1. New Products are not enough
There are many companies with excellent technological products. Especially in Europe, many firms continuously introduce innovations to their products and processes. Yet, many companies will not survive in the long term despite their product innovation capabilities. Why do prominent firms, which have been known for their innovative products for years, suddenly lose their competitive advantage? Strong players such as AEG, Grundig, Nixdorf Computers, Triumph, Brockhaus, Agfa, Kodak, Quelle, Otto, and Schlecker are vanishing from the business landscape one after the other. They have lost their capabilities of marketing their former innovative strengths. The answer is simple and painful: these companies have failed to adapt their business models to the changing environment. In future, competition will take place between business models, and not just between products and technologies.
New business models are often based on early weak signals: Trendsetters signal new customer requirements; regulations are discussed broadly before they are eventually approved. New entrants to the industry discuss new alliances at great length; disruptive technology developments are results of many years of research. The insolvency of Kodak in 2012 has also a long history. The first patents for digital cameras had already been published by Texas Instruments in 1972. Kodak realized the potential of the new technology and in the 90s initiated an alliance on digital imaging with Microsoft in order to conquer this new field. But – as can be observed frequently – the disruptive move was faint-hearted. When the first digital cameras entered the market in 1999, Kodak forecasted that ten years later digital cameras would account for only 5 % of the market, with analog cameras remaining strong at 95 %. In 2009, the reality was different: Only 5 % of the market remained analog. This misjudgment was so grave and powerful that it was too late when Kodak physically blew up its chemical R&D center in Rochester in order to change the corporatedominant logic of analog imaging. Between 1988 and 2008, Kodak reduced the number of its employees by more than 80 %, in 2012 Kodak filed for bankruptcy protection.
It is often said that existing business models ‘don’t work anymore’. Still, the typical answers provided by R&D engineers are new products based on new technologies and more functionality. By contrast, the underlying business logic is rarely addressed despite the fact that business model innovators have been found to be more profitable by an average of 6 % compared to pure product or process innovators (BCG 2008). As a consequence, managers consider business model innovation to be more important for achieving competitive advantage than product or service innovation, and over 90 % of the CEOs surveyed in a study by IBM (2012) plan to innovate their company’s business model over the next three years. But a plan is not enough. When it comes to making the phenomenon tangible, people struggle. Very few managers are able to explain their company’s business model ad-hoc, and even fewer can define what a business model actually is in general. The number of companies, which have established dedicated business model innovation units and processes is even lower. Given the importance of the topic, this lack of corporate institutionalization is surprising – however, considering the complexity and fuzziness of the topic, it is to be expected. Before discussing how to innovate a business model, it is important to understand what it is that is to be innovated. Historically, the business model has its roots in the late 1990s when it emerged as a buzzword in the popular press. Ever since, it has raised significant attention from both practitioners and scholars and nowadays forms a distinct feature in multiple research streams. In general, the business model can be defined as a unit of analysis to describe how the business of a firm works. More specifically, the business model is often depicted as an overarching concept that takes notice of the different components a business is constituted of and puts them together as a whole (Demil and Lecocq 2010; Osterwalder and Pigneur, 2010). In other words, business models describe how the magic of a business works based on its individual bits and pieces.