Change in business model holds key to success

Press release
Published October 2nd, 2011 - 07:20 GMT
Professor Charles Baden-Fuller
Professor Charles Baden-Fuller

It is perfectly possible for well established firms to innovate and develop new business models without great risk, said an expert during a talk hosted by the Capital Club Dubai, the region's premier private business club and a member of the ENSHAA group of companies.

The talk, which was organised and hosted by DIFC based, Capital Club Dubai in association with Cass Business School in London – part of City University London – was presented by Professor Charles Baden-Fuller who gave his insights on the issue, What business models do we need for success and how do we get there?

Professor Baden-Fuller’s visit is part of an ongoing program which sees world-renowned, London-based, professors fly to the UAE each month to teach students of the Cass Business School Dubai Executive MBA course, ranked the tenth best in the World by the Financial Times.

Addressing the gathering, which consisted mainly of businessmen from established firms, Professor Baden-Fuller said that established companies need to innovate new business models to capture the opportunities offered by today’s growth markets such as the Africa subcontinent and new industries such as bio-technology and the web. In addition, companies need new business models for the home business: for they allow the firm to ride the waves of the turbulent environment and avoid the risks associated with being left behind by competitors.

“The essence of a new business model is more than just a new product or new service; it is also a new value delivery system and a new way of capturing value.”

Taking the example of selling in the African sub-continent, Professor Baden-Fuller explained that innovations in value delivery include packaging consumer products in micro-sizes so consumers with low incomes can afford to buy and when they buy accurately match purchase to use. Innovations in value capture mechanisms, such as using mobile phones to pay for purchases, allow companies to collect the revenues from the sales of these very low unit-value products efficiently and effectively, without destroying profit margins.

“The challenge for any new business model for emerging markets is to reach to the masses, and micro packaging is the way to achieve this as it requires very low cost to deliver but presents great profits due to the mass movement of products,” he said. He stated that telecommunications is one example of such services.

The challenge of designing new business models is also present for established firms in mature markets. “Whenever we feel that the customer is not paying the full price for the offering we give, then there is money left on the table. And whenever there is strong competition, we need to explore the possibility of new business models. The challenge is to explore new ways to capture that value that triggers renewed growth. A central feature of new business models is a new method of capturing that value.

Sharing his findings about new business models that have captured markets across the world, he explained that the separation of ‘users’ and ‘customers’ is the key to their success.

“RyanAir and Google are the two of the most inspiring new business models to capture people’s imagination the world over. For Google, internet surfers are the users, but advertisers are their customers. Similarly, RyanAir used to get paid by certain airports for adding them to the network, meaning that at times passengers were not considered to be customers, but users,” he added.

Speaking of the challenges faced by established companies, he said that “too many companies innovate the product or service and then worry about how to capture that value. This is wrong, innovation in value capture has to go hand in hand with product and service innovation” Once very successful companies like Kodak and Polaroid, failed because just creating value was not enough, he explained, in recent years they failed to match product innovation with renewed innovation in value capture mechanisms. They just would not change along both axes.

“With new companies, it is not just innovation in terms of offerings, but innovation in value delivery and value capture that matters. To be really successful, new businesses need to innovate across multiple dimensions; one is not enough,” he added.

During the talk, Professor Baden-Fuller explored how companies could minimize the risks from introducing new business models. He emphasised the need for top-management to be involved in the experiments, and the importance of designing the place where the innovation takes place. “Don’t jeopardise the existing business while experimenting with the new business model. Start a new business model in a new unit, or in a new location; ideally use a market which is close to your existing one, but not the same,” he said.

Background Information

Cass Business School

Cass Business School is one of City, University of London’s five Schools. It’s among Europe’s leading business schools and in the global elite of business schools that hold the gold standard of ‘triple-crown’ accreditation.

 

The Capital Club

Founded in 2009 as a private Business Club, Capital Club is Bahrain’s premier private business club situated in Harbour Towers (East) and is exclusively designed to meet the demands of those from the top echelons of business, finance, government. The Club is situated on the  highest floor in the tallest tower of the Kingdom
Membership to the Capital Club is strictly by invitation only and members comprise of senior individuals and corporate leaders of the region and Kingdom of Saudi Arabia.

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