Innovation is not just about new products or services; it also involves rethinking business models. A business model describes how an organisation creates, delivers and captures value. To innovate a business model, one must understand its four main components: customer value proposition, profit formula, key resources, and key processes.
Customer value proposition (CVP) is the value a company promises to deliver to its customers. It is crucial to understand customers’ needs and how to meet them better than competitors. Profit formula, on the other hand, is the economic blueprint that defines how a company makes money. It includes revenue model, cost structure, margin model, and resource velocity.
Key resources are the assets needed to deliver the CVP, including people, technology, products, facilities, equipment, channels, and brand. Key processes are the operational methods that allow the company to deliver value repeatedly and efficiently. They include manufacturing, budgeting, planning, sales, service, and training processes.
Innovation requires examining these components and finding new ways to deliver value. It can involve changing one or more elements of the business model. Successful business model innovation can lead to increased competitiveness and growth. It is a strategic imperative in today’s fast-paced business environment.
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