Why Business Model Innovation Matters as Much as Technology Innovation

We often hear stories of how great companies fail because they fail to adapt to new technologies. But is technology the only factor that determines the fate of a business? Not necessarily. Sometimes, the real challenge is not to create or adopt new technologies, but to change the way we create and deliver value to our customers. This is what we call business model innovation.

The Case of Kodak

One of the most famous examples of a company that failed to innovate its business model is Kodak. Kodak was the undisputed leader in the photography industry for decades, thanks to its invention of the film camera and the development of a lucrative business model based on selling film and photo processing services.

However, Kodak did not ignore the emergence of digital photography. In fact, Kodak invented the first digital camera in 1975, and bought a popular online photo sharing site called Ofoto in 2001, long before Instagram was launched. Kodak also invested in digital printing and imaging technologies, and tried to diversify its product portfolio.

So why did Kodak go bankrupt in 2012, while its competitors like Canon, Nikon, and Sony thrived in the digital era? The answer is that Kodak failed to change its core business model, which was still based on making money from film and photo processing. Kodak was reluctant to cannibalize its profitable film business by promoting digital photography, which had lower margins and required different capabilities and partnerships. Kodak was trapped by its own success, and could not disrupt itself.

The Innovator’s Dilemma

Kodak’s story illustrates what the late Harvard professor Clayton Christensen called the “Innovator’s Dilemma”. The Innovator’s Dilemma is a situation where successful companies are unable to respond effectively to disruptive innovations that challenge their existing business models. These disruptive innovations are often initially inferior to the incumbent’s products, and target low-end or niche markets that are not attractive to the incumbent. However, over time, these disruptive innovations improve in quality and performance, and eventually capture the mainstream market, leaving the incumbent behind.

Christensen argued that the reason why incumbents fail to respond to disruptive innovations is not because they lack the resources, the technology, or the vision, but because they are too focused on satisfying their existing customers and shareholders, who demand incremental improvements and high returns. Incumbents are also constrained by their organizational culture, processes, and values, which are optimized for their current business model, but may not be suitable for a new one. Therefore, incumbents often miss the opportunity to create or adopt new business models that could enable them to leverage new technologies and serve new customer segments.

The Need for Business Model Innovation

The lesson from Kodak and other similar cases is that technological innovation is not enough to ensure the survival and growth of a business. Technology innovation needs to be accompanied by business model innovation, which is the process of designing, testing, and implementing new ways of creating, delivering, and capturing value for customers and stakeholders.

Business model innovation can help businesses to:

• Exploit new technologies and capabilities
• Explore new markets and customer segments
• Enhance customer satisfaction and loyalty
• Differentiate from competitors and create competitive advantage
• Increase revenues and profits
• Reduce costs and risks
• Achieve social and environmental impact

Business model innovation is not easy, and it requires a lot of creativity, experimentation, and learning. It also requires a willingness to challenge the status quo, and to compete with or even destroy the existing business model. This may seem risky and counterintuitive, but it may be the only way to avoid being disrupted by others.

Last Words

Technology innovation is essential for businesses to stay relevant and competitive in a fast-changing world. However, technology innovation alone is not sufficient. Businesses also need to innovate their business models, which define how they create and deliver value to their customers and stakeholders. Business model innovation can help businesses to exploit new opportunities, explore new markets, enhance customer satisfaction, differentiate from competitors, increase revenues and profits, reduce costs and risks, and achieve social and environmental impact. Business model innovation is not easy, and it requires a lot of creativity, experimentation, and learning. It also requires a willingness to challenge the status quo, and to compete with or even destroy the existing business model. This may seem risky and counterintuitive, but it may be the only way to avoid being disrupted by others.

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