10 Reasons Companies Fail at Business Model Innovation

 
February 1st, 2013

guardianCompanies fail at business model innovation because they’re so busy pedalling the bicycle of current business models they leave no time or resource to design new ones.

Most companies focus innovation efforts on new products and on driving efficiencies into current models.┬áThese are important activities, but not sufficient in the 21st century when business models don’t last as long and face disruption. This means business model innovation is the new strategic imperative. In this post I outline the top 10 reasons why businesses fail to innovate.

CEOs don’t really want a new business model

The most obvious reason companies fail at business model innovation is because CEOs don’t want to explore new business models. They are content with the current one and want everyone in the organisation focused on how to improve its performance. The clearest indication is when any discussion about emerging business models is viewed and treated solely as a competitive threat.

Business model innovation will be the next CEO’s problem

Let the next guy or gal handle it. There may be a disruptive business model on the horizon but we can beat it back, pass laws to slow it down and treat it as a niche player. Sound familiar? Today’s leaders have never had to transform their business model. Tomorrow’s leaders will. Disruptive technology is everywhere and trying to outlast it is a risky strategy. Leaving the challenge to the next CEO is not a good idea.

Product is king. Nothing else matters

The lines are blurring between product and service business models. Take the iPod. Apple didn’t bring the first MP3 player to the market. Yet, the company changed the way we experienced music by delivering on a value proposition that bundled product (iPod) and service (iTunes). Industrial era thinking forces a false choice between product or service focus. A proud product heritage can get in the way.

Information technology is only about keeping the trains moving and lowering costs

“I’m from IT and I am here to help you … ” Many companies fail because IT resources are disproportionately allocated to support legacy systems. Deploying new capabilities takes a back seat. The prevalence of enterprise systems is a barrier to business model innovation.

A change anywhere within the organisation affects every function, making it difficult to develop new capabilities, let alone an entirely new business model. Enterprise systems increase the efficiency of the current business model but can be a straightjacket-constraining business model innovation.

Cannibalisation is off the table

It’s hard enough being at war with competition, so why compete internally? When executives look at new business models they see them through the lens of the current business model and view them as competition. Organisations fail at business model innovation because they blindly take cannibalisation off the table, even if a new business model may have significant upside potential.

Nowhere near enough connecting with unusual suspects

Senior executives need to get out into the market more. When they do get out they tend to meet with the usual suspects. How can leaders expect to learn anything new if they don’t mingle with unusual suspects, people with different perspectives and experiences?

Leaders spend too much time inside echo chambers within their own companies and industries. Business model innovation is more about next practices than best practices.

Line executives hold your pay card

Who wants to volunteer to work on an exciting project to explore new business models? It’s a temporary assignment and then you will return to your functional home within the organisation. And, by the way, your performance and salary review will still be conducted by your current boss. Don’t worry, because your regular job will still be waiting when you return. How excited is anyone likely to be to work on a new disruptive business model if their career is in the hands of a boss who is vested in the current one?

Great idea, what’s the ROI?

Financial metrics to assess alternative projects reflect the cost structure and required returns to sustain and grow today’s model. New business models are likely to have very different economics and must be assessed in that context. Most new business models will be dismissed out of hand if judged by the economics and constrained by the ROI requirements of the current model.

Organisations fail at business model innovation because they apply the wrong financial lens in assessing the attractiveness and feasibility of new business models.

They shoot business model innovators, don’t they?

Organisations fail at business model innovation because they shoot their renegades. If they don’t shoot them they wear them down until they leave. Business model innovators go against the corporate grain. They see entirely new ways to create, deliver and capture value. Organisations must learn to celebrate and support people within the organization who are willing to challenge the status quo, to bring totally different perspectives on delivering value to the table and are willing to take experimental risks to explore new models.

You want to experiment in the real world, are you crazy?

Organisations fail at business model innovation because ideas never make it from the whiteboard into the real world. It’s easy to doodle a new business model concept on a whiteboard. It’s hard to know with any certainty if a new business model concept is viable in the market without testing it in the real world.

Leaders will have to overcome their resistance to exploring new business models even those that may be disruptive to the current one. It’s time to stop admiring the problems and to start exploring business model innovation as the new strategic imperative for all leaders who want to stay relevant in a changing world.

This post originally appeared on the Guardian Media Network site here.

7 Responses to “10 Reasons Companies Fail at Business Model Innovation”

  1. Cliff Peat says:

    A helpful and insightful article, Saul.

    A useful tool to put the process into practice and thrash out (collaboratively) the hypotheses which may be the foundation of a new business model – is http://www.strategyzer.com

    It’s currently in alpha development which is being driven by Alex Ostwalder and Yves Pigneur – the co-authors of The Business Model Generation. The point you make about testing in the real world is tracked in “strategyzer” so at a glance you can see whether (and how) the guesses have been validated.

    As with all tools it’s effectiveness depends on the people who use it and, I would suggest, the quality of the facilitator who guides it.

    Would also suggest that senior management might be well advised to read the research in Clayton Christensen’s “The Innovators Dilemma” and recently, “The Innovators Solution”.

  2. Edna Pasher says:

    I love it and would just like to add that what is missing is courage! Most CEOs love risk less than a young entrepreneur – and we expect them to be innovative!
    :)

  3. Tony Kubica says:

    Nicely captured and articulated Saul. The resistance to business innovation we see in companies provides a great opportunity for smaller businesses to better penetrate the market and capture market share. And in this connected economy, smaller companies will be the disruptive force. So CEO’s are presented with an interesting option: create internal disruption to grow, or experience external disruption to potentially fail.

  4. [...] The most obvious reason companies fail at business model innovation is because CEOs don’t want to explore new business models. They are content with the current one and want everyone in the organisation focused on …  [...]

  5. [...] Companies fail at business model innovation because they’re so busy pedalling the bicycle of current business models they leave no time or resource to design new ones. Most companies focus innovation efforts on new products and on driving …  [...]

  6. is one of the most used frameworks for describing the elements of business models.

  7. [...] Companies fail at business model innovation because they’re so busy pedalling the bicycle of current business models they leave no time or resource to design new ones.Most companies focus innovation efforts on new products and on driving efficiencies into current models. These are important activities, but not sufficient in the 21st century when business models don’t last as long and face disruption. This means business model innovation is the new strategic imperative. In this post I outline the top 10 reasons why businesses fail to innovate.CEOs don’t really want a new business modelThe most obvious reason companies fail at business model innovation is because CEOs don’t want to explore new business models. They are content with the current one and want everyone in the organisation focused on how to improve its performance. The clearest indication is when any discussion about emerging business models is viewed and treated solely as a competitive threat.  [...]

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