Business-Model Innovation

What is a Business-Model Innovation?

It is a type of innovation and happens when an organization discovers a different business model in an existing business.  To be recognized as such, it should (1) Enlarge an existing economic pie - by attracting new customers in a market or by encouraging customers to consume more (Markides, 2006). - {Rolando: can't be by taking off customers from other competitors? Could be, but must be providing something new in a different way} and (2) Require different value-chains.

Characteristics:

Business-Model Innovation redefines what a product is and how it is provided, it is not used to build new products or services. E.g. Amazon never discover the bookselling business, rather redefines it and how it is provided.

Business-Model Innovation attends new "success factors" overlooked, changing the product's attributes used by traditional business incumbents.

Business-Model Innovation requires a different structure of their "business model" to attend new customers, even incompatible with business incumbents. E.g. If KLM sells its tickets on the internet like Easy Jet (low-cost), risks its existing distributors, their traditional service and travel agents. 

Equally to the Disruptive Innovation or Radical Product Innovation, New Business-Model Innovations offers a specific product performance that established customers start to switch to the new product offered.

How to compete?

Business-Model Innovation doesn't dominate a market according to evidence (e.g. internet banking) and literature (Markides, 2006), therefore it is not necessary to create a new company as Christensen said (Christensen, 1997). In fact, it is found that usually this type allows emerging fast to a certain percent of the market but fails to overtake it. So, incumbent companies can compete by using "Disrupt the disruptors" strategy, invest in adjacent markets or taking its business-model internationally.

Discussion

The way how Business-Model Innovation emerges from a low-performance market to a mainstream market is similar to the process of how Disruptive Innovation happens. This may explain how the term could be managed as the same, but a clear thing should be noted, Disruptive Innovation assume a total market overtook and "New Business-Model Innovation" don't. So, market impact's patron may be the difference?!

Markides, C. (2006; 23:19-25). Disruptive Innovation: In need of Better theory? The Journal of Product Innovation Management.
Christensen, C. (1997). The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Boston: Harvard Business School Press.