Technology is the Catalyst for Business Model Innovation
As a technologist within your enterprise you are front and centre of fostering innovation within your business. The large-scale adoption of cloud and cognitive capabilities across the business is fraught with new complexity, but also a huge opportunity for business model innovation.
Innovation is not invention, although inventions can stem from innovation initiatives. Like many other buzzwords of our time, it’s a word that gets overused. But simply it’s about taking new ideas, or current ones in a different context, and creating some sort of change that delivers value.
Innovations are everywhere in society and the economy, and businesses can find and apply them as part of their “red ocean” or “blue ocean” business strategies. Virtually all industries have their product or service business built on technology (compared with human centric exceptions such as hairdressing or restaurants).
As technologists we are here to help business leaders understand the art of the possible. Design thinking led companies outperform the stock market. It is a culture and process by which business, commercial, product and technology people, with insight from within and external to the company, can innovate together — often from a blank page (“we don’t know what we don’t know”).
Red ocean innovation seeks out to achieve value in your existing domain of business. By wrapping a pallet of goods in shrink wrap a supplier can ensure less products are broken when they fall off a forklift truck — that innovation has saved the company money.
Blue ocean thinking help explore unknown market spaces and create new demand and provide great opportunity for growth and profit. Of course, over time those new markets mature, competition is created and the prospect of growth and profit decline.
In 2001, Apple released a CD ripping software called iTunes and then the iPod music player. Those were not innovations in themselves. But when Apple launched the iTunes music store, tightly integrated with the iPod, buying and downloading music was made easy. The business platform connected music suppliers to buyers, and the disruption of the music industry followed.
iTunes was a business model innovation — a reverse razor and blade business model to be precise. The razor blade handle (iPod) was expensive and the razor blades were cheap (99c music tracks). The technology was not particularly innovative, although the premium engineering of the iPod device was the continuing prestige of how Apple creates hardware. The iPod created value. A certain demographic desired it and were prepared to pay handsomely for a “1000 tunes in your pocket”.
At its most basic level a business model is simply a formula for how a business makes money. It is Value Creation (what product or service can we provide that people want?) plus Value Capture (how will we make money from the product the service?).
There are many different ways to create and capture value. You can create value through better customer experience, new products or services, or process and system efficiencies. You can capture value by increasing revenues by making and selling more widgets or charging higher prices through competitive advantage.
A business strategy is a plan, it essentially decides ‘how to play’ and direct the business model. Harvard Business Review tells us the strategies of successful companies boils down to two simple rules:
(1) better before cheaper — compete on differentiators other than prices;
(2) revenue before cost — prioritise increasing revenue over reducing costs.
The innovative use of technology runs through this, and as technologists within the enterprise our role is to understand their capabilities and especially how they can scale for enterprise-wide use and robustness that is good for the risk appetite. We then find creatives ways of using the right combinations of technology to fuel the execution of the business model.
If you consider the humble chat bot on a bank’s digital end points. A rich, interactive machine learning driven experience creates value for the customer. They can achieve both transactional (‘what’s my balance?’) and conversational (‘how do I …?’) tasks. This use of AI technology also does something else; it takes away potentially wasteful calls to contact centres that have a significant cost of operation e.g. $1 per minute. It is more valuable for a bank to have its contact centre agents discussing and advising on mortgages rather than helping customers get unstuck on web site navigation.
Cloud computing is enabling geographic expansion, the ability to find customer differentiation by sifting massive data sets and a dynamic operating model that scale up and down where needed by a business. We are now entering a new era of technology. The consumption of cloud and cognitive capabilities are passing a tipping point and ready to be embedded across the whole enterprise.
According to Deloitte’s Chief Cloud Strategy Officer, “[2019] is the year when workloads on cloud-based systems surpass 25 percent, and when most enterprises are likely to hit the tipping point in terms of dealing with the resulting complexity.”
The multitude of technology stacks available to use, and their combinations opens up a huge playground for innovative thinking, but that resulting complexity is also opportunity to generate more technical debt. Technology cycles are happening so quickly that the maturity and credibility of the stacks is a key measure when assessing them for adoption.
Our role as enterprise technologists is to first understand below the line — how the technology stacks can be brought together as parts in the factory so that your business can build solutions that create and capture value.
We then have the ability to rise above the stack and innovate how technology will be used to transform and modernise all aspects of a business and be a catalyst for business model innovation and influence the strategic business roadmap.
