Increasing interest in business model innovation

According to a recent survey amongst HBR readers, business model reinvention/innovation is the most pressing concern. A HBR interview on business model innovation with Rita McGrath, Columbia Business School professor, is available as HBR IdeaCast.

One of the topics discussed is the drivers of the increasing interest in business model innovation. According to McGrath there are three major drivers: (1) the increasing speed of everything and the need to be looking for the next big thing (2) intra-industry competition (e.g. electronic gadgets as Christmas gift instead of handbags) requiring companies to rethink their offerings, and (3) the disruptions caused by new business models that create better and more complete customer experiences (instead of just selling products) and that have an increasing number of revenue streams.

McGrath goes into more detail by discussing three signs/stages one should be looking for to know that your business model is overdue: (1) early evidence that gets dismissed or denied (e.g. the gap between your product and the innovations in the market) (2) customers start voicing that alternatives become increasingly acceptable and (3) it hits the financial performance and KPIs.

McGrath mentions three reasons why evidence is often ignored or dismissed: (1) the faith (?) in the assumptions of the current model made by the people in power in the organization (they are not motivated to undermine their own power basis) (2) the evidence is often provided by people who are not central to the strategy process or are seen as not credible (3) either it is threatening or the current business model is so successful that there is a complacency reaction and they feel they do not need to do anything.

McGrath also discusses the relation between business model innovation and change and the investment models and markets.

Finally, McGrath addresses the business model definition, which should include two key dimensions: (1) what are you selling (i.e. the unit of business) and (2) what are the web of activities you are involved in that show up as key metrics that drive performance.