Four Paths to Business Model Innovation

This article presents a framework to help managers take business model innovation to the level of a reliable and improvable discipline. Drawing on the idea that any business model is essentially a set of key decisions that collectively determine how a business earns its revenue, incurs its costs, and manages its risks, we view innovations to the model as changes to those decisions: what your offerings will be, when decisions are made, who makes them, and why. Successful changes along these dimensions improve the company's combination of revenue, costs, and risks. Companies looking to recalibrate their product or service mix have essentially three options: 1. Focus narrowly. 2. Search for commonalities across products. 3. Create a hedge portfolio. Three strategies that, depending on the circumstances, can improve a business model by changing the timing of decisions are: 1. Postpone the decision. 2. Change the order of your decisions. 3. Split up the key decisions. Companies find that they can radically improve decision making in the value chain simply by changing the people who make the calls. Companies can: 1. Appoint a better-informed decision maker. 2. Pass the decision risk to the party that can best manage the consequences. 3. Select the decision maker with the most to gain. Many business model innovations come from adjusting decision makers' motivations. Three ways of doing this are: 1. Change the revenue stream. 2. Synchronize the time horizons. 3. Integrate the incentives.