EM|Upper-Int|5. Business model innovation

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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.

Nike /’naɪkɪ/

Xerox /ˈzɪərɒks/


Choose the answers you consider correct

1. Nike’s swoosh logo has become one of the most recognizable brand logos in the world. It’s also the most valuable and is worth $26 billion. It was created in 1971 when the company changed its original name, Blue Ribbon Sports, to Nike after the Greek goddess of victory. Carolyn Davidson, a student at Portland State University who drew the logo, tried to convey motion in its design.

2. Amazon was founded by Jeff Bezos in 1994. It started as an online marketplace for books but later expanded to sell electronics, software, video games, apparel, furniture, food, toys, and jewelry.

3. The letter «k» was a favorite of George Eastman’s, the founder of Kodak. Eastman followed three principal concepts when creating the name for his company: it had to be short, easy to pronounce, and not associated with anything else.

4. Apple’s first logo was created by Ronald Wayne, one of the co-founders, in 1976. It depicted Isaac Newton sitting under an apple tree. You know the rest of the story: an apple fell on Newton’s head leading him to the discovery of gravity that revolutionized science.

5. Googol is the name used by mathematicians to reference 10 to the power of 100, which means that is 1 plus 100 zeros. The company’s name Google appeared as a result of a misspelling.

6. Coca-Cola has been the most recognizable brand in the world for a while. According to a marketing survey in 1987, the second most recognizable brand was Rolls-Royce.

7. The name «Swatch» means «second watch» as the watches were intended as casual, disposable accessories.

8. Xerox was founded in 1906 as The Haloid Photographic Company. It manufactured photographic paper and equipment. In 1938, physicist Chester Carlson invented the process for printing images using an electrically charged, photoconductor-coated metal plate and dry powder «toner». It took years before this invention was commercialized by Haloid. To differentiate its new system, Haloid invented the word «xerography» from two Greek roots meaning «dry writing» and then changed its name to Xerox Corporation.

For each group, think of the examples that you associate with innovation

Products Companies Actions
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.


Business model innovation, or BMI, can be defined in different ways as you can look at it from different angles. Generally speaking, it is the conscious change of the current business model or the creation of a new business model that better meets the needs of the customer than existing business models. Or, it can be also called the art of enhancing advantage and value creation by making simultaneous and mutually supportive changes both to an organization’s value proposition to customers and to its underlying operating model.

Do the tasks

Host Daniel

Host: Good morning everyone and welcome to our weekly podcast on innovation. Every week, we talk about innovation in different spheres with the experts, and today we’ll be discussing business model innovation with Daniel Warren. Thank you for joining us, Daniel.
Daniel: Thanks for having me.
Host: So, it’s quite clear that at a certain time, a company has to implement business model innovation to maintain and increase its success and its revenue. The question I’d like to contemplate today is the following: how can a company understand it’s the right time for business model innovation?
Daniel: That is a very relevant question. Indeed, while the increasing importance of business model innovation in general is rather clear, lots of organizations don’t understand when exactly to implement it. So, is there a list of signs for the companies that show it’s high time they resorted to business model innovation?
Host: So, is there a list of signs for the companies that show it’s high time they resorted to business model innovation?
Daniel: Well, we have to keep in mind that businesses are different, and that’s also why there are different types of business model innovation. But let’s talk generally. There surely are some signs that show that business model innovation is necessary. The most straightforward one is when a company doesn’t generate enough revenue because the production costs are too high. This company made a mistake in a financial equation and now has to find a solution to fix it, like outsourcing, for example.
Host: This seems quite evident.
Daniel: Right, let’s continue with an example that is not so obvious. The reasons why a company should change its business model are mostly related to customers. Maybe, the value proposition doesn’t resonate with the customers and it’s time to change it, to add new features or additional services. Another thing is commoditization.
Host: Could you please explain to our listeners what it means?
Daniel: That’s a process by which goods that have economic value and are distinguishable from others by their uniqueness or brand become simple commodities for the consumers. And when products become similar to each other, customers tend to buy the cheapest one, which definitely influences the revenue of the companies.
Host: And once again, the companies have to rethink their value proposition in this case.
Daniel: Right. But besides the customers who are waiting for some new value proposition, there are also overserved customers, those who consume a product or service but don’t need all its features or functionality. Overserved customers are another indicator for the need of implementing business model innovation.
Host: And what allows the company to understand that its customers are overserved?
Daniel: Usually, people complain about too complex, expensive products and services. They don’t value some features and thus don’t use them. And they are not willing to pay a higher price for premium services.
Host: Okay, too many features and functions can play a bad joke — companies should keep that in mind. But does launching a new product lead to business model innovation?
Daniel: It depends. The company has to seize the opportunities coming from the new product. If it gives opportunities to serve customers in outside industries, then yes, that’s a reason for business model innovation. Or, if the sales are degrading, it might be not about the product itself, but because of the business model that needs change.
Host: I see. We have to round up, Daniel. Do you have anything else to add?
Daniel: Just one more thing. Business model innovation is a fascinating thing when everything’s well prepared and elaborated. But unfortunately, there are also external forces that may threaten the existing business model. You know, an outbreak of a contagious disease, for instance, would lead to business model innovation for many companies.
Host: Well, we can only hope that external forces will interfere with our businesses as little as possible. Thanks a lot for your expertise, Daniel.


Take notes

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

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Read the examples and choose which business aspect each example belongs to

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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

Pay-per-copy

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.

Power-by-the-hour is another example of successful business model innovation based on the same principle. Founded in 1904, Rolls-Royce was producing cars before the World Wars made it start manufacturing engines for aircraft. In 1962, the famous business model innovation was born.

Before the innovation, Rolls-Royce was constructing the engines and selling them to the aircraft manufacturers for a relatively large sum of money. Aircraft were then purchased by the airlines, and the airlines had to pay Rolls-Royce for maintenance and reparations. That was extremely costly for the airlines and only large airlines could afford it, which limited the number of clients for Rolls-Royce.

So Rolls-Royce introduced a new business model: it didn’t sell engines anymore, but sold thrust hours instead, which means the airlines had to pay only for the operating hours of the engines. This is called a performance-based contracting approach. The value of the engine is in the flight performance hours that can be achieved with this engine. Maintenance and repair were already included in the price. This business model innovation created advantages for Rolls-Royce itself as it encouraged the company to produce even better engines. More flight hours generated more income, while the resources spent on repairing led to less income. Moreover, it made possible the creation of low-cost airlines as now even small airlines could afford the engines.


Xerox Rolls-Royce
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

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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.

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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.

1. resort to

2. capability

3. take advantage of an opportunity

4. contemplate

5. resonate with

6. commoditization

7. seize

8. lease

9. monthly fee

10. maintenance

11. thrust

12. bankruptcy

13. core

14. undermine

15. emerge from


Allow your browser access to your microphone, press the button «Record» and record the speech you have prepared

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Choose the correct statements


1. resort to

2. capability

3. take advantage of an opportunity

4. contemplate

5. resonate with

6. commoditization

7. seize

8. lease

9. monthly fee

10. maintenance

11. thrust

12. bankruptcy

13. core

14. undermine

15. emerge from

Урок Homework Курс
  • Business trivia
  • Business model innovation
  • When is the right time?
  • What can be changed?
  • Successful examples
  • Learning from mistakes
  • Your example
  • Assess your progress