Overcoming Barriers in Business Model Innovation

A business model is used to commercialize new technologies and ideas. Although companies have extensive processes used to explore these ideas, they often fail to innovate the business models. The same technology or idea taken on the marked through two different models will generate two different outcomes. That is why companies must focus on business model innovation and understand the barriers in order to overcome them.

What are the functions of a business model?

A business model articulates the value proposition or the value created by an offering based on technology, defines the structure of the value chain so the offering and assets are distributed and identifies a market segment. Moreover, the model can be used to detail the revenue mechanism, estimate the cost structures, potential profit and to describe the position of the company within the network of customers and suppliers.

Barriers

Businesses face major barriers to model experimentation, illustrated by numerous studies. In their study, Amit and Zott chose the business model as their unit of analysis and identified efficiency and lock-in complementarities as important aspects of business model innovation. These concepts often collide with the traditional configuration of assets, so managers resist experiments that threaten the value of the enterprise. For example, a vice president of a sales organization might be reluctant to online sales experiments, weather they succeed or not.

Other barriers of business model innovation are conflicts between the business model for the existing technology and the emerging disruptive technology. The gross margins for the emerging technology are usually below those of the technology already established. Moreover, the distributions channels and the end customers may also be different. When the company allocates its capital, the established technology will be greatly favored over the disruptive technology that will be starved of resources.

Further research argues that the success of established business models affects the information that gets filtered out of the decision process of a corporation. The firm creates value and then captures value based on a dominant logic that helps it asses what information is important. A company will seek the information that fits within this logic, thus dismissing the business model innovation. This can lead to missed potentially valuable uses of the technology if it does not fir the existing model.

Overcoming the barriers

Managers who want to experiment with business model innovation can construct maps of business models that helps clarify the underlying processes, thus allowing them to consider many combinations of the processes. Tools such as mapping are very useful to explicate models, but they cannot promote innovation alone. In order to do that, managers need enough authority to conduct the experiments, organizational processes and the courage to take actions based on the test results. Processes such as experimentation and effectuation must be supported by action.

In order to overcome the business model innovation barriers, companies must adopt a positive attitude towards experimentation and learn from both the failure and the success of an experiment. They can model the uncertainties and renew their financial projections based on the new data. Moreover, organizations must identify leaders for model change in order for the results to be managed and transformed into a better business model. The organization’s culture must find a way of embracing the new model, while maintaining the current business model effective until the transition is complete. Only this way companies will be able to escape the trap of earlier business models and move towards growth and profits.

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