Business Model Innovation, Big Companies and Creative Destruction

John Gapper wrote a very interesting opinion piece about Detroit’s car industry in the FT this week ("Detroit tries to fool them again" on FT.com). He clearly outlines why he thinks the bailout of the car industry is questionable and how it is counterproductive for the overall industry. I couldn’t agree more with him, because much of the car industry is an example of big business that failed to reinvent itself.

John argues that a bailout will…

  • reward failure
  • preserve chronic overcapacity
  • benefit the least efficient companies

It is not surprising that Detroit is calling for help. Most big companies have problems preparing themselves proactively for changing environments. An example I often cite is the music industries with its 4 major record companies. They are still struggling to adapt to the impacts of digital music.

Big companies’ track record is particularly bad when it comes to business model innovation. In my workshops and keynotes I usually ask the audience which business models they find interesting and innovative. The examples that come up are almost always start-ups or very young companies (e.g. Skype, Google, MySpace, Zipcar, Kiva, no thrills airlines). And if you look at who founded the successful start-ups with innovative business models you will find quite a few that were created by people who had to leave the world of big corporations to implement their ideas (e.g. GoreTex by Robert W. Gore or EFG Bank by Jean-Pierre Cuoni and Lonnie Howell).

The question is then of course: is business model innovation possible within big companies? I do think so, since there are some good examples out there. Nespresso, part of the Nestlé group, disrupted the coffee market with its innovative business model. Procter & Gamble is reaching new heights with its new business model based on open innovation. However, it took Nespresso 30 years and a separate legal entity to succeed and P&G needed a big crisis to adopt change.

The most interesting recent example is maybe Nokia, the world’s largest mobile phone manufacturer. They are currently transforming their business model from a manufacturer to a content company, which is selling music subscriptions and more along its phones. This is a substantial change from a business model based on transactions towards one with recurring revenues.

From my experience the telecom industry seems quite an exciting playground for business model innovation. In October I worked with Norway-based Telenor, seventh larges mobile network operator in the world with major operations in Asia and Eastern Europe and over 150 million mobile subscribers. I was surprised to discover that they had a unit called “business models” focusing on exactly that. It is part of a 200-person strong Research & Innovation (R&I) department and their staff is quite advanced in business model thinking. They look at new products & services and the corresponding business models for all of the markets they serve.

In July I worked with UNE in Columbia, a mid-sized telecom operator that is trying to integrate business model innovation more systematically into their operations. They will be using my business model canvas to format new initiatives.

A general conclusion from what I see in my workshops and keynotes is that there are some companies and industries that are already embracing business model innovation or at least want to learn about it, while some are still very reluctant (though rarely uninterested). Over time I think all companies will face the challenge of business model innovation and it is only a question of time when they start dealing with the issue.

As to Detroit's car industry John Gapper sums it up nicely:

Perhaps the immediate cost of a Detroit bankruptcy is too high but the long-term effects would be beneficial.

Detroit must learn how to reinvent itself again. It will not be possible to save workers' jobs over the long term with a bail-out - it must be innovation and creative destruction...