A New Approach to Business-Model Innovation

Editor's Note: Take a look at our featured best practice, Business Model Canvas: Guide, Process and Tools (43-slide PowerPoint presentation). The Business Model Canvas is a versatile tool that can be used to describe, discuss, design, choose, challenge, improve, innovate, pivot or invent a business model. The document provides an overview of the business model canvas and how it links to strategy analysis and development. It offers [read more]

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Of course you know business model innovation. It’s common practice among innovators. A lot of markets have been disrupted by new business models, often initiated by start-ups and new entrants:

• Airbnb disrupts the market for accommodation as you can rent online unique places to stay from local hosts in 190+ countries. In 2014, Airbnb had 25 million guests’ bookings.

• Ted-ed (the newest TED initiative) disrupts the traditional publishing market in education with free educational lessons-to-share from people all over the world in videos format.

• Streaming services like Netflix disrupt the traditional television market, as you can watch TV shows and movies now anytime, anywhere. Netflix has 65 million streaming subscribers in 2015.

• Cloud-based solutions, like iCloud replace local infrastructure, hardware and software. iCloud had in 2013 already 320 million users.

• And of course, Uber; the 2009 start-up, disrupting the license system that protects taxicab franchises in 58 countries thus far. In the US only, Uber has  at this moment more than 160.000 active drivers.

In my work, as speaker on innovation and design thinking, I travel all over the world to inspire innovators how to start innovation more effectively. The business model canvas with it’s nine business model building blocks, introduced by Osterwalder, Pigneur & al. in 2010 is well-known and used in every country I visited, from Canada to India and from Brazil to Japan. Like you probably, everybody really appreciates the simple tool. It’s most often used to analyze existing business models or business models of new entrants. It’s a great tool also to catch your basic idea and to communicate it in a simple way to others.

A lot of managers at big corporations are well aware of the threats of new start-ups entering their market. They really want to overturn the conventions of their market before others do. The awareness to be working on new business models is there, but big challenge for most of them is:

“How do I come up with a new Business Model that disrupts my own market?”

I was very pleased that Dutch consultants of McKinsey recently published a new approach to business-model innovation that will help you how to come up with new business models. It’s practical 5 step method to turn your present beliefs upside down.

Let’s take a closer look at their five steps:

1. Outline the dominant business model in your industry. 

As a start you answer the essential question: “What are the long-held core beliefs about how to create value?”.

2. Dissect the most important long-held belief into its supporting notions. 

How do notions about customer needs and interactions, technology, regulation, business economics, and ways of operating underpin the core belief?

3. Turn an underlying belief on its head. 

Formulate a radical new hypothesis, one that no one wants to believe—at least no one currently in your industry. Ask yourself outside-the-box ‘What-if’ questions. :

4. Sanity-test your reframe. 

Many reframed beliefs will just be nonsense. Applying a reframe that has already proved itself in another industry greatly enhances your prospects of hitting on something that makes business sense. Cross-industry innovation is hot. I can really recommend the inspiring book ‘Not Invented Here’ of Marc Heleven and Ramon Vullings.

5. Translate the reframed belief into your industry’s new business model. 

Typically, once companies arrive at a reframe, the new mechanism for creating value suggests itself—a new way to interact with customers, organize your operating model, leverage your resources, or capture income.

These five steps make sense. In their approach I recognize of course the creative process of divergent – and convergent thinking. I suggest you give it a try.

The success in applying this new approach to generate new disruptive business models is in my view dependent on one thing: the ability of you and your colleagues to postpone your judgment and really think outside-the-box formulating your ‘What-if’ questions. Be sure to practice this together upfront and create the right physical and mental environment for being creative together. These 25 rules for perfect brainstorming might help you with it.

“Yes, big companies can be disruptive too. Give it a try.”

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