White Paper

Business Model Innovation:

Innovating Your Business in a Changing World
Ivan Choi, Principal

Many executives find their organisations in a improvements, both incremental innovation

rapidly changing environment threatening the approaches that offer little respite to counter
core profit engine. In every economic sector, these disruptive forces and therefore lead to
both private and public, disruptive changes diminishing returns over time.
are underway and accelerating, driven by
market volatility, technological advances, Few organisations have the know-how nor
shifting demographics, regulatory changes, the executive commitment to reinvent their
new competitors and other factors testing business model (or value creation formula).
the limits of the existing business models. Those that do, however, are rewarded with
Today, most organisations rely too heavily sustained margin growth and superior share-
on new product development and process holder return.
Copyright 2015 Palladium
 This Palladium white paper gives an overview of Business Model
Innovation (BMI), a new innovation discipline designed to help What is Business Model
organisations change the way they create, capture and deliver
value. This white paper will: Innovation (BMI)?
Introduce BMI and summarise the findings from several There are many definitions of the term business model, each
research studies that demonstrate the benefits of investing with a specific nuance. For the most part, these definitions con-
in BMI over other forms of innovation; verge on the notion of a particular organisations unique recipe
Examine the key drivers of disruptive change; to create value. The definition that we find most helpful is that
Present the BMI process and several frameworks and tools a business model describes the formula of how an organisa-
to characterise, deconstruct and reconstruct business mod- tion creates, delivers and captures value. The business model
els (or develop new business models altogether); and consists of four main components (Figure 1):
Discuss the lessons learned for implementing business
model innovation and postulate a few issues for executive Target customer(s): Which customer segments we are
consideration. targeting and what needs we are intending to address
Value proposition: What types or combination of prod-
ucts and services we are offering to satisfy the needs of the
target customers
Value network: How we will configure and sustain our
organisation, assets and capabilities to capture value and
deliver the stated proposition
Financial model: What the underlying revenue and cost
models are how we will be compensated and how we will
optimise our costs to deliver the above

Innovation is about creating and delivering value to customers

in new ways. Innovating the business model typically involves
renewing two or more of the above components. (All things
equal, targeting another customer segment is usually referred to
as market expansion, while delivering new solutions to the same
customers is market penetration.)

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As far back as 1934, Joseph Schumpeter (the same economist What accounts for the superiority of BMI as an innovation
who famously coined the term creative destruction) distin- discipline? As is most evident in the high tech and consumer
guished between five types of innovation: new products, new product sectors, adjacencies and product line extensions are
methods of production, new sources of supply, exploitation of the easiest opportunities to pursue but by themselves provide
new markets, and new ways to organise business. CEO sur- limited or diminishing returns over time. On the other hand, BMI
veys perennially cite innovation as one of the top issues on the can be much harder to replicate, fuel longer-lasting differentia-
executive agenda. Typically, organisations focus the majority of tion and provide a way to disrupt the industry status quo where
their energy and resources on the first two types of innovation the disruptor can capture value for a more sustained period of
in fact these account for most if not all of their R&D spend. time. BMI can help new entrants challenge the prevalent busi-
However, multiple studies have been unable to establish a de- ness model in an industry, as in the case of low-cost carriers
finitive link between the level of R&D spend and key shareholder (budget airlines). For incumbents, BMI can help replace matur-
metrics such as sales growth and total return. In other words, ing revenue streams, extend the existing business model and
product and process innovation alone are not sufficient to drive address disruptive changes in the marketplace.
a sustainable competitive advantage.

BMI focuses on the last two types of innovation exploiting new

markets (the components of target customers and value proposi- Target Customer(s)
(For whom)
tion) and new business organisation (value network and financial
model). In recent years, three studies examining the benefits of
BMI compared company performance over a period of three to
five years against average total shareholder return, enterprise
value-to-sales versus R&D spend and margin growth. The inde- Value Proposition
pendent studies are aligned in their conclusion that those that A business model describes (What)
invest disproportionately in BMI outperform their product- and the formula of how an
process-innovating rivals by at least doubling the benchmark
metric. organisation creates, delivers
and captures value
Value Network
(How)

Financial Model
(Revenue and cost)

Figure 1: What is a business model?

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Copyright 2015 Palladium
 Case Example:
Netflix the Threequel
The opening scene of Netflix began in a similar fashion as that In Hollywood, every blockbuster spawns a sequel. During Net-
of several famous startups an entrepreneur who turned his flixs early years, most consumers accessed the Internet via slow
agitation into a venture. In 1997, Reed Hastings, founder of a dial-up, and video streaming seemed more science fiction than
Silicon Valley software firm, was perturbed that he had to pay reality entertainment. In 2007, despite the still-growing subscrib-
a $40 late fee to Blockbuster, the dominant video rental chain er base for its traditional model, Netflix launched Internet video
in the US. Hastings discerned the emergence of DVDs and a streaming as a supplemental service for subscribers. This en-
web interface as key planks of a business model that evolved hanced customer convenience, lowered DVD mailing costs and
to offer subscribers unlimited rentals for a flat monthly fee, one served as the beachhead for a new business model. By 2010,
DVD at a time, delivered and returned by mail. Netflix featured Netflix had become the biggest source of evening Internet traffic
a vast library from its central hub and no late fees, a common in North America. Netflix has had a few blemishes due to huge
consumer gripe but a lucrative profit source for rental chains. In subscriber backlash it had to backtrack on its plan in 2011 to
2000, soon after the first Internet bubble burst, Hastings offered split the DVD-by-mail and video streaming businesses. The new
to sell the still unprofitable Netflix and its 300,000 subscribers to model puts a spotlight on Netflix as a purveyor of other studios
Blockbuster. The behemoth with 7,700 stores turned him down. content, on the rise of streaming rivals such as Hulu and Ama-
As reported a few years later by trade publication Variety, Block- zon Instant Video, on sustainability of the net neutrality govern-
busters executives lacked the vision to anticipate where the ment policy and on disruption triggered by consolidation in the
home video market was heading and the shifting forces at work, industry (e.g., leading cable television provider Comcasts acqui-
nor were they willing to cannibalise their sales to what was con- sition of majority and later full ownership of NBC Universal, the
sidered a niche business. By 2005, Blockbuster capitulated with television and movie studio). In early 2011, Netflix announced
its own foray into online subscription service and even cancelled an original content strategy to bolster its streaming subscription
late fees at the stores, but it was too late. At 6.3 million, Netflix model. Netflix programming debuted with the political drama
in 2006 had more than thrice the number of subscribers. Also House of Cards in 2013, followed by other original content and
strained by rental kiosk operators such as Redbox, Blockbuster exclusive distribution deals. These shows have netted Netflix a
filed for bankruptcy in 2010 and closed its final 300 stores in total of 14 Emmy nominations and three wins and have contrib-
early 2014. uted to subscriber growth to 30 million in the US (eclipsing even
the premium channel HBO). It is too early to declare this latest
move an unqualified success, but Netflix has now starred in the
leading role in three BMI episodes as an entrant, a maturing act,
and an entertainment industry veteran.

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Case Example:
The Kodak Moment
A Monumental Failure
Founded by George Eastman in 1888, Kodak was an imaging Kodak made three principal mistakes. The first was to underes-
solutions company that still has one of the most recognisable timate the potential impact of emergent digital technology to the
brand names worldwide. Kodak followed the razor and blades core business model. The second was assuming that consum-
strategy of selling inexpensive cameras and making large ers would consume digital imaging in the same way as tradi-
margins from consumables (film, chemicals and paper). As late tional post-processed film. The final and perhaps most costly
as 1976, Kodak commanded 90% of film sales and 85% of mistake was the failure to self-disrupt the existing business
camera sales in the US. It invested heavily in vertical integration, model for fear of cannibalisation of the core film business. This
once even owning silver mines, and regarded its global distri- last blow is as much organisational as anything else. After all,
bution network to sell film and develop photos as its ultimate what CEO would put 85% plus gross margins at risk in favor of
competitive advantage. It ploughed much of its profits into low-margin alternatives?
product innovation on the core business model the Advanced
Photo System (under the brand name Advantix) was an upgrade
over traditional film but essentially still the same business model
based on film and processing fees through its channels. While
Kodak had to deal with competitive threats from Polaroids
instant photography and cutthroat rival Fuji, the fatal blow to its
business model and ultimately the company was the advent of
digital photography and inexpensive home printers. Kodak could
not compete in the digital space against consumer electronic
giants Canon and Sony (no consumables) or Hewlett-Packard
(different/superior value proposition). Despite the fact that Kodak
had invented the core technology used in digital cameras, it was
hampered by the management mindset to protect and prolong
the core film and development business. After a long and pain-
ful decline with multiple rounds of restructuring, Kodak filed for
bankruptcy in 2012.

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 Key Drivers for Business Model
Disruptions
The greater frequency of disruption and dislocation in many in- three to five years include the Internet of Things, advanced
dustries is rapidly shrinking the lifecycle of business models. Rita robotics, next-generation genomics, digital currency and
Gunther McGrath, a professor at Columbia Business School 3-D printing.
and author of the bestseller The End of Competitive Advantage,
asserts that the notion for firms to establish a unique competi- Regulatory and policy changes. Two lasting influences
tive position to be sustained for long periods of time is no longer of the recent global financial crisis are the tightening of
relevant. Competitors and customers have become too unpre- government regulations and greater scrutiny of public sec-
dictable and industries too amorphous. Some of the forces at tor outlays. While the financial services sector may have
work are briefly examined below. Instead, organisations need to received the most attention, the overall regulatory environ-
embrace the new paradigm of building and exploiting transient ment in many countries has become stricter and more
advantages. McGraths thesis lends weight to BMI that com- interventionist. The massive debts accumulated by various
panies must be vigilant at monitoring potential disruptive forces, governments have also imposed deeper budgetary auster-
continuously refresh their existing business models and explore ity in such sectors such as healthcare, care for the elderly,
multiple alternatives as part of their innovation efforts. welfare, education and continued government subsidies
for protected industries. The financial crisis may have led
Digital revolution and other technological advances. to more protectionist trade policies in a few countries, but
The first wave of the digital revolution disruptions crested in others are still pursuing cross-border liberalisation such as
the late 1990s and early 2000s, when most of todays Inter- the Trans-Pacific Partnership, the ASEAN Economic Com-
net giants (e.g., Amazon, eBay, Expedia, Google) emerged. munity and various bilateral trade agreements. Government
Many traditional brick-and-mortar businesses, such as retail administrators at all levels are striving ever harder at value
and traditional media (and the two cases profiled), were im- for money, reallocating their public sector balance sheets,
pacted as disintermediation became rampant. The second experimenting with if not fully pursuing asset privatisation
wave beginning around 2010 has been driven by mobile and outsourcing essential services. In aggregate, regulatory
phone ubiquity and more specifically the broad adoption and policy changes will continue to be a crucial source of
of smartphones and other mobility solutions. According to disruptions and opportunities.
the International Telecommunication Union, mobile phone
penetration reached 96% globally by the end of 2013 (89% Shifting consumer demographics and preferences. In
in the developing world) and smartphones are at 30% developed countries, the Baby Boomer generation is edging
and growing dramatically. This proliferation of enormous toward retirement age. Their exodus from the workforce
communication and computing capability at the hands of will create enormous macroeconomic pressures in terms
consumers may lead to far greater disruptions than the first of labour shortages, lower government tax intake and
wave. Other disruptive technologies to watch for in the next high public sector spending (e.g., healthcare, pensions,

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 etc.). The global financial crisis has arguably permanently likes of Uber and Airbnb, respectively. Certain sector charac-
shifted consumer behaviour to a more conservative and teristics suggest greater potential of disruption and therefore a
value-hunting mindset. Consumers, enabled or spoiled by more critical need for BMI:
technology, are also becoming savvier in comparing prices High competitive intensity focusing largely on one dimen-
and offers and demanding superior experiences beyond sion, usually price or availability
just better products and services. In developing countries, A high degree of customer dissatisfaction in predominant
an expanding middle class with higher disposable incomes value delivery model, e.g., government services, healthcare
fuels spending on non-necessities, premiumisation and as- A minimally differentiated customer value proposition
set preservation. Industries with abnormal profits often correlated with
previously high entry barriers that serve as a magnet for
New business model and competitive paradigms be- entrepreneurs and venture capitalists
coming mainstream. The mainstreaming of new business Industries with artificial constraints such as a limited overall
model paradigms for consumers, startups, established or- supply and therefore inflated prices, e.g. taxi services now
ganisations and investors will only further accelerate disrup- being disrupted by Uber, traditional learning institutions be-
tions. These paradigms and examples include: ing disrupted by Massive Open Online Courses (MOOCs)
Open sourcing/crowdsourcing/crowd funding: Inno- such as Coursera and edX
Centive, Freelancer, Kickstarter, Kiva
Community-based models: Facebook, LinkedIn, Sermo The counterargument to the original question may be can any
(online community for doctors) organisation afford not to innovate their business model?
Share/peer economy: Airbnb, Getaround, LendingClub,
SnapGoods

One may ask which organisations or industries are under the

most severe disruptive threats and therefore have the greatest
need for BMI. While a few industries such as retail, traditional
media and transport and logistics (e.g., airlines, postal services)
have already undergone significant transformations that are
bound to continue, the above disruptive forces are remark-
ably broad in impact and leave hardly any industry untouched.
Traditional entry barriers are breaking down, blurring industry
boundaries. Even previously static and seemingly less exposed
industries such as taxis and hotels are facing threats from the

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Copyright 2015 Palladium
 BMI Process, Frameworks
and Tools
The BMI process architecture consists of three phases Ide- lation of case profiles and relevant analogs are also undertaken
ate, Design and Develop and Scale and Transform (Figure during this phase. The existing business model will be critically
2). scrutinised for embedded assumptions and risks to the financial
model. A set of business model hypotheses is typically compiled
Ideate kicks off the BMI process and strives to capture the at this time. Building on the foundational analysis, a series of
organisations strategic landscape, e.g., current business model, internal and external sessions will be held where various busi-
barriers and capabilities. An evaluation of emerging trends, po- ness models and hypotheses are proposed, deconstructed
tential disruptive forces, strategic growth opportunities and col- and reconstructed. The external sessions allow a mix of internal

Phase 1: Phase 2: Phase 3:

Ideate Design & Develop Scale & Transform

Explore strategic landscape Solution detailed design and Implement pilots in the
Frame current business early development iterative marketplace
model and quantify gap/ customer co-development Scale pilots to full
opportunity Craft go-to-market strategy commercialisation
Generate business model and implementation plan Ongoing leadership, culture
seedlings, prioritise and re- Scope pilots and change focus to
fine into solution concepts Integrate into the overall transform the business
Compile conceptual design strategy and lay the
and financial models for the foundation for enterprise
solutions transformation
Develop blueprint for next
phase

Compelling and innovative A blueprint to bring the solutions to Commercialised solutions

solution options market readiness and execute while delivered to customers
enabling the business for
sustainable success

Figure 2: Business Model Innovation process phases

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and external stakeholders to co-create, iterate and challenge The overall BMI process architecture embeds an agile and cus-
the existing and hypothetical business models. The resulting tomer co-development approach many of the steps described
learnings will be drawn and packaged to validate insights on earlier are carried out iteratively rather than in a linear fashion
customer needs and market trends and to formulate (or refor- and is well aligned with the lean startup principles advocated
mulate) business model seedlings (i.e., early stage business by Eric Ries and Steve Blank. A BMI project will be supported
model concepts). A prioritised set of seedlings are integrated, by a number of frameworks and tools through each phase
co-created, shaped and validated again with internal and exter- to analyse, ideate, deconstruct and reconstruct the business
nal stakeholders. A screening and culling of the business model model effectively and efficiently.
concepts takes place and various financial modeling scenarios
will be presented, advancing the concepts into business model We will highlight several of the more notable frameworks and
solutions. tools here:

The second phase, Design and Develop, steers the solu- Business Model Canvas
tions through detailed design and early development (iterative Initially proposed by Alexander Osterwalder, the Business Model
customer co-development and rapid prototyping). The critical Canvas is a tool that helps characterise a business model along
deliverables for this phase are the go-to-market strategy, imple- nine building blocks: Key Activities, Key Resources, Partner
mentation plan, and pilot scoping for each solution. Additionally, Network, Value Proposition, Customer Segments, Channels,
these solutions need to be integrated into the organisations Customer Relationship, Cost Structure and Revenue Streams.
overall strategy and the foundation for enterprise transformation (Note: These building blocks are consistent with the next-level
(e.g., organisational design, leadership and change manage- decomposition of the four components of a business model
ment) will be articulated as needed. we defined earlier.) Since its introduction in 2008, the Business
Model Canvas has garnered popular usage, as the easy-to-
Last, the Scale and Transform phase strives to deliver the understand template can proficiently capture and compare
commercialised solutions to customers. One or more pilots will existing and alternative business models. However, it is primarily
be taken into the market during this phase the resulting learn- a descriptive (used during the Ideate phase) rather than pre-
ings, refinement and validation will drive the eventual scaling of scriptive tool, meaning that by itself the Business Model Canvas
the solution into full commercialisation. is less effective for the purpose of formulating new models for
consideration.

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 Ten Business Model Innovation Levers
Based on our research and work with hundreds of clients, Pal- The levers are not mutually exclusive many business model
ladiums proprietary framework of ten innovation levers has been concepts may involve pulling more than one lever at a time. The
designed to help ideate new business models. These levers are Ten Levers are typically employed during the Ideate phase.
mapped to the four components of a business model (Figure 3).

Target 1. Pursue new markets/customers: Explore non-customers or those who are currently poorly served by the organisa-
Customers tion (and possibly the whole industry)

2. Harness disruptive technology: Leverage technology to fundamentally alter the value proposition

3. Re-define the solution: Devise options such as bundling or unbundling products and services, free solutions (by
Value
finding alternative payers) and exploiting the brand
Proposition
4. Transform the customer experience: Employ frameworks such as Experience Co-Creation to deliver a holistic and
compelling customer experience rather than just products and services

5. Re-configure the value network: consider upstream/downstream integration, deconstructing the network and part-
nering; leverage technology to enlarge the span of the value network
Value
6. Re-align network resources: Closely related to Lever 5, modify the mix or control of resources within the value
Network
network

7. Foster new capabilities: Acquire or develop new capabilities to enable a step change in the value network

8. Monetise information and networks: Capture the inherent value embedded in the network of member customers,
stakeholders and/or the information generated by related business transactions
Financial
Model
9. Reset payer or balance sheet equation: Explore alternatives to the revenue and cost model, e.g., ad-supported
rather than user pays, service or pay-per-use rather than capital purchase

10. Recast assumptions and remove boundary conditions: Identify and relax/challenge the set of embedded assump-
Overall
tions and boundary conditions underlying the current industry norms or business model

Figure 3: Ten business model innovation levers

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Customer Experience Innovation and Co-Creation
Transform the customer experience is one of the ten innova- the bottles. Clients, typically wine enthusiasts and restaurateurs,
tion levers. There are a number of common methodologies can engage as much or as little as they wish along these steps
such as customer journey mapping and Lean Six Sigma that to customise their wine, guided by virtual tutorials. The Crush-
may help improve the customer experience. However, the way pad value network consists of various growers, vineyards and
these tools are usually applied often results in only incremental the logistics network to distribute wine to different locations. The
process enhancements. To innovate the business model via firm did not just sell wine, but rather co-created the winemak-
customer experience transformation requires a more holistic ap- ing experience with stakeholders. Additionally, some of its more
proach than automating an existing process, standardising the entrepreneurial clients could leverage the Crushpad commerce
current customer interface or reducing process inefficiencies. platform, a fulfillment infrastructure that manages the regulatory
No longer are customers satisfied with merely the highest qual- paperwork and shipping, for a one-stop shop to produce and
ity product or service or the lowest price, but they increasingly sell wine without ever owning or managing any physical assets
demand and expect the best experience across all of the inter- (essentially monetising their winemaking intellectual property). At
actions they have with an organisation. The new customers its peak, the company had more than 5,000 clients producing
yearn for more participation and may willingly share the rewards 35,000 cases of 650 wines annually. Unfortunately, Crushpad
and risks of value creation if they could gain more information, was a victim of over-aggressive expansion during the recent
dialogue, transparency and access in the engagement. The economic downturn, but the company lives on with the Wine
thought leader in this emerging discipline is Venkat Ramaswamy Foundry and VINIV as successor firms. More than that, Crush-
at the Ross School of Business at the University of Michigan. pad has inspired trail-blazing business models in other indus-
First advocating for co-creation in The Future of Competition tries and continues to serve as a remarkable case profile for
(with co-author C.K. Pahalad) and further championing it in The Experience Co-Creation.
Power of Co-Creation (with co-author Francis Gouillart), Professor
Ramaswamy has framed the co-creation paradigm as the joint Breakthrough customer experience innovation inevitably de-
creation and evolution of value with stakeholding individuals, mands reinventing an organisations current business model. As
intensified and enacted through platforms of engagements. demonstrated by Crushpad, Lego and other notable successes
such as Nike (Nike+), Toyota (Scion), Wacoal (Ouchi wear) and
Crushpad, a custom winemaking company, espoused the co- Crdit Agricole (Predicas Cap Dcouverte low-cost life insur-
creation paradigm. It broke down the winemaking process into ance product targeting the youth market), BMI and customer
five steps: creating a plan, growing and monitoring the grapes, experience innovation are fundamentally two sides of the same
picking and processing the grapes, aging the wine and labeling coin.

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 Case Example:
Lego Innovating the Business
Model Brick by Brick
The Lego Group began producing their colorful interlocking the now-discontinued Lego Design byME initiative, which al-
plastic brick construction toys in 1949. While it is one of the lowed any user to use Lego Digital Designer to build models
most successful toy and family products companies today, using virtual bricks and order the model for delivery as a real
Lego endured a difficult stretch between the late 1990s and package set (Levers 4, 5, 6, 7 and 10).
early 2000s, when it had to battle the shift to video games and
low-price direct competitors such as Mega Brands. However, in Ninjago is a current line of Legos featuring a ninja theme.
recent years Lego has managed to revive its fortune by launch- Ninjago is being cross-promoted via a television cartoon
ing several new business models: series and soon a movie. Lego has become much more
aggressive at partnering (licensing) with others for content
Mindstorm, a series of kits containing software and hard- (e.g., LucasFilm for the Star Wars characters, Warner Bros.
ware to create customisable, programmable robots, ap- for Lord of the Rings, DC Comics and Marvel) as well as
peals to both hobbyists and children older than the target exploiting its own intellectual property across multiple media
Lego customers (Levers 1 and 4). The kits contained a platforms (e.g., the blockbuster The Lego Movie and its spin-
number of low-cost servo motors, light and touch sensors off video game) (Levers 1, 3, 5 and 10).
and software platforms developed at MIT and Tufts Univer-
sity. For Lego, the technologies represent new capabilities Novel business models can often emerge to compete with
and partners in the value network (Levers 2, 5 and 7). or even complement successful models. Pleygo, an in-
dependent startup launched in mid-2013, seeks to apply
Cuusoo is a crowdsourcing platform where any user can the Netflix monthly subscription model to Lego. Instead
submit a product design to be voted on by other users. of buying new Lego sets, parents can affordably choose
When a submission gets enough votes, the design goes from thousands of sets and swap for a new set as often
into production and the originator receives 1% royalty on as they choose (Levers 1, 3, 5 and 10). Pleygo won over
net revenue. The Shinkai 6500 submarine was the first con- 7,000 users during its first quarter in operation and was
cept that came out of Cuusoo; every product thus launched seeing membership doubling every month. Legos response
has received tremendous marketing buzz. This builds on remains open.

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Lessons Learned from Business
Model Innovation
An a posteriori review of notable organisations that have failed to Internal performance incentives reward maintaining
innovate their business models suggests a number of arduous the status quo. Most organisations have designed execu-
but surmountable barriers: tive incentives in a way that does not encourage longer-
term investments and sensible risk-taking. In traditional
The incumbent business model is too successful. industries, financial markets obsessed with quarterly results
Kodaks long years of past success and continual re-invest- often punish innovators. It is a Board imperative to ensure
ment in its established competitive advantages, while logical that management devotes sufficient attention to proactively
in the short term, turned out to be a curse for the long term. managing business model disruptions and innovations.
Managements unwillingness to cannibalise its own busi-
ness proved to be its ultimate undoing. As McGrath argued Deeply held beliefs about what creates value are
in The End of Competitive Advantage, management must not difficult to overcome. Identifying and challenging embed-
be complacent and instead embrace the transient advan- ded assumptions is not only an effective way to ideate new
tage paradigm. business model concepts, but the exercise can also validate
if the original rationale behind the sacred cows still holds
Organisations overlook the need to test the exist- true. Assuming change is required, management must
ing model. According to one of our recent surveys, when lead the organisation forward. The first four steps of John
organisations undertake their annual strategy refresh and Kotters Eight-Step Process for Leading Change (Establish
planning activities, fewer than 15% apply a rigorous as- a Sense of Urgency, Create the Guiding Coalition, Develop
sessment of potential disruptive forces and an unbiased a Change Vision, and Communicate the Vision for Buy-In)
critical review of the existing business model. Most adopt provide a sound blueprint.
an incremental approach to the current years strategic plan,
whereas business model innovation requires a more sweep- Once the business model is recognised to be in de-
ing perspective, one that entails looking beyond present cline, organisations are slow to adapt. We know from
industry boundaries. Given the accelerating change velocity years of research that 70% of organisations fail to execute
for more industries, management may well expect business their strategy. Palladium has been a pioneer in the discipline
model disruptions to arise and focus on cultivating readi- of strategy execution and has developed a number of best
ness to meet the challenges. practise strategy execution tools and frameworks that can
help in this regard.

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 As highlighted earlier, a survey of the forces of business model external stakeholders. Managing this platform would require a
disruptions reveals that few industries and organisations, even different discipline than operating more established businesses,
government and not-for-profit agencies, will be unscathed in this so the metrics and performance incentives must be realigned.
latest stage of industry disruption. The best defence (or offence)
is to foster and manage Business Model Innovation as a critical Last, readiness, timeliness and agility are key: the organisa-
capability. tion must invest in not just a single discrete model concept but
rather a portfolio of business models. Not all models are ex-
Start by deepening the organisations knowledge of custom- pected to survive the development pipeline. A balanced portfolio
ers, non-customers and disruptive trends in the immediate and approach, if soundly managed, will help the organisation seed
adjacent industries. The perspective should be longer term than its future, capitalise on strategic opportunities, and mitigate the
what is typically applied in new product or process innovation. risks and timing of various disruptive forces. The principle of
strategic resilience becomes more nuanced less directed
Next, create and maintain a corporate entrepreneurial plat- at upholding the existing business model at all cost and more
form where the allocated staff is allowed to ideate, experiment, about boosting enterprise readiness to augment or supplant it
learn and iterate, ideally while engaging and collaborating with with potential alternatives.

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Next Steps
The Tyrannosaurus rex lived during the Cretaceous Period and How well is your organisation (or the industry overall) deliv-
was one of the largest and most fearsome creatures to ever ering on its value proposition to customers? Who are the
roam the Earth. Its combination of mass, height, awesome bite non-customers and what existing or nascent alternatives
and speed meant it was an apex predator perfectly tuned for might they have?
its ecosystem. However, the end of the Cretaceous Period was
marked by massive volcanic eruptions, a catastrophic asteroid If your organisation were a greenfield market entrant with no
impact bringing on a lingering winter and mass dying of plant legacy business model, how might you configure a business
species and herbivore preys. Unable to adapt to the new envi- model to best compete in the industry? How might this
ronment, T-rexs competitive advantages were of little use. Like hypothetical entrant capitalise on any vulnerability in your
all non-avian dinosaurs, it became extinct. Scientists believe this current model? Similarly, how might a brand champion or a
opened up niches for early mammals whose life formula was low-cost leader from another industry exploit the dynamics
better able to accommodate the new world. and norms of your industry?

65 million years later, the quest for organisational survival and How robust is your BMI capability? How well can you iden-
success does not seem to have changed much. The stability tify and evaluate potential disruptive trends? How well can
of every industry and sector will be punctuated by disruptive you foster a platform for assigned staff to ideate, experi-
forces. Those most ready in planning and executing their busi- ment, learn and iterate business models with customers
ness model innovations will not only survive but flourish. and stakeholders? Are you managing a portfolio of business
models with a lifecycle approach?
We offer the following questions for executives to reflect upon in
consideration for next steps: How readily can you transition the existing business model
and implement a new one? What might the key internal and
How does your organisation currently allocate its budget external barriers be?
across innovating in new products/services, process im-
provements, and business model(s)? Who in your organisa- Palladium has helped clients across a diverse range of indus-
tion, if anyone, champions BMI? tries, geographies and corporate lifecycles rigorously think
through and successfully tackle these issues. Let us help you
What disruptive trends are pertinent to your industry? Have employ Business Model Innovation for your ultimate and endur-
you evaluated their likelihood and impact? Has the evalua- ing competitive advantage.
tion informed your current strategy?

What disruptions and new business models are emerging in

adjacent industries or other geographies? Can your organ-
isation emulate aspects of these new business models to
refresh or replace your current one?

Business Model Innovation: Innovating Your Business in a Changing World | 15

Copyright 2015 Palladium
Palladium believes in the impact economy, an ecosystem of commercial, government
and social interests that fundamentally re-define sustainable value. With our world-
class intellectual property, purposeful innovation and proven, time-tested know-how,
clients in more than 90 countries have dramatically improved stakeholder engagement
to create enduring positive outcomes, both financial and social.

Our clients success in the impact economy is supported by one or more of the follow-
ing four pillars:

International Development with an emphasis on increasing the performance and

outcomes in health, economic development, education, governance and the envi-
ronment;
Strategy Execution Consulting to enable order-of-magnitude improvements in both
private and public sectors through a framework that translates strategy into action;
Research, Professional Development and Training to encourage boundary-break-
ing thought leadership buttressed by a powerful knowledge transfer engine that
equips clients and partners with necessary skills; and
Impact Investing to re-imagine innovative ways to finance impact economy initia-
tives for optimum financial and social results.

With our collective expertise and abiding commitment to exceeding clients objectives,
Palladium transforms lives, businesses, governments and societies around the world.

www.thepalladiumgroup.com