Definition

business model innovation

Contributor(s): Ben Cole

Business model innovation is the development of new, unique concepts supporting an organization's financial viability, including its mission, and the processes for bringing those concepts to fruition. The primary goal of business model innovation is to realize new revenue sources by improving product value and how products are delivered to customers.

The digital age has become an impetus for business model innovation, as technology has dramatically changed how companies operate and deliver services to customers. This digital disruption has shortened business model lifecycles and made innovation key to financial success. The global marketplace has further driven the need for business model innovations, as companies must react to stiffer international competition and the increased potential for systemic risk. These factors are forcing companies to turn to business model innovation to stay competitive and foster growth in the competitive global marketplace.

One example of successful business model innovation is changes made by Apple beginning in the early 2000s. Apple's introduction of products and services such as the iPod, iPhone and iTunes expanded the company's offerings beyond the desktop computer market. For example, the iPod and iTunes created ways to profit from downloadable music, while the iPhone was a breakthrough in the smartphone market. Netflix is another example of this type of business innovation: After upending the traditional video rental market, in recent years the company has leveraged new digital technology to gain a competitive advantage in the streaming media business.

Successful business model innovation in the digital age requires an alignment of IT and business objectives, with the ultimate goal being to improve processes throughout the organization. As a result, CIOs other top IT executives play a big role in identifying ways to use new and existing technology to maximize business model innovation success.

This was last updated in August 2015

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