Innovating Business Models
by Roy Luebke
One area with tremendous economic potential is to create a new business model. Of all the parts of a business to develop, a business model is probably the most complicated area to create. A new business model is also the area which may create the most significant economic gain of all.
Some obvious business model innovations include firms like eBay and Amazon. Google certainly created a new business model. Ryanair has a unique aviation business model in Europe where they charge the airport to be serviced rather than the typical model of the airport charging all the fees. Ryanair has been so successful they may actually take over Lufthansa in the near future. Think also about FedEx and Dell Computers.
Too often a new business model is thought of simply as a different pricing model, but business models encompass much more than simply price. They often involve partnerships, licensing arrangements, new technology platforms, new distribution methods, anything that describes the way a company creates, delivers and extracts value. One new business model with huge potential is online education. Is it really necessary to sit in an expensive Socratic-based classroom when the Internet allows access to unlimited resources? For a good look at where education may be heading, take a look at MIT’s opencourseware site where all their course material is available for free.
One of the driving factors to enable new business models is the use of emerging technology to deliver familiar products or services in new ways. As a result of technology advances, one growing area for new business model innovation is in microfinance. Professor C K Prahalad has written extensively on the fortune at the bottom of the pyramid and should be researched in more detail to understand the scope and scale of microfinance. With billions of people living in poverty, this is one of the most fertile grounds for creating new business models.
One of the biggest crisis facing us globally is energy management. For automobiles, a new business model will be needed to allow new energy sources such as electric power to be distributed as easily as gasoline. When John D. Rockefeller cornered the market on kerosene distribution and became the wealthiest man on the planet, he did it with a combination of railroad partnerships, distribution channels, and supply chain management. How will the gasoline station distribution model need to be changed to support hydrogen, electric or other energy source distribution in the coming years?
Ultimately, a new business model allows an organization to deliver new value to its customers, or allows it to address new customers in new markets.
SABMiller is now one of the largest brewers in the world having started in South Africa in 1895. One little-known business model development from SABMiller is a new method to leverage brand expertise through a low-cost sorghum-based clear beer called Eagle Lager recently introduced into Uganda and Zambia. Both governments have given excise exemptions due to the use of locally grown sorghum and not importing barley. This initiative has enabled SABMiller to bring nearly 10,000 small scale farmers into the supply chain and provided a high quality, affordable product for local consumers. Not only has this created a new localized brand, but the company is able to increase its consumer market by creating jobs and wealth producing entities.
Creating a new business model is no easy task. The real beauty of a new business model, however is to allow a company to leverage its existing capabilities and resources in new ways. Take a closer look at your customers and how they want to live and you may find a business model change that will transform your organization and reduce your dependence on constant stream of new product enhancements.