Business model innovation show superior impact on performance

Good news for all the evangelist of business model innovation. McKinsey has developed an innovation performance score (IPS) that shows that “a significant degree of business model innovation seems to be necessary for superior innovation impact.”

The idea of business model innovation was not developed at the large consultancy companies like McKinsey, BCG or booz. Probably they were too busy optimizing the current business of their current clients. And usually their clients are the incumbent in their respective business. Probably, the large consultancies are trapped what Clayton Christiensen calls resource dependency. Christiensen and others argue that you are dependent in your strategic decision from your main sources where you get your resources from and most of the time it is from your existing clients. In the case of the large consultancies the customers are the incumbents that lose the most from business model innovation.

Business model innovation as new strategy type

The idea stems from researchers like Alex Osterwalder, Gary Hamel (business concept innovation), W. Chan Kim and Renée Mauborgne with their blue ocean strategy or me. In stead of looking at the incumbents we were looking at entrepreneurs/ outsiders that created industries or changed their industries forever. While Alex and I came from New Economy side where we saw that new media allows new business models, Hamel, Kim and Mauborgne came from the traditional strategy schools at universities.

Measuring the impact of innovation is old subject but most measurement systems had severe shortcomings.

For example input factors like R&D spending of a corporation were measured. Besides the flaw that input has little to do with output particularly in R&D, business model innovation do not get measured since you do not spent R&D on them. R&D is all about product innovation. Other studies measure the output of the R&D process like patents. Again, patents do not measure business or process innovation. Patents are just a sign of technological innovation. In Europe, you can not protect business models with patents.

So McKinsey started their research on an innovation performance sorce (IPS). McKinsey is still in an early phase but they say that the first results are promising. They use objective outcomes that take a broad view on innovation and take a long-term perspective. And instead of focusing on coporations they focus on business segments which in my opinion is key since the unit of competition is not the corporation but the business.

Business model innovation matter

And the results for us are promising. They state that they “found that business model innovation tended to generate bigger gains than product or process innovation, probably because the innovation was harder for competitors to copy and the advantages was therefore longer lasting.”

That is great news and we are waiting for more empirical evidence from the mighty McKinsey.