Model Innovation

“Business-model innovation is the new essential competency,” writes Geoff Colvin in Fortune (2/25/13). While most of the discussion about “innovation” in business “centers on products and services,” says Geoff, “The more profound challenge for most companies now is imagining a new business model, a new answer to the fundamental question, How do we make money?” No business is immune from the challenge, because even if a business model “has worked for decades, even if it is working okay right now, odds are that it soon won’t be.”

The main reason for this is “information technology,” which is revolutionizing “every information-based business. A second-order effect is that IT makes most businesses easier and faster to start or change. It also multiplies the speed and power of other trends, such as the rise of emerging markets, the growing economic role of governments, and changing consumer tastes.” This not only affects “virtually all companies in the media business, or any company that relies on owning copyrights or selling advertising,” but also retailers, bankers, computer makers and Big Pharma, for instance.

“The new normal is Amazon,” which began as an online bookstore,” but has since branched out into an astonishing array of other services — and even its own branded products. “We can’t count how many business models Amazon has used in its 18 years of existence. The model is changing continually.” However, “business-model innovation is a competency that doesn’t exist in most companies” — for example, the newspaper business-model “worked great for 200 years,” so how could anyone be expected to know how to change it? The primary obstacles to business-model innovation, says Geoff, are “weak imaginations, threatened interests, and culture.”