Old wine in a new bottle
On how business model innovation could thrive on reinventing & reusing the old
[Source: Building New Ideas; The Management Centre, UK]
Reading Anatomy of a Breakthrough by psychologist and management scholar Adam Alter, I came across a counterintuitive concept of how, in fact, breakthroughs do happen. Alter suggests that it’s often not with out-of-the-box thinking, but rather through the effects of recombination. While it is easy to view technological progress as being driven by the genius of individuals, three patterns of recombination that have driven business model innovation are compelling evidence that suggests otherwise:
1. Transfer a business model pattern from another industry to yours.
The “razor and blades” business model that was originally credited to Gillette - the inventor of disposable razors - has since been adopted successfully in several other domains. The basic business model construct that Gillette pioneered was to sell the basic product (i.e., razors, in their case) at an economical price and then accrue sticky recurring profits by locking customers in to buy the complementary high-margin product (i.e., disposable blade refills).
Several others have followed suit since - computer printer manufacturers are really in the business of selling printer ink, service contracts often pay for phones themselves, and Sony sells the PlayStation console at a loss but makes up for it by selling games and charging for online services.
2. Export a successful business model from one part of an organization to another.
In 1986, Nespresso, a fully owned subsidiary of Nestle, introduced premium at-home espresso as a segment in the coffee industry. It turned a transactional business (i.e., selling coffee through retail) into one with recurring revenues (i.e., selling proprietary pods for a Nestle-manufactured coffee machine through direct channels).
In 2010, Nestle launched the tea-maker - Special.T - largely copying the business model of its $4 billion Nespresso coffee brand, its fastest-growing business for years.
3. Combine existing business model patterns.
The typical economics, operating levers and returns on scale of either pure product business models or pure service business models look very different. It is challenging to scale a service-oriented business, since scale hinges on people, their time and chargeable hours. On the other hand, there is a lot of upfront uncertainty in building a product-oriented company.
Some companies have had success in bringing the best of both worlds together with their business model approach - by leveraging a solutions-based model to combine both the product and service into what they offer customers. Uber, for example, offers a ridesharing service to its customers, but essentially monetizes its product (i.e., its map algorithm and driver fleet management) rather than its service (i.e., the rides themselves).
(Hustle Fuel represents my own personal views. I am speaking for myself and not on behalf of my employer, Microsoft Corporation.)