Why many business model innovations fail … Google+ compared to Car2Go

September 9, 2016

“The hard truth about business model innovation” is Clay Christiansen’s theme in a great article published by MIT Sloan’s Management Review. Whilst there is no doubting the Harvard professor as the uber-guru of innovation (and indeed, business models sit at the heart of his theory of disruptive innovation, although taken from a technology perspective), I can’t help but feel that he gets a little irritated by the popularity of Alex Osterwalder’s far more simplistic (yet practical) canvas for rethinking the way your business works.

Christiansen contrasts two business models, the failure of Google+ and success of BMW’s Car2Go, suggesting that many others have also failed because of poor analysis and discipline. To change that, executives need to understand how business models develop through predictable stages over time — and then apply that understanding to key decisions about new business models.

His starting point is to be clear on definitions. Too many people throw around the business model phrase without really knowing what they mean, and certainly without consistency of meaning. He focuses on a 4-box framework – proposition and profit formula (the priorities), resources and processes (the capabilities). This is not really different from Osterwalder’s model (although I see many users confusing proposition with product, whereas it is of course much more about the job to be done, what you ultimately seek to enable the user to achieve).

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The real difference in approach lies in the journey – this focuses on the interplay between the four boxes, and how this progresses over time, as the business and market transform. This journey becomes predictable, although its speed will differ. It typically starts with the creation of the new business unit, and business model, then shifting to sustaining and growing the business unit, and ultimately moving to wringing efficiency from it. Each stage of the journey supports a specific type of innovation, interplay of factors, and outcomes.  Successful business models make the whole journey, and the article examines in detail how.

 

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The key message is “to achieve successful business model innovation, focus on creating new business models, rather than changing existing ones.”

To illustrate this Christiansen compares two attempted business model innovations:

Google saw Google+ as an extension of its search business and chose to integrate Google+ into its existing products and business. Google+ accounts were integrated into other Google products, and the business saw the incorporation of information from users’ social networks as a way to generate improved, tailored search results. Google hoped a social network would allow the business to generate greater revenue and profitability by better targeting advertisements and delivering more advertisements through increased usage of its product platform. Consumers (including me!) didn’t see the value from combining search and social networking; to the consumer, the jobs are very different and arise in different circumstances in their lives.

Daimler, meanwhile recognised that Car2Go was a very different business and established it far afield from the home office and existing business. It started as an experiment tested by its employees working in Ulm. It housed the business in a corporate incubator that does not report to the existing consumer automotive businesses and designed it from the outset to fulfill Daimler’s core job of providing mobility, but without the need to convince consumers to purchase vehicles. Recognizing that the priorities of a business that rents cars by the minute are very different from those involved in selling luxury vehicles, Daimler has kept car2go separate and allowed it to develop a unique business model capable of fulfilling its job profitably. However, car2go benefits from Daimler’s ownership by using corporate resources where appropriate — for example, Car2Go rents only vehicles in the Daimler portfolio, principally the Smart Fortwo.

Creating a better business model

In the “Gamechangers” book we explore many examples of innovators who have changed their markets through business model innovation. You can also explore 100s of  live case studies, how companies are shaking up markets right now, and judge for your self whether they are likely to succeed. Also, you can download a series of practical templates – or canvases – for developing your future strategy, value proposition, business model and much more, in the Gamechanger Labs. There are also a series of practical video tutorials to get you started. Most practically, you can sign up for the Business Innovation Program. This puts business model innovation at the heart of your future thinking, and practical 3 day program, customised at and for your business, and also with me at IE Business School and in partnership with Nordic Executive Academy.

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