Innovation = business models

When you think of innovation, what typically comes to mind? Shiny new technology? Scientists in lab coats? Business models?

Apparently innovation and business models go hand in hand. Surprisingly, business models are not just an unspoken framework or generalized set of rules like the Magna Carte. It seems like business models are often portrayed as figurative plans, not actual, tangible strategic blueprints, and definitely not the driving force for innovation. Yet, as it turns out, without a solid business plan, great ideas have nowhere to go.

In a 2004 Journal of Business Strategy article, Donald W Mitchell and Carol Bruckner Coles bring up some very salient points when it comes to the connection between innovation and business models. In the aptly named piece, “Establishing a continuing business model innovation process,” Mitchell and Coles examined 100 companies from 1992 through 2002, and found that those that were performing best and whose stock prices had grown the fastest were the companies who were continually replacing their business models with better ones, “as often as every two to four years.”

What they found was that by continually reevaluating and updating their business models, these companies were able to improve “their competitive position.” Their innovations led to higher profit margins and revenue expansions which in turn allowed them to acquire other businesses and pay employees in a less costly manner.

While this article is over a decade old, its core premise holds true: innovate or die. If a company is not willing to look at itself honestly, to make changes and updates in line with an ever-changing business climates and markets, it has no chance to compete with those who do.

Case in point: Google. Google didn’t even really have much of a business model to speak of when it began, and its search engine was hemorrhaging money. The company was constantly looking for a consistent source of revenue. In 2003, it launched AdWords, which allowed business to advertise to users searching through google.com’s text-based ads. Google essentially pivoted from a search engine to an “advertising juggernaut.” Google continued to grow, buying and developing a variety of tech-related intellectual property and companies.

In 2015, Google announced that it was developing a new holding company called Alphabet, and that Google would be one of many businesses under the umbrella — business like Google Fiber, Nest, Calico and Google X. Google realized that while the companies and technology they acquired had potential to do great things, they didn’t all quite align with Google’s current business model. By breaking them up into different companies, each with their own business models, Google was able to identify and establish a way to effectively focus on providing benefits and values to the right key stakeholders through more focused channels.

So while Google is a great example of an innovative company, both technologically and business model-wise, there are plenty of “regular” companies finding ways to succeed and thrive through business model innovation. From Central Parking having a core insight on developing partnerships with land developers to Education Management improving its management processes to build faculty, curriculum, and facilities in order to meet the changing needs of its students — a flexible, responsive business model has proven itself to be the key to being a truly innovative company.

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