Business Model Patterns & Innovation
Business Model Innovation
Companies are more frequently seen shifting their focus from technological innovation towards business model innovation. And one efficient option for business model innovation is to learn from existing solutions, i.e., business model patterns.
Business model innovation is “designing a new, or modifying the firm’s extant activity system, and is important for startups wanting to gain significantly in size as well as for incumbents looking to identify new growth opportunities” (Hanelt, A. et al.)
In advanced economies, innovative capacity is the strongest determent for nations and companies gaining competitive advantage. Therefore, companies often heavily invest in technological innovations by developing new resources, plants, and even business units. However, due to the increasing environmental turbulence in more and more industries and markets, this approach not only tends to be very expensive but also exhibits uncertain returns on investments. Furthermore, technological innovations are of little value without appropriate business models — in fact, a good business model can even make an inferior technology more successful than a superior one. Hence, the design and implementation of new business models has the potential to be more efficient than technological innovation (Hanelt, A. et al.).
TL;DR: a good business model can even make an inferior technology more successful than a superior one.
Business Model Patterns
One tool for business model innovation are business model patterns, which describe proven solutions to recurring problems during business model design. The importance of the concept is underlined by the finding that 90% of all business model innovations are a recombination of existing business model patterns.
Therefore, by drawing upon aspects that have already been proven to be successful for other companies and industries, the use of business model patterns provides an efficient way to undertake business model innovation.
However, business model patterns must not be misunderstood; they do not focus on imitating, but rather address efficiency, spur creativity, and help to overcome cognitive barriers in the business model innovation process, which is of special importance in times of transformative change.
Razor and Blade
An illustrative example and often cited instance of business model patterns is razors/blades.
The pattern describes companies offering a cheap basic product (“razors”) with complements that must frequently be replaced (“blades”). These complements are overpriced, thereby subsidizing the basic product.
The pattern name was derived from Gillette’s marketing efforts at the beginning of the twentieth century, when the company gave away razors in order to sell more blades.
Since then, several companies have innovated their business models by adopting the razors/blades pattern.
For instance, Nespresso, a sub-brand of the Nestlé Corporation, introduced a new espresso maker that is sold for less than comparable machines of competitors. The espresso maker, however, can only be used in combination with Nespresso-produced coffee capsules. In contrast to traditional producers of coffee machines, Nespresso does not depend on gaining value from selling the machines because the company uses the machines to open up an even larger and continuous value pool by selling the highly profitable capsules.
Business Model Pattern Database
The Business Model Navigator has identified 55 patterns, though there are many others, and is a great introductory resource into business model patterns. You can access it a couple of different ways:
The above is taken from The Business Model Pattern Database — A Tool For Systematic Business Model Innovation by Andre Hanelt, Gerrit Remane, and Jan Tesche. Read the research paper here.