Disruption. Pivot. Business model innovation. People bandy these terms around without really knowing how to use them effectively.
Sustained growth means exploiting your current business model while exploring new models that will meet future needs. Unfortunately, many businesses can become so entrenched in existing practices they can’t engage in the new thinking required for business model innovation. And that puts their future at risk.
A business model is a description of how a business generates its profits. It involves critical decisions relating to a business’ value proposition, activity system and resource base. Together, these decisions determine the particular business model and result in a unique profit algorithm.
Business model innovation improves the profit algorithm by reinventing your existing value proposition, activity system, resource base or establishing entirely new ones. Effective business model innovation is critical to managing the need to generate today’s profits by exploiting the current business model while also exploring new business models essential to future profitability.