: The factors within the organisation make this delivery obtainable. These can be varied, including the product or service itself, the operations, the supply chain, and the technology. These are the means.

The bridge: And then the extent to which a company communicates this value proposition to customers through marketing and branding. This is the story.

This formula for business model innovation directly gives us fundamental questions to ask about our business model, and how to develop it:

* What’s the best conceivable experience that our customers can have?

* How can we prepare ourselves to deliver that?

* What’s the best brand identity to describe it?

Most thriving business model innovators tend to focus obsessively on one key aspect of their business means, and further develop it resourcefully far beyond what’s been done before. That is, they push it to the absolute limit of possibilities, and in doing so create an entirely new competence that enables an exceptionally better value proposition for their customers.