Business Model Innovation
In today’s economy, competition seemingly can come from anywhere. Pressure on costs is relentless, but cost advantages based on labor or materials are fleeting. Budgets are tight and most companies are striving for top-line growth.
As a result, the ability to innovate effectively and repeatedly is becoming an increasingly important source of competitive advantage. But what kind of innovation? Firms often focus on product innovation, yet new product development is costly and success is uncertain — no matter how carefully you study buyer preferences. Furthermore, successful new products are quickly mimicked — often by competitors with lower cost structures, who have not had to finance progress along the production or marketing learning curves.
A new business model, on the other hand, can take longer to duplicate and requires competitors to acquire or develop the assets and capabilities that a new model requires. A different business model changes the “rules of the game” and may enable small companies (or new entrants) to overtake large incumbents. Finally, business model innovation is a more reliable value generator than product innovation. As Bob Higgins of Highland Capital Partners put it: “I think historically where we [venture capitalists] fail is when we back technology. Where we succeed is when we back new business models.”
What is a “Business Model”?
The term “business model” is often used but rarely defined; it should describe how value is generated, harvested, and distributed. To get at this, we define Business Model simply as “who pays whom for what, how value is delivered, and why.” Taking each of these in turn:
- “Who and whom” – includes customers, intermediaries and companies (in the supply chain, for example)
- “Pays” – indicates how value is exchanged — and can be non-cash
- “For what” – outlines what value is exchanged for payment and can include physical objects as well as services or delivery standards
- “How” – specifies how the products or services are sourced and developed and how they are delivered to customers
- “Why” – outlines the key assumptions and beliefs underpinning the business model’s ability to deliver value (why will it succeed?)
Business models tend to stabilize in mature industries — until new entrants, sometimes disruptive startups, seek market share. But why leave business model innovation to the start-ups? We help both young and established companies find new ways to “go to market” — exploiting products, assets and capabilities they already have (or can readily assemble). We help our clients to:
- Recognize their current capabilities (even those not fully exploited) and business models, and determine how they generate value
- Identify new business capabilities which can be assembled with current or easily-available assets
- Devise new business models (and value propositions, if appropriate); evaluate them, and select which model(s) to pursue
- Develop the organization (if necessary) and processes required to execute the new business model(s)
Industries experiencing rapid change (especially in technologies, costs, regulatory regimes) present opportunities for business model innovation. Today, healthcare providers are facing new technologies, higher costs, and a radical regulatory transformation (i.e., the ACA) of the ways they are paid and for what.
Example: Business Model Innovation to Enable Clinical Data Valuation & Monetization
Hospitals, clinics, and medical practices generate growing volumes of clinical data (an asset), increasingly captured in electronic medical records, yet many of these organizations are only beginning to consider systematically governing their clinical data or developing new data-enabled revenue streams — which may require new business models.
Our Healthcare Data Monetization practice can help you: establish a thorough decision process, devise a data monetization strategy, and prepare and execute the strategy — leading to new sources of revenue, and avoiding preventable risks.
We can help you:
- Understand the risks and complexities involved in sharing or monetizing clinical data
- Establish new revenue streams based on licensing of data you possess already (or can easily acquire)
- Develop new services (for patients, suppliers, providers, payers) using your data to create value for others — which you can share in, with appropriate business models
- Negotiate more effectively with suppliers, providers, and payers
- Avoid being taken advantage of by HIT vendors, suppliers, providers, or even other hospitals
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Client Engagement Examples
A good strategy will struggle without appropriate governance; governance without good strategy is just ritual; and neither is effective without the right people in a suitable structure.
Strategy, Organizational Architecture and Governance need to be aligned for the organization to succeed. A good strategy that is poorly executed due to ineffective operating governance or an unsuitable organizational structure is likely to fail (or at least underperform). A reorganization that doesn’t take into account dynamic strategy is less likely to meet its objectives; and operating governance, to ensure the right people are making the right decisions, must take into account the organizational architecture and the strategy.
Any of these elements may need to change due to new competitors, changed regulations, different input costs, new technologies, or any of the other myriad ways the business environment is continuously evolving. That doesn’t mean they all must change or that they must change together — successful companies carefully evolve as the environment changes, and we can enter in any of these practice areas to begin to make improvements.
We employ distinctive techniques (such as business wargaming and organizational simulations) across all our practice areas, as well as proprietary frameworks and processes.