This article provides a systematic framework for helping executives of large, established organizations identify opportunities for business model innovation and organize themselves to pursue these opportunities. While also applicable to start-ups, this article focuses primarily on how to define, challenge, and revamp the business model of an existing business or organization.
In nearly every industry tried and tested business models are coming under attack at an unprecedented rate:Pharmaceutical companies are searching for alternatives to the blockbuster model. Banks are looking for innovative ideas to make up for lost fees and revenues due to new regulations. A drop in advertising revenues and circulation pushes newspapers towards new sources of income. Traditional brick and mortar bookstores are losing out to online competitors that are not encumbered by pricey real estate. Software providers are being threatened by cloud computing. The common root cause at the heart of the problem:a once successful business models.
“Changing a business model of an established organization is difficult – the gravitational pull of the existing business is hard to overcome.”
What is a business model, anyway?
A business model describes the logic behind how an organization communicates, creates, and captures value. Henry Chesbrough in his book “Open Innovation” suggests that a business model has six functions:
- Articulate the value proposition – the value created for users by the offering based on the technology.
- Identify a market segment – the users to whom the technology is useful and the purpose for which it will be used.
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