Too often we think about innovation in terms of the commercialization of new technologies. But we also understand that technology and product innovation are two different things, and some of the best product innovations simply incorporate state of the art technologies in a new way to create additional value. We understand that but even then, we have a hard time looking beyond our current products and current markets to envision compelling next generation product innovations. It requires creative thinking and processes to achieve important breakthroughs in product innovation.
But if product innovation is difficult to achieve, business model innovation is almost ignored. Strong incumbent firms are focused on defending their market position which is why true industry disruption often comes from outside the existing cadre of industry players. "Built to last" is another way of saying "built to fail" when market dynamics are altered. It's insurgents and interlopers that most often change the dynamics of competition. That's why entrepreneurs who are not encumbered with the structure of a set business model or the seduction of current customers are in the best position to create new markets and new products.
But if market leaders could incorporate creative destruction into their structure, they could re-invigorate their business models and cause disruption rather than fall victim to it. Why did for-profit online universities take off over the past decade while traditional universities struggled with enrollment caps and budget issues? Because their business model wasn't aligned with the opportunity. Why did Sun Microsystems decide to give their Java software away? Because they were focused on their core business of high end work stations? In other words, their business model got in the way.
Apple's success over the past decade has not just been one of great product innovation but also an innovation in business models. The iPod was a legendary product innovation but iTunes was a business model innovation that crossed into the media and music distribution fueled and extended the iPod's product life cycle. The iPhone's success was enhanced by the business model innovation of the Apple Store and Apps. Google is currently posed to threaten Microsoft's office products because it can afford to offer many of them for free or almost free while Microsoft is handcuffed by the extraordinary profits in now enjoys from Microsoft Office. Like the frog in the warming pan off water, how do you know when's its time to disrupt your own success before somebody else does it for you?
Is your business model (i.e. how you create, capture, price, position, and deliver value and to whom) the key to your current success or a barrier to future success or both? Easy question to ask. Perhaps not so difficult to answer. But knowing what to do about it and having the courage to initiate creative destruction of your own business model is another thing entirely.
Mark Towery is Managing Director of Geo Strategy Partners
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