From Business Model Innovation To Business Model Evolution

Eamon Fenwick

Recently, there has been a substantial refocus on key innovation drivers by businesses of all types – moving away from only considering technology innovation and instead highlighting the critical importance of taking a business-led approach to commercializing new ideas.

Some of this discussion has been academic, largely featured in key business journals, however we can all appreciate the interactions we have with successful business-led innovations throughout our daily lives – a new way of ordering our coffee, of being transported to a customer meeting, or having our evening meal delivered and paid for without even having to reach for our wallet. It’s clear that the creation of disruptive business models is an important aspect of companies’ innovation strategies.

But we now see that making changes to existing business models is not enough – the models themselves, and how we think about and ultimately design and validate them, are becoming key.

If we stop and take a moment to consider more closely some of the business-led innovations we interact with, we can see that a large portion of the value we perceive isn’t being provided by different aspects of the particular product’s or service’s features and functions. Rather, when we look at why we value the innovation, it often comes down to seamlessly receiving the desired product or service (which is often orchestrated across different providers) and perhaps the convenience, the security, the choice, or the peace of mind the innovation provides – more succinctly, we value the outcome and the experience it offers us.

When we look at the business models underpinning these products and services, and in turn the operating capabilities and technology required to deliver them, we can identify a few key evolutions in the models that power the ultimate value that these innovations provide, including a move from linear business models to platform, networked models.

Typically, companies have utilized linear business models to provide value to their customers – either controlling the whole value chain themselves or controlling one or two consecutive steps with only a few companies delivering the value – be it a product or service – to the end customer.

Through low-cost data collection, storage, and processing, including emerging technologies such as IoT, it’s now possible for companies to orchestrate value flows across not only multiple end-customer markets but also other companies. This provides an opportunity to rapidly scale across markets, driving revenue, as well as reengineering activities and resources that are cost drivers to other platform-participant businesses that can provide them at the lowest cost, be it through economies of scale, location, or expertise.

Food delivery services are a prime example. The value they provide is in orchestrating the food ordering and delivery process, with their core offering simply enabling data exchanges between the respective restaurant, delivery driver, and end customer. Further, they partner with parties, such as payment processors, to streamline all the required financial exchanges supporting the process.

The evolution from competing solely through product and service pricing and features to seamlessly delivering high-quality outcomes and experiences is a way of achieving competitive advantage.

Building on the platform model outlined above, companies are now evolving their business model and technology configurations to focus on the delivery of outcomes and experiences for customers. These companies utilize real-time operational data, available through capabilities such as IoT systems, to monitor and forecast relevant business metrics, in turn validating the value provided to end users.

In many cases, this allows companies to also evolve their revenue models, charging based on the delivery of a given “outcome” rather than a product purchase or service fee. Coupled with technologies and services such as Qualtrics, companies are infusing experience data with this operational data to proactively manage customer perception and needs, contributing to the advantages of these evolved business and revenue models.

While platform models are now increasingly common, powered by the increasing ease of storage and access to data, this focus on outcomes and experiences has only just begun.

Find out how SAP innovation services and solutions work with companies worldwide to help them evolve their business models, from linear, product, and service-led to networked, and outcome- or experience-led. Together, we can help ensure the right mix of strategy, business model evolution, technology, and experience and operational data is brought together and scaled to enable wonderful outcomes and experiences for end customers.

Eamon Fenwick

About Eamon Fenwick

Eamon Fenwick is a member of the SAP Applied Business Innovation team based in Sydney, bringing an innovation-led approach to customers across Australia, New Zealand, and the Asia-Pacific region. With a background in mechatronics engineering and management consulting, he has worked with companies ranging from multinationals to agile startups on their R&D, technology, and innovation programs. Eamon also offers his expertise to help businesses improve their strategies and operations as well as financing and governance. Follow Eamon on Twitter @eamonf.