EM|Upper-Int|5. Business model innovation
Before discovering the topic of today’s lesson, let’s find out how much you know about different companies. In the quiz, there are questions about the companies that will be mentioned later in the lesson.
Choose the answers you consider correct
For each group, think of the examples that you associate with innovation
|iPhone||Tesla||to invent a new technology|
Read the text about business model innovation and mark the sentences as True or False. Then answer the question
Behind the success story of any company, there’s a great business model, which is, very generally speaking, how a company makes money. To support its financial viability and produce more revenue, a company has to resort to business model innovation. Innovation, as you know, is doing things differently. Thus, business model innovation is generating value and profits by doing business differently.
So, business model innovation is not about creating a new product; it’s about restructuring a business while it keeps operating at the same markets and delivering the same products in a different way. The major goal of business model innovation is to create new revenue sources by improving product value. Google, for instance, reached success by using business model innovation. Google didn’t invent computers and the Internet, but it used those tools to produce new search engine business models, which created a new value proposition for other businesses and the general public. As a result, Google became one of the most profitable companies in history.
When implementing business model innovation, companies should consider the components of a business model. Let’s take an example of the customer value proposition. Customers do not even always know what they need in a product or service. Before Apple launched the iPhone, customers didn’t know they needed a touchscreen. The market segment is another component the company has to take into consideration. The customers are the primary source of the revenue for the company, so, to create the needed value for them, the company has to know its market segment very well. The company also has to think about its revenue and growth models, its resources and capabilities, that would allow it to take advantage of any opportunity.
Do the tasks
Listen to the expert and type the signs that show it’s the right time for implementing BMI
Complete the ideas
Check yourself by completing the statements. If needed, listen to the audio again
Read the examples and choose which business aspect each example belongs to
Now that you have some idea of when and how business model innovation can be implemented, let’s see how it all went in practice for some well-known companies.
If you take this lesson with the teacher, read the text «Pay-per-copy», complete the table about Xerox and then ask your teacher questions about Rolls-Royce to complete the second part of the table.
If you take this lesson on your own, first read the text «Pay-per-copy», then click on the card and read the text «Power-by-the-hour». Complete the table with the information from the two texts.
Read the text and complete the table
Xerox Holdings Corporation, also known simply as Xerox, is a multinational company with a long history. It was founded in the USA more than a century ago, in 1906. The company that sells print and digital document products and services is consistently placed in the list of Fortune 500 companies.
In the business world, Xerox is also famous for its business model innovation that was introduced in 1959 and is still one of the best examples showing how simple ideas and small changes in the revenue model can lead to great results.
In 1959, Xerox revolutionized the document-copying industry by introducing the copy machine Xerox 914. The model was based on an innovative technology, superior to what already existed. The only problem was the high price of the machine: it was about six to seven times more expensive than other methods. It was difficult for the model to enter the market, and potential marketing partners weren’t eager to help Xerox either.
Having considered this, Xerox decided to adopt a leasing business model. Instead of selling the copy machine, Xerox started to lease it for a monthly fee of $95 charging $0.04 per copy after the first 2,000 each month. The pay-per copy business model turned out to be very convenient for the customers. In about a decade, Xerox grew from a millionaire to a billionaire.
|Year of foundation|
|How it worked before innovation|
|The problem with the business model|
|Year of business model innovation|
|Name of a new business model|
|Results of business model innovation|
Let’s now see what happens if a company misses the right time to apply business model innovation. It could happen to any business, even a well-established market leader like Kodak.
film — dark plastic-like material that can record images as photographs or as a moving picture
Read the text about Kodak and choose the correct statements
Throughout the 20th century, Kodak held a dominant position in the photographic film market. But in 2012, the company had to file for bankruptcy.
The story of Kodak’s decline is often seen as an example demonstrating how a company failed to withstand the competition with new digital technology. However, it’s more complicated.
In fact, Kodak invented the first digital camera in 1975 and commercialized one of the first digital cameras in 1990. Kodak was actually at the forefront of the digital revolution. But still, its core business was centered on film and post-processing sales. Kodak’s business model was similar to the one of Xerox — it gave away cameras in exchange for getting loyal users of their photo developing services. At the beginning of the 21st century, before the digital transition, Kodak got more than 70% of its revenue from sales related to film. The company didn’t want to undermine the film business which was too profitable for it. So, when its engineer created the first digital camera, Kodak ignored the new business opportunity. It was afraid to make its core product irrelevant and badly impact its main revenue stream. Even when it became obvious that the digital era was beginning, Kodak wanted to invest in printers because pictures should eventually be printed. That’s how Kodak lost its first-mover advantage. The company missed the right time for business model innovation.
What could Kodak have done? First of all, it could have tried to focus on capabilities rather than markets, which is essential for business model innovation. Skills in complex organic chemistry that a film producing company has can be directed toward other products (as shown by the case of Fujifilm investing in LCD screens and even targeting such unexpected markets as cosmetics).
Kodak is a great example for managers to learn from. Apparently, the company has also learned from its mistakes. The company managed to emerge from bankruptcy and in 2020, it announced it would begin production of pharmaceutical materials in response to the pandemic.
Now you know what business model innovation is, when and how to use it. So, you can better understand and explain certain changes that take place in companies.
Read the task and prepare your 3-minute speech
To stay successful, a company can’t always stay the same. Business model innovation may be necessary, and you’ve seen such examples in the lesson. Now, it’s your turn to give an example. Think of a successful company and talk about it. In your speech, cover the following questions:
- How long has this company been on the market?
- How has its business model changed over the years?
- What does it offer to its customers?
- What do you think most customers value in this company? What do you personally value?
- Do you have any suggestions for this company so it could make a better value proposition and more profit?
Use some of the words and phrases from the wordlist. You may use the text area for taking notes.
Allow your browser access to your microphone, press the button «Record» and record the speech you have prepared
Choose the correct statements
- Business trivia
- Business model innovation
- When is the right time?
- What can be changed?
- Successful examples
- Learning from mistakes
- Your example
- Assess your progress