Does it pay to innovate your business model?

It does. The caveat is whether it is brand new business or an existing one that has to reinvent itself.  New business is a different ball game while in the case of existing business it is vital to innovate if faced with a do or die battle.

If a firm is deteriorating in terms of corporate value and there are too many latent holes in the value proposition causing excessive haemorrhage then it is a sure candidate for innovation. But the decision to innovate must rest on two anchors: analysing risk and appraising return. Let me explain these two vital aspects:

Analysing risk: Identifying and assessing factors that have potential to de-rail operations or jeopardise business objectives is the subject of risk analysis in business model. As a matter of caution it is advisable to analyse risk in business model annually or when quantum change takes place in internal and external environment. Risk analysis is a definite must when there is an alarming degree in the deterioration of value proposition offered to customers and the logic of doing business operations in efficient and effective manner is under severe stress.

Appraising return: The part of the examination rests on estimating and appraising monetary returns arising out of a business model. Return must be further analysed by two quick tests: how the operating cost behaves over a period of time and how operating margin is shrinking. When there is no sufficient margin between operating cost and operating revenue the overall return suffers immensely.

On the basis of results shown by the two tests, it pays definitely to innovate.  And innovate when you are faced with the other alternative of shuttering of your business.

Business model innovation (BMI) basically means that you drop the old model to opt for an improved one. Beginning from structural changes BMI does a complete turnaround; call it 360 degree revolution of everything connected with business model. Innovation does not necessarily mean new idea or new product. It means lot of other things; new mode of doing business, new use of products, new markets for products and so on. Like a fine comb shaping hair evenly BMI refines customer value proposition, trowels value architecture and smoothens cost and revenue flow.

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist