Growth is critical for businesses to thrive in a competitive business world, where every company comes up with something new to disrupt the market. A well-designed business model provides a framework for a company to operate, create value, generate revenue, enable scalability, and adapt to changing market conditions. Through such a multi-dimensional business framework, obtaining sustainable growth becomes easier than before.
We at The CEO Views recognize the power of innovative business models and celebrate their role in driving business growth. This article from The CEO Views discusses and evaluates the role of business model innovation in driving business growth.
What is a Business Model?
Business models are designed to create and deliver value for their customers. It describes how businesses create and sell products or services, the target market, and potential costs. The term ‘business model’ was first mentioned in an academic article in 1957, as articulated – “And many more problems arise to plague us in the construction of these business models than ever confronted an engineer.” Here, the meaning of the business model seems intrinsically connected with a representation of reality.
The term has often been confused with the term “revenue model,” defining the specific mode in which a business model enables revenue generation. Although, in reality, the revenue model is an important part of a business model and not the revenue model itself.
A business model is also defined as a description of how your business runs. Now, how to win a better competitive advantage is through a better business model. Introducing a better business model to an existing market is a disruptive innovation through which businesses can unlock long-term sustainable growth.
Business Growth in a Nutshell
Business growth refers to the holistic growth of a company in terms of revenue growth, customer base, expansion, market share, or more goods production. As each company has its unique ecosystem, business growth differs from usiness to business. Nonetheless, a growth in revenue and market share is often considered a holistic expansion of a business.
Importance of Business Growth
A business can stagnate without expansion, and growth factors differ for different companies. What works for your competitors’ growth may not work for your company. Determining the appropriate growth factors for your company is a strategic decision that every company must take.
Businesses cannot generate more revenue if it’s not expanding. For example, startups can fix higher prices for their products or services, but they need to demonstrate their brand value to their customers. In this context, ‘differentiation’ can be their growth factor, which can help win a strong competitive edge in a market.
What is Business Model Innovation?
Business model innovation is the process of enhancing advantage and value creation by driving changes to an organization’s value proposition, to customers, and also to the underlying operating model. Business model innovation can drive a more lasting competitive edge compared to product or service innovation.
At the level of value proposition, these changes cater to the segment choices, product or service offerings, and revenue model. On the contrary, at the level of operation, these changes focus on driving profitability, competitive advantage, and value creation to drive value propositions.
Role of Business Model Innovation in Driving Business Growth
The increased volatility of the market and the diversity of customer segments today compel business models to age faster. This is where business model innovation comes as a strategic approach to drive value-creating growth. This innovative approach is taken in response to the dwindling competitiveness and a strategic approach to seize new opportunities. In order to understand the suitability of business model innovation approaches, we need to learn about Impetus and Focus.
Impetus helps understand whether the company is fighting against any external threat or challenging the status quo. Focus refers to identifying the most exciting area of opportunity for the business. Below are the four ways through which business model innovation drives sustainable business growth depending on the impetus and the focus-
1) The Reinventor Approach (Impetus)
The reinventor approach is often applied against an industry challenge, such as new regulation. It is applied when the business model is slowly deteriorating with uncertain growth prospects. Such a situation demands the company to reinvent its customer-value proposition to realign operations to deliver new premium offerings superiorly. A burning example of such an approach is- Netflix’s shift from DVD rentals to streaming offerings to disrupt the traditional market.
2) The Mavericks (Impetus)
Scale up a potentially successful business model is what the approach of The Mavericks business model innovation. Through this approach, startups employ their core advantage to revolutionize the industry to set new standards. This continually evolves the competitive edge of the business to drive growth. Airbnb is a good example of this approach, which has made traveling more convenient by setting new standards.
3) The Adapters (Focus)
This adapter approach is deployed when the core business is incapable of combating fundamental disruption. It explores adjacent business markets and often the existing core business to drive change and growth. Adapters must continually invent to find new core space with a suitable business model. For example, Lego integrated digital experiences with physical building blocks.
4) The Adventurers (Focus)
It follows an aggressive expansion of the business footprint by venturing or exploring new or adjacent territories. Without understanding the competitive advantage of the business, this approach cannot be deployed. Uber is an example of this approach where it leveraged technology to disrupt a new transportation service, disrupting the taxi industry.
With all these four approaches to business model innovation, we can now see how changes in business models can lead to sustainable business growth by generating customer value like never before.
