Analogous to living things, organizations and business models come in many different forms and develop in many different ways, all subject to: internal operative structures and “intelligence,” intermediating membranes and interfaces, and myriad conditions posed by the external environment. Relying on some earlier analysis of a cross-section of businesses, IBM’s 2008 paper “Seize the Advantage: When and How to Innovate Your Business Model” (pdf link: IBM Business Model Change ) provides some penetrating insights into how business models change in response to different conditions.
The paper succinctly identifies its purpose: “Our follow-up research to the IBM Global CEO Study 2008 seeks to answer: When should organizations innovate their business models, and how?”
There are a good number of insights drawn the data of the preceding surveys, including what may be the frequency of different types of business model changes at different phases of the business cycle. A more basic observation is that, over time, environmental stresses (changes in markets, competition, technology, etc) eventually will bring organizations to a point where incremental business model change will not suffice:
Or as the authors explain: “Industry transformation drives the need for business model innovation. During periods of relative stability in the industry landscape, companies can make incremental adjustments to their business model over extended periods of time. They can continue to realize the economic benefits of their existing business model. During periods of extensive industry change, however, companies must choose to either shake up their industries – harness disruptive technologies, go after new customer segments, dislodge competitors – or face their own demise”
The research also distinguishes three broad types of business model change or innovation (shown here):
The paper reports that Revenue Model changes are relatively simple, while Industry and Enterprise Model changes are much more difficult, but tend to have more significant outcomes (and correspondingly are more postively associated with the “Outperformers” among firms making business model changes).
In one of the source surveys (on which the referenced paper is partly based), other interesting details are present:
By 2006 (and continuing through 2008), Technological Factors joined Market Factors and People Skills among the top 3 factors that surveyed CEOs cited as driving business model change or innovations. This should be expected as businesses started to climb out of recessionary conditions and renewed investments in technology.
But what are the implications for today? I can’t be sure, because I have not seen a continuation of this data; but I would suspect that Technological Factors, for many businesses, continue as top drivers of business model change (more than even now in 2011 — with the maturation of mobile device technologies, the increasing maturation of cloud technologies, and the gradual re-opening of access to capital). I would like to know whether current conditions, especially in Technological Factors, will be driving more Industry Innnovation and Enterprise Innovation in business models than was recorded in 2008. My hypothesis is that, in many sectors, this will be the case. But where in what ways will this happen? What will be the industries and types of businesses that will see the most change and innovation in business models? What will these changes consist of, and what will they mean with respect to business incumbents and new entrants?