Executive Interviews: Interview with Dr. Bolko V Oetinger on Business Model Innovation
April 2009 - By Dr. Nagendra V Chowdary

Dr. Bolko V Oetinger
Senior Advisor, The Boston Consulting Group.

• What is the importance of business model innovation, especially for the ‘center’ players for sustaining their competitive advantage and maintaining their market positions? Are there any illustrious examples of companies that have defended their market positions for longer time horizons with continuous business model innovation?

  All companies that are in business have successfully adapted their business models again and again. So, there is a continuous business model innovation; elevator companies started as product companies and developed successfully into service companies with attached production. In the near future we will see similar developments in the mobile phone business: providers and producers of handsets try to add services, to invest in content, to innovate their networks and to help consumers ease their lives. Of course, behind these changes are strategic decisions about the business model’s future. IBM started as a computer company, became a computer and software company and is now a software and service company. IBM is for me an illustrious example for large scale strategic change of a global company.

• An IBM study, “Paths to Success- Three Ways to Innovate Your Business Model”, identified three types of business model innovation—industry model innovation, revenue model innovation and enterprise model innovation. Are there any illustrative examples of successful business model innovations symbolizing each of these models?

  An early example of an industry model (or value chain) innovation is Dell, selling computers according to specs and not off the shelf thus speeding up the delivery time. Or take low- cost carriers in the airline industry like Ryanair that have a very different costs structure because they organize their flight network differently. An early example for a revenue model is the Gillette razors business where you make all your money with replacement blades. Google, of course, sells information to customers for free and collects money from advertising. General Electric earns its revenues from the aircraft turbines by the hour the turbine is in flight. As enterprise model (or role of the enterprise in the value) I would mention Zara and Toyota who uniquely manage their networks.

• Which of these three models do you think would be most appropriate for the existing companies? Which of these three models do you think would mostly suit new companies?

  I do not see any reasons why existing or new companies should use different models.

• Mark W Johnson and his coauthors in their recent article (“Reinventing Your Business Model”, HBR, December 2008) observed, “An analysis of major innovations within existing corporations in the past decade shows that precious few have been business-model related.” Why do you think there are so few business model innovations coming from the existing companies?

  There are several reasons that might give you this impression:

1. Smart companies with successful business models usually innovate at their “adjacent possible”, that means they extend their existing value proposition to a broader customer group. Take as an example Daimler 15 years ago; you could buy cars belonging to the S-class and one class below, two segments of the upscale market and some variations of it. Today, you can buy downwards from the Maybach, via S-class, E-class, Cclass, B-class, A-class to the Smart, the entire price and value range froma collector’s item to a tiny city car. The Smart car enjoys a totally different production and supply chain structure, that itselfmight be regarded in IBM’s terms as an industry model. Mercedes trucks, in former times you just bought the vehicle, today you have the choice to rent a fleet and pay as you drive which is a classic revenue model innovation. So, there is room for “adjacent” business model improvements.

2. Very practically, you cannot have an annual business model innovation, which would get you into the fatigue of a permanent revolution – even the French Revolution got tired of such a concept. Once you have a business model innovation, you have to work with your organization implementing it, learning from doing it and adapting it.

3. There is, of co urse a natural tendency in the incumbent’s organization to devalue any revolutionary thoughts that attack your (until now) successful business model. If somebody explains to you that your model is not sufficient anymore you are personally attacked because it says you have ignored all signals of a new era.