what-is-business-model-innovation

Why Innovation In Business Is About Business Modeling

As technology has become so pervasive in our lives; and as it has enabled new business models to emerge. There has formed this misconception and confusion around what innovation in business means.

Let me clarify that as many get very confused about this topic.

Technological innovation is not business innovation

The misconception starts from the fact that nowadays, technological advancement is pushing toward new ways of doing business.

The Internet is still enabling new, untested models to pick up. For instance, business models of companies like Netflix would not be possible if the Internet didn’t allow new ways of content delivery, and so also of how those same companies make money.

However, technological innovation is wholly different from business innovation. That’s because technological innovation often happens in labs or research centers (take the internet) rather than just companies, or in a business context.

In short, technological innovation requires a massive amount of resources upfront and researchers, which might not follow business objectives, but rather experiment freely with ideas that take time to work out.

One matrix that explains well, is the Innovation Matrix, that Greg Satell showed me when I interviewed him:

innovation-strategy

In other words, often a technological innovation happens in basic research. And the more we move toward a well-defined domain and problem, the more we move toward sustaining innovation.

However, technology itself hardly becomes a competitive advantage.

That is when the business model innovation kicks in.

Why business innovation is about business modeling

One of the people that I like to follow the most in the business world, venture capitalist, Fred Wilson, in a recent article, highlighted something that many are still missing today: 

I believe business model innovation is more disruptive than technical innovation.

That might sound trivial, yet it’s not. Most of us believe that technical improvements (what we call technology) are what enabled global changes.

While this is true, there is another component, the business model innovation which caused even more massive changes to our society.

That’s because technology enables a new way of doing business. And assumptions that in the past were the basis of doing business, suddenly become outdated.

As Fred Wilson further explained: 

The move from desktop computing to the web. We saw massive disruption as we went from a licensed software business model to an advertising-supported business model, which has evolved into an advertising/subscription freemium business model.

When new, revolutionary technology finally is widely adopted, that is when a massive phase of business model innovation happens. For instance, we’re still looking at how the Internet enabled the digital economy still ongoing explosion. 

We might be looking at a similar change and blossoming of new business models with the advent of the Blockchain and crypto-based business models.

Thus, next time someone in the business world is talking about innovation, ask what that means, and you’ll find out in their head they think about technology rather than business modeling.

Other business resources: 

Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which he brought to reach about a million business students, professionals, and entrepreneurs in 2019 alone | Gennaro is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate and become profitable | Gennaro is an International MBA with emphasis on Corporate Finance | Subscribe to the FourWeekMBA Newsletter | Or Get in touch with Gennaro here

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