News: Business Model Innovation (IBM)

Innovations: neglect the business model at your peril

Chen Huifen
628 words
15 May 2006
Business Times Singapore
English
(c) 2006 Singapore Press Holdings Limited

(SINGAPORE) Companies that focus their innovation around products and services but neglect the importance of business model innovation may be missing the point, according to IBM Business Consulting Services.

Its study of chief executive officers from 11 geographic regions revealed that the more successful companies have a broader mix of innovation, while the less successful firms tend to overlook innovation around their business structure and/or financial model.

'What I'm saying is, innovation around products and services is still important,' said Patrick Medley, Asia-Pacific partner for IBM Business Consulting. 'But it's not enough. The fundamental difference between the successful and the less successful is around this business model area. And successful companies, from an innovation point of view, will generally be spending as much time focusing on business model innovation as they do on product and service innovation.'

New products or services may be easily followed by similar offerings from competitors, whereas a transformation of the business model is much harder to copy.

'At a very general level, Singapore companies, as do most companies around the world, need to do a lot to rethink their business models, and to focus their efforts in the space where they really can make a difference and to work with business partners, or other organisations in those areas where there's an opportunity for them to do better,' added Mr Medley.

'The old days of vertical integration, quite frankly, are dead.

'People now recognise that you need to get the best expertise to help you in the areas where you are not best at, and where you are the best, you need to continuously focus on doing it even better. Spend your efforts on the one area that can make a real difference to your business moving forward.'

While unable to name a Singapore example that has benefited from a business model innovation, Mr Medley singled out IBM as an illustration.

Started out as a hardware manufacturer, the firm has innovated along its business structure to focus on consulting services.

'It was not even thought about 10 years ago, and that's my challenge to manufacturing companies - how many manufacturing companies in Singapore today are still making the same products as 10 years ago? To succeed in the next 10 years, what are you going to do?'

The findings were outlined in the Global CEO Study 2006 report by IBM Business Consulting.

The study was based on in-depth, consultative interviews with chief executives from 20 industries. A total of 307 of the 765 participants were from the Asia-Pacific region, including Singapore.

The findings were further analysed with the companies' public financial information, which showed that the companies that have grown their operating margins faster than their competitors were putting twice as much emphasis on business innovation as the underperformers.

In addition, two other key trends showed up in the more successful firms: they tend to use external collaboration far more extensively, and that the innovation culture is usually driven from the top.

'A company that is successful at innovation will tend to drive innovation through the organisation culturally, with all the right matrix in place, and with the CEO seen as the innovation leader,' explained Mr Medley. 'Whereas in the less successful innovators, it will be something that the R&D department or the marketing department takes responsibility for or does.'

Two-thirds of the respondents in the Global CEO Study expect their organisations to be inundated with change over the next two years. But only about one-third indicated that their innovation resources are targeted at business model innovation. Of that, 54 per cent said strategic flexibility was a top benefit of business model innovation.