Showing posts with label process innovation. Show all posts
Showing posts with label process innovation. Show all posts

Wednesday, December 23, 2009

Organizational Capital: Business Model Innovation

One of the reasons we believe that traditional fundamental metrics will hardly apply today is due to the fact that the world economy has been transitioning from the industrial age to the information age-where Alvin Toffler calls this the Third Wave.

This means that the current underlying trend which deepens the integration of global markets (globalization), intensifies comparative advantages and the international division of labor plus competition driven technology innovations has been paving way for a reconfiguration of global economic structures.


This also means that capital in a traditional sense has also been evolving to incorporate organizational capital-or a procedure implemented by businesses to complete work (
wikipedia.org).

The Boston Global Consulting Group presents a recent paper "
Business Model Innovation" highlighting on these:

According to BCG, (bold highlight mine)

``This combination of product innovation and business model innovation (BMI) put Apple at the center of the market approximately 30 times larger than its original market. It also helped expand the company's share of the traditional computer market, as new customers become so attached to their iPods that they took another look at the Apple's computers.


``The greater frequency of disruption and dislocation in many industries is shortening business model lifecycles. New global competitors are emerging. Assets and activities are migrating to low cost countries. Systemic risk is growing as global business becomes increasingly interconnected. Social and ecological constraints on corporate action are emerging. All these factors require businesses to bolster and accelerate innovation. The discipline of BMI offers a fresh way to think about renewing competitive advantage and reigniting growth in this challenging environment.


``Business model innovation means more than a brilliant insight coming at the right place and the right time. To confer a reliable advantage, BMI must systematically cultivated, sufficiently supported, and explicitly managed.


Here is a diagram of the conventional model.


The BCG says that BMI is helpful during times of crisis or instability in the sense that

-it provides companies a way to break out of competition via process or product innovation.

-it help address disruptions or technological shifts-to cope with new business demands

-it addresses specific opportunities, by enabling companies to concentrate on either lower prices or reduce risks and cost of ownership for customers-usually by means of reengineering or reinventing themselves.

-companies often find it easier to gain consensus around the bold moves required to reconfigure an existing business


To add, BMI delivers superior and sustainable returns according to BCG, aside from offering "a premium over the average total shareholder return" on their industries or businesses See exhibit 2

And BMI can take several forms (see above).

Read the entire BCG paper here

And it is probably a reason why workers may have been more productive even during today's crisis. To quote Garrett Jones (Source Tyler Cowen: Marginal Revolution), ``Workers mostly build organizational capital, not final output. This explains high productivity per 'worker' during recessions."