Thursday, April 22, 2004

Business Model Innovation

In my expereince I have found that it is the profile of innovations that determines how successful an innovative product or service will be. That profile is determined by the mix of class of innovations (incremental, distinctive and breakthrough) coupled with the nature of the innovations (product, process and procedure). Rarely will an innovative product succeed with only one the nine different types of innovation present. I think it is this pattern of innovation, as indicated it the innovation profile, that constitutes a business model.

Ernesto Sirolli speaks about his experiences in Esperance, Australia in helping would be entrepreneurs succeed. Two of his early experiences make this point about business models and innovation.

Esperance, a small rural town in Australia, was economically devastated at the time of Sirolli's work. An out of work fisherman had developed a new way to smoke fish in his garage. People liked the taste but the amount of business he was generating was too small to support him. With financing and marketing support, his business became successful. In terms of the innovation profile, he had a distinctive product innovation that is made with a distinctive process innovation. But the business was not successful until incremental procedure innovations were included. His business model for this product launch was then complete and the business was on its way.

In the second case, Sirolli describes the plight of other fishermen in the town. They had been salmon fishers, but the market was depressed for salmon. They found that they could catch tuna, but they had no distribution or marketing system. Sirolli provided these and not only was the business launched but it became a very successful ongoing business with significant economic impact to the town. Again, in terms of the innovation profile, the fishermen had a distinctive product innovation. It became successful when paired with a distinctive process innovation and a breakthrough procedure innovations. An innovative business model was complete.

I will write more about this in a review of Sirolli's book, Ripples from the Zambezi, the July 2004 edition of the Innovation Road Map Magazine.

Paul Schumann

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