BCG’s Four Approaches to Business Model Innovation

Innovation management gained great importance in the last decades. It is a field that is strongly integrated in almost every process in many organizations. One of the critical fields of innovation management is business model innovation, which reflects one of the major concerns of the corporate and management levels, as well as the information technology (hereafter: IT) department. The idea is simply to come up with innovative ideas that would make the designed business model(s) and processes operate in an effective and efficient way, while at the same time generate value to the organization. According to the HBR (i.e. Harvard Business Review), the lack of a defined framework of business model innovation makes it very difficult to adopt a systematic way of execution, which in turn explains why such a process is mainly done on an ad hoc basis, resulting in the dismissal of efficient opportunities to ameliorate profitability and productivity figures. It was also discovered that companies that target growth through business model innovation have to deal with some critical aspects, like the scope of effort, the degree of risk, the decision among business model alternatives and much more. In this context it is important to notice that the efforts exerted to come up with business model innovation may differ, and thus ensuring the comprehension of particular approaches can be of great support to decision makers when building a path to growth.

To form a common background of understanding, and properly select the business model that fits best for the individual organization, one should distinguish between “impetus” and “focus”. Impetus is concerned with the external threats a company faces, like recessions, economic downturns or new regulations. In other words, impetus describes and incidents that disrupts the status-quo. Focus instead is all about the concentration on promising market opportunities, whether in the company’s core business or in adjacent markets. Now, taking this two variables or factors, one can construct a matrix of four approaches to business model innovation, as demonstrated in the following depiction. Each quadrant represents an approach, where organizations can execute their diverse tactics to lucratively rebuild their models.

  • The reinventor approach is used in the context of a fundamental industry challenge, such as a new regulation. A situation where a business model fades at a snail’s pace and growth forecasts are uncertain. Here, an organization is advised reinvent its customer-value proposition and realign its operations, so to obtain a lucrative business.
  • The adapter approach is employed when the current core business, even if reinvented, is won’t probably be able to fight or deal with fundamental disruption. Adapters thus explore adjacent businesses or markets. Consequently, they have to construct an innovation engine to persistently drive experimentation to find a successful “new core” space with the right business model.
  • The maverick approach deploys business model innovation to scale up a potentially more successful core business. Mavericks include for example startups, which use their key advantage(s) to revolutionize their industry and set new game rules. In turn, this calls for the continuous deployment of their competitive advantages to sustain and boost company growth.
  • The adventurer approach intensively focuses on the exploration of new adjacent markets to expand the “footprint” of the own business. Again, this approach calls for a full comprehension and perception of the organization’s competitive advantage, so to “wisely” gamble and take this risk and succeed in new markets.

Written By:
Yasmin El Dessouky
Digital Marketing Specialist
ITWORX