Next Concept: Recombining
From Apple to Intel and from Google to Netflix, transformative companies’ innovation includes both a method of new value creation and a new, complementary mechanism to capture new value in return. And that ability to change a company’s business model sets such companies apart as true business innovators.
Boston Consulting Group recently interviewed 1,500 senior executives at some of the most innovative companies, finding that 94 percent had reported their companies had engaged in some type of business model innovation. The same study also indicated how elusive innovative business models are, as only 27 percent of those interviewed reported that their organizations were actively pursuing an innovative business model.
These low implementation rates are not uncommon. In a review of 2,500 top-performing companies, McKinsey found that less than 30 percent of top-quartile performers felt that they were getting their business model right. Only 10 percent of those in the second quartile of performance said they were good at business model innovation. Over the eight innovation areas McKinsey identified as essential to success, organizations consistently scored themselves the lowest at business model innovation.
Low rates of business model innovation are perplexing given that companies that prioritize innovative business models see their profitability grow 5 percent faster than those who were just seeking product or service innovation. This gap between the benefit of business model innovation and the low number of incumbent companies that pursue it has created an opportunity for transformative companies to innovate their business models.
At its most fundamental level, the foundation of a business model starts with how your organization makes money through value exchange—including both a mechanism for creating value and another for capturing value.
Explore this and other topics in the upcoming book Transformative.