The innovative business model

The three major forms of innovation are product, process and business model. Only a small portion of companies compete on innovative products or processes, most companies survive and grow by selling the same thing as their competitors but they do it differently, and hence, have different business models.

Many of our largest corporations sell the same products and services as their competitors, companies such as Home Depot, Walmart, Virgin Blue, Harvey Norman, ANZ and so on. Their differentiation is in the way in which they connect to the customer. We can learn a lot from looking at the business models of the best companies in each sector.

What we need to do to drive growth is to do something innovative which creates additional value for our target customer. If we are in the commodity product market, we need to find new ways of creating value beyond product utility. One way to do this is to change the way in which we interact with the customer or the way in which we deliver the customer experience.

Some innovative business models have substantially changed industries. Think of the changes in the way airlines operated when they introduced the hub and spoke system. Prior to this innovation, flights were always point-to-point. With hub and spoke, passengers could be conveyed in larger numbers on each leg by consolidating their movements through a central exchange.

Think of the changes in retail shopping with the introduction of shopping malls, category killers (Toys “R” Us) and factory outlets. Banks changed dramatically when they introduced the ATM and internet banking. While these were all industry changes, you will usually find that one company gained significant market share by being the first to introduce the innovation.

One of the techniques we can use within our own business to foster innovation is to look at the business models of other industries to see what could be adapted. So could a central clearing house (hub and spoke) system or a larger product one-stop-shop approach (category killer) work for us? In a market which only sells products could rental work? Where the only business model is fixed location, could a mobile service work? Could you use multiple small central CBD customer service locations with operations located in a warehouse space in an outer suburb where rents are low (the wet and dry store concept from dry-cleaning).

We need to be open to new ways of doing business and ask ourselves if a different business model has something we can use to add additional value to our customers. Or perhaps there is a variation of a business model which we could use to open up new customer markets. You can start the thinking process by reviewing your experience each time you purchase a product or experience a service. What do they do which you could adapt? How do they interact with their customers and how do they create customer value? You will be surprised how much you can learn from different business models and what interesting ideas you trip over.

Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.