Reinventing your business model: the 4 epicentres of innovation

Posted Oct 8, 2013, 6:15 a.m.

Excerpt from New Generation Business Model, by Alexander Osterwalder and Yves Pigneur (Editions Pearson)

Ideas for new business models can come from anywhere (…). We can distinguish four epicenters of innovation: resources, supply, customers and finance. Each of the four epicenters can serve as starting point for a major change in the economic model (…). In some cases, innovation will emerge from multiple epicentres. Change is also often rooted in areas identified through analyze SWOT: an exploration of strengths, weaknesses, opportunities and threats of an economic model

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These innovations are rooted in existing infrastructure or partnerships of an organization to expand or transform the business model.

Example > Amazon Web Services leverages Amazon’s existing distribution infrastructure to provide server capacity and data storage space to other companies.

Amazon website, 2013

Offer

This type of innovation creates new value propositions which have an impact on the other blocks of the economic model.

A consultant

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Example > when Mexican cement maker Cemex promised to deliver bulk cement to job sites in four hours instead of the usual two days, the company had to transform its business model. This innovation was funded to be made by Cemex, a regional player, the world’s second largest producer of cement.

Customers / Consumers

These innovations are based on consumer needs, better accessibility or greater convenience. Like all innovations originating from a single epicenter, they have an influence on the other blocks of the economic model.

Example > 23andMe has put the DNA tests within the reach of the greatest number – a service hitherto reserved only for researchers and health professionals. This had significant implications for both the value proposition and the delivery of test results, for which 23andMe uses Mass Customization Web Profiles.

23andMe Lab Tour

https://www.youtube.com/watch?v=6cYGPlQCeLA

finance

Innovations based on new revenue streams, new pricing mechanisms or more efficient cost structures impacting the other blocks of the business model.

Another example

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Example > when Xerox invented the Xerox 914 in 1958 – one of the first plain paper copiers – the machine was priced too high for the market. Xerox has therefore developed a new economic model. The company has rented photocopiers 95 dollars per month, package including 2,000 free photocopies, and sold 5 cents per additional copy. Customers were won over and started making thousands of copies every month.

Several epicentres

Innovations driven by multiple epicentres can have a significant impact on multiple blocks of the business model.

Hilti, website 2013

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Example > Hilti, the global manufacturer of professional construction tools, has simply renounced selling tools to its customers in order to rent them tool kits. This represents a significant evolution of the value proposition but also of its revenue streams, since these are now consistent in recurring service revenue.

Pearson

Title : Economic model, new generation

Authors: Alexandre Osterwalder and Yves Pigneur

Publisher: Pearson

Date of departure : August 2011

Number of pages : 281

Price: €35.50

Alexander Osterwalder is a consultant specializing in business models. Yves Pigneur teaches at HEC Lausanne.

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