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Business Model Innovation; One Answer to the Re-generation of Companies Published: Sunday, September 4, 2011 8:00 am By: Rafael Ríos, Executive Vice President

For the most part of the 1980s, companies focused their strategy formulation on how to improve and secure competitive position within their markets.  Most of the literature of the leading management gurus of that time argued that innovative strategies tended to emerge by chance or from outside of the formal strategic planning process.

During the last 20 years new competitive realities have ruptured industry boundaries, overthrown much of standard management practice, and rendered conventional models of strategy and growth obsolete.  Hamel and Prahalad’s book “Competing for the Future” addressed the challenge of new market creation.  They saw the organization as a portfolio of competencies. This view opened up a whole new range of opportunities. They focused on identifying opportunities that resided around existing product and services.

During the last 10 years many exciting elements have been added that have brought excitement to the field. One of these is the concept of value innovation. This concept focuses on making the competition irrelevant by creating a leap of value for buyers and for the company, thereby opening up new and uncontested market space.

At its most basic, strategy has two fundamental concerns, value creation and value capture. Traditional perspectives that focus primarily on how to create a sustainable source of competitive advantage are primarily concerned with value capture. Value innovation while concerned with both creation and capture, shifts the primary focus of strategy development on the customer versus the competitor. History is full of value pioneers from Henry Fords Model T to Dell’s mass customized computers to Apples design and software breakthroughs in digital entertainment and communications. Yet it has only been recently that organizations have begun to look for ways to help make value pioneering more systematic and repeatable. The literature and research is clear in stating that technological breakthroughs may or may not be necessary to be significantly successful, but nearly always they are the result of a successful business models. Over time a successful company finds itself operating according to a business model, which defines the way the company delivers value to a set of customer at a profit. They may have arrived at this model consciously or not. The model evolves until it suits the company’s need. 

The problem is what happens when an opportunity occurs outside its core. And we do not see it. My friend and colleague Ulises Pabón has researched this subject intensively during the last 10 years. He says that disruptive new business models are emblematic of our generation.  These models have reshaped entire industries, from the airline business (Southwest) to the pc‘s (Dell) to mass retailing (Walmart, Amazon). Yet they remain poorly understood. Today they transformed the landscape across industries. Yet few know how to go about it in any kind of systematic fashion. They are now beginning to understand that a business model describes the rationale of how an organization creates, delivers, and captures value, both for the customer and the company.

Today organizations are being presented with a framework for mapping the basic architecture underlying successful businesses in terms of nine main elements.  These elements or Building Blocks as described by Osterwalder and Pigneur represent the core aspects of any business. 

The nine blocks are: 1) Customer Segments block that are the heart of the business model. They identify what customer should we be serving and what job do they (the customer) need to get done. 2) The Value Proposition seeks to solve customer problems and satisfy customer needs. What are the bundle of products and services that create value for a customer segment?

3) The Channels block describes how value propositions are delivered to customers through communications, distribution, and sales Channels. 4) The Customer Relationships element describes what types of customer relationships should be established and maintained with each Customer Segment. 5) Revenue Streams represent the cash a company generates from each customer segment. They are the net financial consequences derived from the value propositions of each segment.

6) Key resource block identifies the most important assets required to offer and deliver the previously described elements. 7) Key Activities describe the most important things a company must do to make its business model work 8) Key Partnership identifies activities and resources that are outsourced and that leverage the company’s ability to add value. 9) The Cost Structure identifies all cost incurred to operate the model.

These business blocks are used to describe and classify businesses (especially in an entrepreneurial setting), they can be used inside the company to explore possibilities for future development. The business model operates as a recipe for creative managers to identify opportunities.

Your organization’s results today are a direct function of your present business model.

Copyright 2011 QBS, Inc.
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