The theory of Business Model Innovation (BMI) discusses the creation and reinvention of a business model in the decade of globalization and in more recent times, that of recession. The business model innovation theory offers ways in which a time-consuming company can increase to competitiveness by the importance scheme of enhancing value of its offerings, altering its profit increasing modus operandi, using its resources and processes in a new way so that its value proposition can be enhanced and thus enable it to capture newer sections of the market by alienating competitors and this makes the company advances in comparison to others and it can be done by using business model innovation and effective use of change management.
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The Business Model Innovation theory
The Business Model Innovation theory was developed by Clayton Christensen, Mark Johnson and Henning Kagermann, with their articles “Reinventing Your Business Model” that was published in the Harvard Business Review of December, 2008. They believed that four types of interdependent elements helped in re-innovating or changing a business for the better, as Apple Computers did in this decade, as we will examine later in the paper. Borrowing from their article, we find that the elements that transformed a business model were:
Customer Value proposition: The company first needs to identify a crucial job that the customer wants to be done and then find a solution to it with a new product or service, thus creating value for customers. Once the company can get the job done perfectly and at a competitive or low price, the more will the overall value be increased for the customers. It would also better the credibility in the market.
Profit Formula: The profit formula works on several aspects like the revenue model, the cost structure of creating the model and the margins of each transaction made as well as the ‘resource velocity’ —the faster you need to sell the product depends on the assets of the company. Using BMI, the company might have to alter its production and marketing policies so as to suit a particular profit formula.
Key Resources: Every company’s key resources are its people, the technology it owns, its products, equipments, facilities and brand names that will collaborate to generate a value proposition in the eyes of the target audience or the proposed customers. The company will need to enhance or encourage the interaction of all key resources so as to generate efficiency and creativity in all departments.
Key Processes: Marketing and Sales departments as well as the CEO’s make a company a household name. They are counted as the operational and managerial processes that will help the company deliver the promised value repeatedly and on an increasing scale by using tasks like training, research and development, budgeting and innovation in manufacturing as well as planning sales and service strategies (Christensen, Johnson and Kagermann 2008).
Mark W. Johnson, Clayton M. Christensen, Henning Kagermann (2008) commented in their article that to decide whether one business needs a model change, these are suggestions of ideas,
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- Articulate what makes your existing model successful. For example, what customer problem does it solve? How does it make money for your firm?
- Watch for signals that your model needs changing, such as tough new competitors on the horizon.
- Decide whether reinventing your model is worth the effort. The answer’s yes only if the new model changes the industry or market” (Christensen, Johnson and Kagermann 2008).
The companies that have prospered with change and innovation in their business models are:
- The Tata Nano 1 lakh city car
- Apple with its iTunes Store and iPod
- Walmart with Discount Retailing
- FedEx- Guarantee of overnight delivery
- Southwest this provides low-cost regional air travel.
Apple Computers Inc
Apple Computers Inc., (AAPL) has shown how a music device can change the face of entertainment and technology. Set up by current CEO, Steve Jobs in 1976, the company was the first to launch the PC business, then being the first to use graphic user interface in Mac processors. However, the booming business started dwindling in the 1990’s. Then, in 2001, Steve Jobs catapulted the company to fame and prosperity with the launch of the iPod, a device that could store up to 5000 songs on a small chip in a mobile- like device, which soon became a must-have for millions of music fans around the world (Tripsas 2008).
Along with was launched the superb idea of music downloading legally and profitably from the iTunes, online music store of Apple, which had collaborations with major music companies. One could download latest videos and songs from the iTunes site, only by paying a dollar for each song. The idea was carried on with great marketing devices where the company made the iPod and the iTunes work with Windows PC’s, thus widening its market globally and breaking out from its niche audience. Recently, after the launch of the iPhone in 2008, the company has become an icon in the I.T. and the infotainment world. Its latest innovation is the iPad, the PC without a mouse!
The transformation of Apple was not only because of its marketing of a snazzy music device it changed its essential nature from being a designer of great computer products to a path breaking designer of consumer experiences through devices and services. Recent statistics have shown that music services amount to 44% of apple’s revenues and the larger share of its profits (Greve 2009).
Apple has re-invented its business with its research and development teams. According to innovation consultant, Larry Keeley of Doblin Inc., Apple (AAPL) had used seven types of innovations when it launched the iPod, to become the creative king. They had to include innovations of networking as a new agreement of its kind was signed among music companies to legally sell their songs online; innovations on its business model as it ensured that the songs were sold for a buck on iTunes and it also involved innovations in branding, as can be seen in the cool design of the iPod and the white earphones that are provided (Tripsas 2008).
Also, the iPod and later, the iPhone would have innovations in user interface so that the consumers would be able to use the devices simply. Customers across the world have loved the ease of operation and the feel of the iPod as well as the simplicity of the downloading process from the iTunes store, which has translated into phenomenal revenues for Apple Inc. Since 2001, as a result of Business Model Innovation, the market of Apple Computers Inc, has become 30 times bigger than in the 1990’s. There hasn’t been any negative quarter growth since March, 2003, even in times of recession and in the last half of 2009, the market capitalization of Apple reached $175 billion, more than that of Google (Greve 2009).
Apple’s innovation or change
Thus, Apple demonstrated that innovation or change in a business model did not depend only on a mere product, service or any technological innovation. I shall attempt to show the business techniques used to innovate and change Apple down the years by quoting excerpts from an interview of Steve Jobs, published in BusinessWeek. Computer Editor Peter Burrows talks about the models of business innovation that Apple Computers Inc. used to bounce back. According to Steve Jobs.
“Both [Apple co-founder] Steve Wozniak and I and I think I can speak for Woz got our view of what a technology company should be while working for Hewlett-Packard in the late 1960s and early 1970s….But then, the company had a decade in which it took a nap” (Burrows 2004).
However, when asked about the innovation struggle of Apple before 1997, he replied, “People always ask me why Apple really failed for those years, and it’s easy to blame it on certain people or personalities…. some very good products and the company achieves a monopoly” (Burrows 2004).
Steve Jobs, in this context stated that innovation also needs luck factor, according to him, “I did everything in the early days — documentation, sales, supply chain, sweeping the floors, buying chips, you name it. I put computers together with my own two hands. And as the industry grew up, I kept on doing it” (Burrows 2004). All these elements came good and luck was a part of it but it was the ingenious innovation and change management that actually worked for Apple rather than pure luck.
The change aspect was crucial for Apple. According to Steve Jobs:
“Not everyone knows it, but three months after I came back to Apple, my chief operating guy quit. I couldn’t find anyone internally or elsewhere that knew as much as he did, or as I did. So I did that job for nine months before I found someone I saw eye-to-eye with, and that was Tim Cook. And he has been here ever since” (Burrows 2004).
All these elements were part of the fundamental change and innovation. Steve Jobs stated in the interview:
“We’re on a really good track. We may not be the richest guy in the graveyard at the end of the day, but we’re the best at what we do. And Apple is doing the best work in its history. I really believe that. And there’s a lot more coming” (Burrows 2004).
Innovation concepts that Steve Jobs used
As we learn from the snippets of the interview, the key to Apple’s innovation, according to CEO Steve Jobs, lies in the fact that the company focuses on a single target at a time when it made PC’s, it concentrated on research and development so that the MacBook’s would be user-friendly and have the best quality of parts in the market, as also be affordable with the latest innovations in technology. The same formula was applied when the iPod was launched (Greve 2009).
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In the 1990’s, most technology companies were adapting to a slow- growing market by slashing its Research and development processes but Steve Jobs, even when not at the helm in 1985, maintained that Apple Computers would not compromise on innovation. They refused to compromise on its target quality or value as AAPL combined the latest technical knowhow to form a new concept so that music could be sold online, thus giving birth to the iPod, that became the most influential new tech product of the new decade. However, Apple maintained its reputation for elegance and easy user interface by making more advanced but user-friendly desktop computers and the latest in professional laptops (Tripsas 2008).
Steve Jobs’ return as the CEO of Apple in 1997 also led to its innovative business models. In a recent interview, he confesses that the decline of Apple in the 1990’s happened due to the monopolistic turn of its business in the PC world, as it had been dominating the market with its graphic user interface innovation of Mac for over ten years. As a result, the company went onto the hands of aggressive sales and marketing personnel who focused more on expansion of the business, under the benefits of globalization. However, this resulted in a shift of focus from innovation and development of newer technological products and Apple lost its edge to IBM, Microsoft and Hewlett Packard. When Steve Jobs came back as CEO, he shifted the focus of the company on product quality and innovations again, with an eye to maintaining profit by building a loyal customer support base.
He claims that Apple hires the best and most creative people in the field and encourages hard work and thinking out of the box, at the same time, working with dedication to build the best parts of each product so that their customers are always satisfied, in any corner of the world. This has ensured the loyalty of customers and a regular profit margin since 2001. They provide for several unprecedented technological innovations that the customers might like to try out after they have used the conventional technologies (Greve 2009).
Another bit of business innovation lay in the fact that Apple, following the lines of global music service providers like Sony or Samsung, was always keen on wanting to own and control all the primary technology it needed for its products, instead of depending on the quality of parts provided by low-cost vendors. Thus, they took the pains to perfect their software technology and become a good software company before launching its software based music device to replace the marking mechanism technology used earlier for CD or DVD players. Steve Jobs states that they had faith in their hardware and software quality so they could confidently go ahead with their reinvention of the music business.
Technically viewed, efficiency and management, in the context of innovation and change management, seep into all facets of our existence apart from direct family affairs. It is also important to understand that this is educated and not an innate conduct. The framework formed by management and efficiency is a more proficient means of realizing work objectives. This approach in relation to working procedure has a definitive impact on all walks of human life. The overseeing of workforce activity and developing efficiency is one of the most intricate jobs in any organization. Supervision entails continually operating in an instable and ambiguous environment and only handful of individuals obtain contentment in performing as a supervisor. The purpose of bringing up this issue is to point out the fact that many new supervisors, when regularly challenged with troubles concerning their staff, start looking for some erroneous factor in the system. This fluctuating and uncertain status quo is a very common occurrence in supervision and accomplishment is calculated in percentages in lieu of absolutes.
Productivity is one of the most important instruments utilized to realize corporate goals given that it aligns those goals with employee interests and accomplishments. It concentrates on enhancing performance through evaluating results against individual, team and organizational aims, and pays heed to the training and development requirements of human resources irrespective of their organizational rank. Managers utilizing performance management successfully are normally more bothered about performance planning and development than retrospective performance evaluation. It is an established management exercise functioning within organizations since it is capable of being an important procedure for the workforce and owners identically. It provides for both acknowledgment of fruitful performance and early identification of performance that does not meet expectation, permitting consequent corrective measures to be issued immediately.
In case of Apple, it can be stated that there is the danger of advances in digital technology which is using drives, chips, screens, and networking gear to change and invent technologies in entertainment services as also the fear of hackers duplicating the product. However, Apple ensured that the primary technology of software it developed for its iPod and its iPhone could not be duplicated by anyone. The technology has been kept a highly guarded secret and it has been innovated from time to time to avoid hacking.
Steve Jobs also maintains that Apple is a much disciplined company but if anyone has a new idea on innovation, there is no delay in holding ad hoc meetings to discuss the idea and develop it. However, he also said that apple never targets huge sales expansions or aggressive publicity for its products and services they try to concentrate on the value of the service being provided (Greve 2009).
Apart from its HR policies and work discipline, Apple inspires its employees by encouraging thinking differently. To follow the success story of Apple through practical business Innovation and research techniques, the following steps might be applied to a business:
The company must utilize the opportunity to address the needs of large groups of potential customers who might have been previously shut out from the market as the solutions or the services that they needed were far too expensive or way too complicated for them. Thus, in business terms, one would have to reach the bottom of the pyramid and taking the demands of the customer base into consideration, the company can democratize the products.
In case the company has developed a brand- new technology, it will also have to market it at the right time and to the right audience, after testing the leverage of the new technology in limited environment. Also, the company must make sure that the quality of the product or the service remains above any compromise.
Instead of becoming a blind and aggressive marketing drawn industry like the flow of the times demand, the company would build a better clientele base and a regular profit margin by adopting a product- oriented focus. There will always have to be a focus on fending off the competitors who are providing the same service for lower prices so as not to feel threatened by its competitors. The company’s product should have innovative edge over its low-end competitors as also a better marketing strategy (Tripsas 2008).
Creativity is one aspect that shapes the distinction of an individual or a firm from others. It is essential to possess creativity in order to be fruitful in the long run. This is because only creativity has the potential to develop a new from of opportunity in both personal and corporate scenario. It can well be stated that creativity tends to give rise to elements that would otherwise never be used under normal circumstances. From a personal point of view it should be mentioned that there are several examples that indicate a higher success rate with the application of creativity. Applying creative method of examining a term paper can be enumerated as a good example of creativity that often results in high score.
Entrepreneurial opportunity is the aspect of business that every business personnel wait with eagerness. It should be mentioned that to achieve a penetration into the market segment of a given product or service it is important that the business should look forward for Entrepreneurial opportunity. Without this Entrepreneurial opportunity it is very difficult to be successful in the initial stages of the company. It can be mentioned that Entrepreneurial opportunity is a situation that indicates a favorable scenario for a business within the parameters of its market segment. It can be stated that an idea can develop at any stage of history but opportunity, specifically in business and marketing, arises only when this idea can be motioned in a direction that would be instrumental in yielding profit for the company. In other words, a need should be created in the market so that this idea can become sellable.
Apple has followed all the recipe of success based on innovation and change management techniques. Thus, it is evident that the company, Apple, will always need to respond to a market that has a shifting basis of competition, thus accepting that a solution that works in the market now might not work ten years down the line, as core market segments change. The company should have the ability to adapt.
Burrows, P. (2004). The Seed of Apple’s Innovation. BusinessWeek Online. Web.
Greve, H.R. (2009). Bigger and safer: the diffusion of competitive advantage. Strategic Management Journal 30(1), 1-23.
Johnson, M.W., Christensen, C., and Kagermann, H. (2008). Reinventing Your Business Model. Harvard Business Review 4(3), 50-59.
Tripsas, M. (2008). Customer preference discontinuities: a trigger for radical technological change. Managerial and Decision Economics 29(2-3), 79-97.