Page 3 - Management

INNO VATION

ing resources. However, few organizations have you can’t address with your current business
successfully conceived and executed a business model? The answers to these questions form the es-
model different from their current one, fewer still sence of business model experimentation.
have done it more than once and only a handful
ABOUT THE have put in place a methodical approach to business Starting the Process
RESEARCH
model innovation. The first step in the business model exploration pro-
The approach to business
Our goal is to demonstrate how an organization’s cess is to create a template to examine possible
model experimentation pre-
sented in this article stems ability to methodically and routinely examine mul- alternative answers to the questions above. (See “A
from over four years of field tiple business model alternatives — in other words, Business Model Development Template.”) The ques-
work carried out with more by treating the business model as a variable and not a tions that help to shape a business model represent a
than 20 companies — in-
constant — can serve as a critical enabler of growth, series of decisions, each of which has a set of possible
cluding Kennametal,
allowing executives to anticipate, adjust to and capi- outcomes. Our template lays out various possible
Infineum, Johnson &
Johnson, P&G and talize on new technologies or customer insights. The outcomes within the business model structure. Se-
Medtronic — in an array of approach we describe is based on research over the lecting one possibility from each category and then
industries, including con-
last two decades into mechanisms of reliable, me- linking them together forms one potential new way
sumer packaged goods,
thodical business model generation as well as our to proceed. And, of course, selecting different com-
chemicals, medical devices,
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pharmaceuticals and finan- own work helping companies build the capability to binations creates other possible outcomes.
cial services. This work create repeatable growth through business model To see how this works, consider how an airline
entailed in-depth, interview- experimentation. (See “About the Research.”) might use the template to generate alternative busi-
based primary market
ness models. Currently, airlines serve a range of
research with existing and
potential customers; exten- What Is a Business Model? customers with the same basic model. For example,
sive working team idea At a conceptual level, a business model includes all as- regardless of whether the customer is going on vaca-
formulation and prioritiza- pects of a company’s approach to developing a tion with her family, traveling on business or
tion activities, and in-market
profitable offering and delivering it to its target cus- responding to an emergency, airlines use the standard
assumption testing and
tomers. A review of the relevant literature reveals that pay-per-seat model with which we are all familiar.
business piloting. Our pur-
pose was to understand the more than 40 different components — such as target Minor levels of customization exist — for example,
range of alternatives avail- customer, type of offering and pricing approach — larger seats and priority boarding for those who pay
able for companies to
have been included in various definitions of business for them — but the core model is the same for all.
optimize the value captured
models put forward over the past few decades, with To explore business model innovation, an airline
through commercialization
of their innovative offerings. much of the variation stemming from differences be- could start by picking a specific customer group and
The specific company ex- tween the industries and circumstances in which a then beginning to explore potential options other
amples presented in this definition has been applied. than its current model. Answers to the question “How
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article highlight two distinct
For our purposes, we will explore the concept of a does the customer gain access to the offering?” (which
approaches to employing
business model by addressing several core questions is essentially the same as asking “How will we sell it?”)
the proposed business
model innovation process. that the majority of business model researchers deal could include “Through travel agents” or “Through
These two cases represent within their models: online websites” or “Through self-service kiosks” or
starting points at opposite
•Who is the target customer? “As part of partnerships.” As for where on the value
ends of the value chain —
•What need is met for the customer? chain the airline might operate, it could be the service
one driven by an
understanding of unsatis- • What offering will we provide to address that provider, but it might also be a wholesaler selling off
fied customer needs, the need? excess capacity to reduce unprofitable flights. Various
other driven by the pursuit •How does the customer gain access to that offering? profit models would likely start with the traditional
of applications for a set of
• What role will our business play in providing the pay-per-seat but might expand to include subscrip-
technical solutions. This
offering? tion models. The offering itself might be a premium
demonstrates the broad ap-
plicability of the approach. •How will our business earn a profit? seat, a low-cost seat or maybe even fractional owner-
In any working business model, the answers to ship of a plane or chartered use of an aircraft. We
these questions are fixed. But what if they weren’t? experimented with “What we sell” for an airline to
What if you considered each of them as a variable? show how changing just one variable can result in a
What new opportunities could you capture that substantially different business. (See “Generating

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