Bringing Innovation to Your Business Model for Success

When Zipcar launched in 2000, the American car-rental company tried something different. It replaced the traditional daily-car-rental model with hourly rentals as an alternative for short-distance travel. It went on to earn a much higher hourly rate than its competitors, and today the company’s annual revenues are approaching $200 million. Another example is the service provider Live Ops, a company which manages customer-service agents. Instead of employing and training a large work force in a low-cost location such as India, the company built up a pool of loosely affiliated freelancers who work remotely and are paid only for the time they actually spend on calls.

What Zipcar and Live Ops share in their achievements, Girotra and Netessine say, is not some breakthrough in their services but rather innovation within their business and operating models. These companies differentiated themselves from their competitors through innovative business models, instead of focusing purely on product or technology innovation. They offered existing services to existing customers using existing technologies, but using a different operating model.

“There’s creativity in coming up with new products and there’s creativity in coming up with new business models,” Girotra says. “You can invent new products, but to really realize the value it is important to organize and create the right business model around that.”

Two popular companies did exactly that: The Spanish clothing retailer Zara designed a hyper-fast supply chain to deliver new lines of clothing in two to four weeks, allowing the company to keep abreast of evolving, arguably fickle consumer preferences. Technology superstar Apple created an ecosystem that included not only technology and product innovations but also a whole range of complementary software services. The challenge with business-model innovation lies in identifying where and how to make changes. Too often companies focus on improving revenues, costs and resource utilization, but completely ignore the risks associated with the business.

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