Business Model Innovation

• Business Model Innovation is important, especially with the impact of AI.
• Understanding a company's existing business model is essential for innovation.
• A business model is a simple depiction of what a company does.
• A business model describes how an organization creates, delivers, and captures value.
• The description of a business model should answer key questions.

Key Questions for a Business Model

• Who is your target customer?
• What do you offer to this customer?
• How do you realize this value proposition?
• How do you generate revenue from doing this?

Describing a Business Model

• A business model acts as a tool to visualize and communicate a company's story.
• It can serve as a shared language for understanding a business.
• At a basic level it is a story, or a mission statement.
• Standardized graphical representations can describe the activity system behind a business model.
• An activity system includes all interdependent activities that describe how a company interacts with its partners, suppliers, and customers to both create and capture value.
• The activity system enables the firm, in concert with its partners, to create value and also to appropriate a share of that value.

Business Model Canvas

• The Business Model Canvas is a one-page description describing the logic of how a company creates and captures value.
• It describes a business model via nine key elements.
• Value Proposition: the unique value that a company’s product/service creates for customers
• Customer Segments: the groups of customers the company is targeting with its product/service
• Customer Channels: the channels the company uses to acquire, retain and continuously develop its customers
• Customer Relationships: how the company plans to build relationships with the customers it is serving
• Key Activities: activities a company engages in that allow it to execute its strategy and establish a presence in the market
• Key Resources: the assets and knowledge a company possess that allow it to deliver its value to customers in ways that other companies can’t
• Key Partners: strategic and cooperative partnerships a company forms to increase the scalability and efficiency of the business
• Cost Structure: the costs associated with value creation (key resources/activities/partners) and which components can be leveraged to reduce costs
• Revenue Streams: the way the company delivers value (customer segments/channels/relations) and pulls all the components together, creating multiple revenue streams and generating continuous cash flow

Digital and Sustainable Business Models

• Digital business models can be more complicated than the traditional company-customer relationship.
• Digital platforms leverage triadic, or multi-actor, relationships.
• Value can be enhanced by connecting multiple parties.
• There are two main types of platforms: matchmakers, and multi-sided platforms.
• Matchmaking business model: Involves three actors: the firm that organizes the platform and two customer groups: buyers and sellers.
• Multi-sided platform: Involves three or more parties and establishes relationships between two or more otherwise disconnected customer groups.
• Platforms create value by facilitating transactions.
• In platform business models, the role of customers often changes from a recipient to a value co-creator.
• Platforms compete on their ability to manage and retain a network of members.
• Core revenue mechanisms for platforms are subscription and transaction fees.
• The growth logic of platforms is based on network effects.
• Platform business models face a chicken-egg problem upon launch.

Sustainable Business Models

• Traditional value creation focuses on economic and financial returns.
• Value should be understood in social and ecological terms to address environmental and social inequalities.
• Value can also be understood as the avoidance or mitigation of value destruction.
• A business model for sustainability offers a value proposition that caters to profit, people and the planet.
• This approach can deliver social and economic progress within environmental limits.
• When describing sustainable business models, consider the wider societal system in which a business model operates.
• The supply or value chain of sustainable business models are often circular, where they find smart ways to recycle and upcycle input materials and involve customers in feeding them back into this loop.
• Sustainable business models distribute costs and benefits of operation between different societal stakeholders.

Business Model Innovation is crucial, especially with the impact of AI. A business model illustrates what a company does simply. It describes how an organization creates, delivers, and captures value by answering key questions.