Here is a brief excerpt from an article by Raphael Amit and Christoph Zott, featured in the MIT Sloan Management Review. Could your company benefit from a new business model? They pose six questions for business leaders to consider. To read the full article, check out others, obtain subscription information, and register for free access to some resources, please click here.
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Companies often make substantial efforts to innovate their processes and products to achieve revenue growth and to maintain or improve profit margins. Innovations to improve processes and products, however, are often expensive and time-consuming, requiring a considerable upfront investment in everything from research and development to specialized resources, new plants and equipment, and even entire new business units. Yet future returns on these investments are always uncertain. Hesitant to make such big bets, more companies now are turning toward business model innovation as an alternative or complement to product or process innovation.
A recent global survey of more than 4,000 senior managers by the Economist Intelligence Unit found that the majority (54%) favored new business models over new products and services as a source of future competitive advantage. EIU analysts concluded that “the overall message is clear: how companies do business will often be as, or more, important than what they do.”1 And in a similar global study conducted by IBM, in which over 750 corporate and public sector leaders were interviewed on the subject of innovation, researchers found that “competitive pressures have pushed business model innovation much higher than expected on CEOs’ priority lists.” 2
However, this level of interest may not have been too surprising given that the IBM study also found that companies whose operating margins had grown faster than their competitors’ over the previous five years were twice as likely to emphasize business model innovation, as opposed to product or process innovation.3 One CEO explained why his company’s focus on business model innovation had grown:
In the operations area, much of the innovations and cost savings that could be achieved have already been achieved. Our greatest focus is on business model innovation, which is where the greatest benefits lie. It’s not enough to make a difference on product quality or delivery readiness or production scale. It’s important to innovate in areas where our competition does not act.
1. “Business 2010: Embracing the Challenge of Change,” white paper, Economist Intelligence Unit, New York, February 2005, p. 9.
2. G. Pohle and M. Chapman, “IBM’s Global CEO Report 2006: Business Model Innovation Matters,” Strategy & Leadership 34, no. 5 (2006): 34-40.
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Raphael Amit is the Robert B. Goergen Professor of Entrepreneurial Management at the Wharton School of the University of Pennsylvania in Philadelphia, Pennsylvania. Christoph Zott is a professor of entrepreneurship at IESE Business School in Barcelona, Spain.