In most companies, innovation is the responsibility of the technical side of the organization. The research and development staff is supposed to come up with the cool new technologies, and the rest of the company takes them to market.
But that model doesn’t assure success, as the recent history of innovation shows. Betamax lost out to VHS. Macintosh, to a lesser degree, lost out to Windows. We still use color-TV standards from the 1940s, despite many initiatives to improve picture quality.
Put simply, bad things can happen to good technology. And much of what can happen is due to the business model the company uses to commercialize the technology. This is the next wave in innovation: to innovate the business model that commercializes promising new ideas and technologies. Doing so is, for the most part, a simple process of trial and error. But at most companies it also requires the removal of some barriers to such innovation.
EMBRACING CHANGE
What are those barriers? Perhaps the most basic is simply this: Companies get trapped by their own success. Once a company’s business model has proved effective, the tendency is to seek out additional opportunities that fit that model—and to play down any technologies that don’t fit that model.
The Next Wave
- The Challenge: To innovate the business model that commercializes promising new ideas and technologies.
- The Process: Companies need the flexibility to experiment with new business models so that they can identify and pursue the most promising alternatives.
- Getting There: At most companies, some barriers to business-model innovation need to be removed, including the tendency to stick too closely to the existing model because of its record of success, and the failure to assign to anyone the responsibility for business-model experiments.
For example, a company that is accustomed to a business model based on charging money for products might overlook a technology that works best with a model based on free distribution with an advertising mechanism to produce revenue.
International Business Machines Corp. is one example of a highly successful company that saw the need for innovation in its business model and reinvented itself to great effect. By experimenting with new approaches, the company evolved from a model of vertical integration of its own proprietary products and services to a much more open model that includes cooperation with other
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