Business Model Innovation and Change

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by: Alexander Osterwalder

To illustrate business model change and innovation we have come up with a graphical representation of business model innovation that builds on the business model innovation cycle.

Click image to enlarge.

This graph illustrates the extent of change (y-axis) and time (x-axis) required to move from a given existing business model at time t0 towards a selected new future business model – chosen from a set of 4 different generated business model prototypes (selected from the “business model innovation cloud”). The new business model is expected to be implemented at time t3…

x-axis: degree of change

If your company functions according to a particular business model and wants to move towards a new business model you can chose between more or less radical options. For example, the toy company Lego introduced “Lego Factory”, a tool that lets users design, upload, and purchase their own unique Lego creations on the company’s website.

This represents a nice innovation of their existing business model, but (surprisingly) did not require too much change. According to Michael McNally, Lego’s senior brand-relations manager this was just a matter of rejiggering their fulfillment process and their packing process (read about Lego at Wired and at Fast Company).

An example of a big change in terms of business model innovation would be if Sony Music Entertainment moved from their traditional model of music discovery and distribution towards a pure online model à la

y-axis: implementation time

Business Model innovation and change takes time. A certain amount of time is required to change the structures, processes, mindsets and systems of a company in order to make a new business model work and thrive. In other words, if your company wants to move towards a new business model it will take time from the moment you chose a new business model design until the whole thing is actually operational.

This time necessary to move from an existing business model towards a new one depends on the degree of change, but also on many other factors such as the availability of financial & human resources, willingness to change, organizational culture, etc. This is why a radical business model change does not imperatively take more time than a modest business model change.

It all depends on the context… In an innovative company culture change management will be much easier than in a change resistant cutlure. These are all factors that must be considered during the selection of new business models from a set of possible business model scenarios.

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