By Tanya Hemphill, Senior Lecturer
Over the last few months we have been running a module on ‘Innovation, Value and Markets’ to over 70 Staffordshire business people, as part of our Small Business Leadership Programme.
During the workshops it was very clear that most small businesses have had to rethink their business model to adapt to massive shifts in consumer behaviour (and supply chains) because of Covid. The UK Government defines innovation as: The successful exploitation of new ideas. Innovation may involve an organisation’s:
- Products and services
- Processes (e.g. exploiting new technologies)
- Business model (e.g. new income sources/ improved supply chain)
Business Model Innovation
According to Fisk (2021) although there are an infinite number of potential business models some of the most common formats (applicable to nearly every type of business) are:
- Advertising-based models. Services are free to users, whilst advertisers pay to engage with the audience attracted, e.g. Google, Facebook.
- Razor-and-blades models. The facilitating item, like a razor, is sold cheaply, then accessories, like blades, at a premium, e.g. HP, Nespresso.
- Added-value models. The facilitating item, like an iPad, is sold at a premium, then accessories, like apps, sold cheaply, e.g. Apple.
- One-of-one models. The company donates a product to a charity, or person in need, for every product sold, e.g. Toms, Warby Parker.
- Cashflow models. High volumes are generated at low margins, payments received quickly from customers, paid slowly to suppliers, e.g. Amazon, Dell.
- Platform-based models. These bring buyers and suppliers together, typically charging both of them to connect and transact, e.g. Airbnb, Uber.
- Subscription-based models. These charge a regular, e.g. monthly, fee for unlimited use of a product or service, e.g. Netflix, Zipcar.
- Freemium models. These encourage trial or a basic level of usage for free, but charge for additional or premium options, e.g. Spotify, Fornite.
- Direct to consumer models. Products which in the past would have been sold through intermediaries are sold direct, e.g. Allbirds, Casper.
10 Types of Innovation
If we want to expand the UK Government’s three categories of innovation, recent research has identified ten main types of innovation (Keeley et al., 2013):
- Profit Model: The way you make money (e.g. Netflix changed the video rental industry by implementing a subscription model)
- Network: Connections with others to create value (e.g. Target works with renowned designers to differentiate itself)
- Structure: Alignment of your talent assets (e.g. Whole Foods has built a robust feedback system for internal teams)
- Process: Signature of superior methods for doing your work (e.g. Zara’s ‘fast fashion’ strategy moves its clothing from sketch to shelf in record time)
- Product Performance: Distinguishing features and functionality (e.g. OXO Good Grips costs a premium but its ‘universal design’ has a loyal following)
- Product System: Complementary products and services (e.g. Nike+ partnered shoes, sensors, apps and devices into a sport lifestyle suite)
- Service: Support and enhancements that surround your offerings (e.g. Zappos “deliver WOW through service” is their #1 internal core value)
- Channel: How your offerings are delivered to customers and users (e.g. Nespresso locks in customers with its useful members only club)
- Brand: Representation of your offerings and business (e.g. Virgin extends its brand into sectors ranging from soft drinks to space travel)
- Customer Engagement: Distinctive interactions you foster (e.g. Wii’s experience draws more from the interactions in the room than from on-screen)
This framework is expanded further by list of possible tactics, which can be found here: https://doblin.com/dist/images/uploads/TenTypesInnovation.pdf
The ‘Business Model Canvas’ is one of the most used templates in business to map a business model (Osterwalder and Pigneur, 2010). This is a useful tool for rethinking the whole business, seeing connections and then innovating the business.
You can download a copy of the Business Model Canvas and view an overview video of the tool at https://www.strategyzer.com/canvas/business-model-canvas
Fisk, P. (2017). Gamechangers: Are you ready to change the World? Creating Innovative Strategies for Business and Brands. West Sussex: John Wiley and Sons Ltd.
Keeley, L., Pikkel, R., Quinn, B. and Walters, H. (2013). Ten Types of Innovation: The Discipline of Building Breakthroughs. New Jersey: John Wiley & Sons, Inc.
Osterwalder, A. and Pigneur, Y. (2010). Business Model Generation: A Handbook for Visionaries, Game Changers and Challengers. New Jersey: John Wiley & Sons, Inc.
Tanya Hemphill can be found on twitter @DigitalTanya she has recently joined Staffordshire Business School. She teaches on the MSc in Digital Marketing Management which includes a credited workplacement.
Part 2 of this article will shortly be available