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Every business needs to change if it’s going to survive

6 September 2021

“I understand that some people are switched off by the term ‘innovation’ so let’s not use that word.  Let’s use the word ‘change’ instead, or ‘improvement’.  If we look at where we use innovation it’s actually all about change for the better, or improvement of products, services, businesses.

Why do we use the word ‘change’ and why do businesses need to understand that change is important?  Well, the world changes; customers change; people’s needs change and competitors change.  So, as businesses, we need to change too. We need to innovate.

So, let’s start at the end – Business expert, Oliver Gassmann said “Tomorrow’s competitive advantage of companies will not be based on innovative products and processes but on innovative business models”.  In recent years, we have seen many success stories based on an innovative business model rather than a fantastic individual product:

  • Amazon has become the biggest bookseller in the world even though it does not own a single bricks and mortar shop.
  • Apple is the largest music retailer in the world that does not sell CD’s
  • Pixar won 11 Academy Awards without there being a single human actor in its films
  • Netflix reinvented video rental despite not owning a single physical shop

Innovation has always been an instrumental factor in driving growth and competitiveness in business.  In the past, an outstanding technical solution or the introduction of an exceptional product was enough for success.  Today, though, it is no longer sufficient to focus on product or process innovation because of increasing competition, ongoing globalisation, and the upsurge of competitors in the east, to name just a few of the present driving forces.  New technologies, blurred industry boundaries, changing markets, new competitive players and changing regulations all combine to make products and processes obsolete.  Whether we like it or not, the rules of the game are changing.

Research has shown that business model innovation or ‘doing things better in an established market’ carries a greater potential for success than mere product or process innovation.  A recent study showed that business model innovators are 6% more profitable than their contemporaries who were innovating products and processes.  Similarly, 14 of the 25 most innovative companies in the world are business model innovators. And remember, for SMEs, neither the market segments nor the change to the way you do things needs to be big, necessarily.

Of course, quality products and processes remain of great importance, but they will not decide a company’s success or failure in the future.  We have now firmly arrived in the era of business model innovation, where a company’s fate increasingly depends on its ability to ‘do things differently and better’ within an established market, to differentiate it from its competitors.

The consequence for companies in the innovation race is drastic.  Business School models of ‘cash cows’ are less and less relevant today.  Even if they have best-sellers, it is important for businesses to regularly test their business model.  We live in an era of temporary competitive advantage: success can only be maintained if its roots are continually re-examined and nurtured.”

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