New Business Model: Listen and Change Every Minute

According to an IBM study that surveyed 765 CEOs of global companies, 65 percent expect a high level of change in business, 22 percent believe it will be moderate, and only 13 percent think the level of change will be small.

written by: Matilda Bačelić
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Innovate to win. The mantra of the globalized business world of the 21st century is losing pace with rapid changes, so the new mantra could be: innovate to even have a chance to compete. Every day, a stable, established, and predictable business culture and way of doing business are becoming less desirable, as it is already a notorious fact that not changing means only stagnation and even failure. Creativity and speed of change are at the core of today’s advanced and successful companies. New products, new services, new business processes are the way to grow, conquer, or maintain a leadership position that has never been more volatile. According to an IBM study that surveyed 765 CEOs of global companies, 65 percent expect that the level of fundamental changes in business in the upcoming period will be significant, 22 percent believe it will be moderate, and only 13 percent think the level of change will be small. Thus, the majority of global companies consciously expect dramatically fast changes in which past results will provide no guarantee for future success.

When it comes to business innovations, the first thought usually goes to product or business process innovations. Significantly less often does one think of business model innovations, and even less frequently about the innovation process itself, or how to innovate at all. One of the biggest mistakes is considered to be that companies often keep the things that made them successful unchanged for too long. Admittedly, it is understandable that successful companies are reluctant to change tried-and-true models that provide them with security, but those products and ways of doing business were successful in the past decade. The next decade is something entirely different.

Hard to Copy

New business models pose a threat to the established, unimaginative way of doing business. Products and services can today be relatively easily copied. This is vividly demonstrated by China and other Far Eastern countries that can not only create a functionally identical but significantly cheaper product, but are also increasingly advancing in design, which has been their weakness until now. However, the business model still represents that ‘small’, but essential difference. Successful companies (and those that want to be) therefore place the greatest emphasis on innovations in business models that give them a longer-term advantage over the competition. Why is it difficult to copy someone else’s business model?

While some new product experts often only need to see it to make a more or less faithful copy, penetrating into a business process requires understanding what led to a certain change, proponents of this idea believe. When a company achieves, for example, a sudden jump in market share through innovating its business model and sweeps away the competition, the initial question from genuinely astonished observers is: ‘What on earth did they do?’ Copying a business model is usually very difficult because it lies on a whole web of ‘soft’ factors that are hard to understand from the outside: people, the networking of their knowledge and skills, ways of thinking, and countless details that are woven into a specific corporate culture.

Three Ways to Innovate

There are three ways to innovate a business model, highlighted at a recent IBM Forum by Hendrik Lang, head of IBM’s ‘Strategy&Chain Consulting’, the department responsible for supporting clients in strategic projects. The first is the innovation of the industrial model, which involves innovating the value chain by moving to another industry, redefining the existing one, or creating a completely new value chain. The second model is the innovation of the revenue model, or innovating the process of creating (and increasing) revenue by providing new values to consumers or clients and innovating the pricing model, which can significantly affect the final result. A classic example is Gillette’s ‘razor and blades’ (or ‘hook and bait’) business model, which operates by selling the basic or main product at a lower price while profiting from other high-margin products that are essential for using the basic product.

This business model was long ago devised by King C. Gillette, but it is still used in the razor and blade industry. The entrepreneurial model of business innovation, as the third way, involves innovating the value chain by changing expanded enterprises in terms of greater integration or specialization and transforming the network of employees, suppliers, clients, etc. What does an innovative company look like? The old business model was: plan, make, deliver. The new model is: sense and respond, sense and respond. In other words, listen and change. And that in minutes, not months. More stimuli from more sources with more different places become fertile ground for new ideas, followed by critical filtering of ideas and analysis.

Innovative Corporate Culture

Building an innovative corporate culture, as a prerequisite for developing and designing any new business model, is no easy task. It involves openness to unexpected, completely new, untested ideas from the very leadership to every employee in the company. Even more than openness to the new, an innovative environment implies a renunciation of old rules, habits, and customs, and a willingness to change them. Diversity within the organization is also one of the incentives for innovation because different people perceive the same situation differently and thus seek different solutions.

In contrast, homogeneity reduces its innovative capacity. Every attribute assigned to a company is often just a consequence of the character of its people; there are no innovative companies without innovative people, just as there are no aggressive companies without aggressive leadership. That is why a key prerequisite for innovation is a change in mindset and way of thinking. Moreover, it is extremely important, as those in Silicon Valley know very well, to know how to ‘fail’. If you are afraid of mistakes, failed ideas, then there will be no innovation in such a culture and environment. Because if creativity were enough, you would only need to write down the idea that came to your mind on paper, and the matter would be settled.