It used to be that we could excuse most CEO’s for not being more involved or supportive of innovation, because they typically did not come from a technical background. That excuse became invalid when business models became de rigueur for strategy discussions. Almost every day, now, the business press features unfamiliar, non-technical, competitive moves by insurgents revitalizing mature, traditional industries. They are making unconventional choices regarding business model elements that typically were formerly disregarded in strategic conversations among successful, incumbent market leaders.
DoorDash, for example, has moved from being merely a delivery vendor, to becoming a legitimate ecosystem partner with the restaurants that it formerly served. Its business model places it at key customer-facing touchpoints along the customer journey that they jointly share, including ordering, payment and delivery. In many instances, it is the restaurant who is the supplier, and DoorDash the key customer brand. Ghost kitchens, or non-retail kitchens for the delivery trade, have, similarly, arisen as important players in linking restaurant knowledge with delivery providers. Wao Bao, for example, describes itself as a “partner with local restaurants to simply steam our [signature] menu items and have them available for pickup or delivery via third party services (i.e. DoorDash, Grubhub, and Uber Eats.).” Its website speaks of “a virtual kitchen concept that slides into any commercial space and transforms it into an Asian restaurant…” This is business model innovation. Local restaurants can now add exotic items to their menus, without the expertise or kitchen equipment that was traditionally required. This reduces what were once formerly unbreachable barriers to entry to many industries. We can also see business model innovation in the same food and beverage delivery industry when Gopuff acquired BevMo! so as to control its own alcoholic beverage inventories, “a move it claims helps it achieve a more reliable service and bigger margins,” both of which have important customer experience and business model connotations.
Nor is the business model revolution limited to so-called old-economy industries. It is also evident in the U.K.-based broadcaster Sky’s decision to move into hardware as well as content. As streaming video becomes an important part of viewing life, Sky sees customer needs to “navigate a complex entertainment ecosystem,” as an attractive value-proposition opportunity, that they can serve as a “content gatekeeper,” by packaging their services in a TV box. Is technology involved? Absolutely! But, this is not so much technological innovation, if at all, as it is business model innovation, regarding customer journey pain points, and the need for new content navigation and delivery offerings. Technology is more an after-thought, and probably completely out-sourced; this is very much business model innovation.
Apple, the quintessential iconic consumer technology company, has long been a pioneering business model innovator. Its early concern for a better customer experience as the starting point for all it did not only resulted in a graphical user interface to delight the user, but also led to the pursuit of physical device beauty and more satisfying customer experiences, from box-opening to the tactile sensation of how an iPhone felt in your hand. Hardware-involved as such choices might be, they are still very much about the business model, as well. In fact, Apple’s pathbreaking entry into its distinctive retail presence, and the interconnectability among all of its products, were strategic choices that made the rest of its business models coherent.
One last example of business model innovation, and at the very forefront of hi-tech strategy, is that of Huawei, the beleaguered Chinese telecom company, that has incurred massive revenue and supply-chain losses due to embargoes by Western governments; a situation they could never have adequately anticipated. With a 30% drop in revenues in the first six months of this year, against 2020, Huawei has resorted to unorganizing its portfolio of research and development opportunities, upon which it now spends 16% of its revenues, into a “huge collection of start-ups,” hoping that they can get closer to their target customers, and move faster as a result. While there is undoubtedly an element of inside-out thinking to this approach, it is much more about how the technology is developed, and when, than it is about the technology itself. It also, by default, repositions strategy decisions much lower in the organization, as well; and, so, a big bet on entrepreneurship as a competitive advantage. In this case, what we see is business model innovation, and organizational transformation to support this new innovation approach, in an effort to move forward without reliance upon what were previously core assets.
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Make no mistake about it, business model innovation is everywhere, and it is profoundly changing a number of previously innovation-stagnant industries. Business model innovation places a premium on business acumen to identify novel ways of improving the customer experience, while the technology, to the extent that any is needed, can always be sourced as required. As a result, in the age of digital, ironically, it may well be that technology loses its role as the instinctive, and even principle, corporate strategic asset.
