Magazine Spring 2012 Research Feature

Creating Value Through Business Model Innovation

Could your company benefit from a new business model? Consider these six questions.

Raphael Amit and Christoph Zott Reading Time: 23 min 

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The growing popularity of e-reading devices such as the Kindle is stimulating business model changes in book publishing.

Image courtesy of Amazon.

Companies often make substantial efforts to innovate their processes and products to achieve revenue growth and to maintain or improve profit margins. Innovations to improve processes and products, however, are often expensive and time-consuming, requiring a considerable upfront investment in everything from research and development to specialized resources, new plants and equipment, and even entire new business units. Yet future returns on these investments are always uncertain. Hesitant to make such big bets, more companies now are turning toward business model innovation as an alternative or complement to product or process innovation.

A recent global survey of more than 4,000 senior managers by the Economist Intelligence Unit found that the majority (54%) favored new business models over new products and services as a source of future competitive advantage. EIU analysts concluded that “the overall message is clear: how companies do business will often be as, or more, important than what they do.”1 And in a similar global study conducted by IBM, in which over 750 corporate and public sector leaders were interviewed on the subject of innovation, researchers found that “competitive pressures have pushed business model innovation much higher than expected on CEOs’ priority lists.”2 However, this level of interest may not have been too surprising given that the IBM study also found that companies whose operating margins had grown faster than their competitors’ over the previous five years were twice as likely to emphasize business model innovation, as opposed to product or process innovation.3 One CEO explained why his company’s focus on business model innovation had grown:

In the operations area, much of the innovations and cost savings that could be achieved have already been achieved. Our greatest focus is on business model innovation, which is where the greatest benefits lie. It’s not enough to make a difference on product quality or delivery readiness or production scale. It’s important to innovate in areas where our competition does not act.

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About the Authors

Raphael Amit is the Robert B. Goergen Professor of Entrepreneurial Management at the Wharton School of the University of Pennsylvania in Philadelphia, Pennsylvania. Christoph Zott is a professor of entrepreneurship at IESE Business School in Barcelona, Spain.

References (28)

1. “Business 2010: Embracing the Challenge of Change,” white paper, Economist Intelligence Unit, New York, February 2005, p. 9.

2. G. Pohle and M. Chapman, “IBM’s Global CEO Report 2006: Business Model Innovation Matters,” Strategy & Leadership 34, no. 5 (2006): 34-40.

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Acknowledgments

Raphael Amit acknowledges support from the Robert B. Goergen Chair in Entrepreneurship at the Wharton School. Christoph Zott acknowledges financial support from the IESE Research Division and from the Ministry of Science and Innovation of Spain (grant ECO 2009-12852). Both authors gratefully acknowledge the financial support of the Wharton-INSEAD Alliance Center for Global Research & Development and also thank Yuliya Snihur, Cesar Guzman-Concha and Sylvie Beauvais for valuable research assistance.

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Comments (6)
Patricia Parker
I believe that working under supervision of one of the most experienced Model making in UAE and to assure every model with sophisticated, high quality and durability is important these days.
David Chapman
The best business model is one that has a process and that is effective and efficient that identifies the unmet and perhaps the unidentified needs of its customer and buyer base is such a way as to be able to validate the possible value propositions and any risks attached to what is delivered ..Remembering that customers spend much more time in identifying and possible risks of a purchase than the value propositions.
Business Model Innovation | Barry Young's Blog
[…] Amit and Zott, 2012, Creating Value Through Business Model Innovation , https://sloanreview.mit.edu/article/creating-value-through-business-model-innovation/  […]
Why Business Model Innovation Rocks BMN!
[…] Similarly, Apple still benefits from the 10-year-old combination of iPod and iTunes, a business model that turned Apple into the world’s largest music retailer (and a classic case study of Business model innovation). […]
javvadih.rao
The seventh question to be asked is the impact on the ecosystem  and how do organisations simultaneously engage with the community and gain its support.  this is required to develop the interdependencies (for co-creation of value) and also to sustain such interdependency.  The model shall demonstrate the value of co-creation before any investments are made for its scale.
globalroundhouse
New business model? Yes, business models need to swing; literally, meaning, models need to be organized like a jazz ensemble and need to be able to break down to smaller segments to enhance performance (a quintet, sextet, septet, etc).  Flexibility, nimbleness is key. As a large configuration, the model needs to demonstrate interconnectedness and synthesis. In this way, models are resilient and best prepared to face inevitable change. 

http://www.theglobalroundhouse.com
@GlobalJackie
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