Five things we've learnt about new business models

17 February 2014

As global trends shift traditional business practices, a raft of innovative business models has entered the marketplace. Here’s what we’ve learnt about new business models, based on experience within our Network and a report from SustainAbility.

We are increasingly hearing about “new business models” emerging in response to changing economic, environmental, social and political trends. If you’ve been wondering what exactly this means and what the relevance is,  UK think tank SustainAbility’s new report, ‘Model Behavior’, published on 13 February, should be high on your “Must Read” list.

Business models are the underlying structures of how companies create, deliver and capture value – they’re much more than simply the product or service a company offers. The issue is that many existing business models are based on the assumption that natural and social capital are in virtually limitless supply. As pressure on planetary resources mounts, we need fundamental shifts in business practice, including business models, to “drive necessary progress toward, and to unlock business value from, sustainability”.

 Here are five key findings we’ve learnt from the report and work happening within our Network:

1.    Every exchange in a value chain provides opportunities for innovation and impact.

This is a good place to start for those interested in business model innovation. In most new business models, the traditional form of exchange – between a company’s customers, employees, owners or community – has changed to distribute value more equitably.

2.    Companies that have demonstrated a business model innovation have often done so by shifting incentives in the value chain.

Shifting the incentives at play can often change an entire business model. The report cites GlaxoSmithKline’s recent decision to stop paying doctors to promote its drugs and stop linking the pay of sales people to the number of prescriptions that doctors write. GSK will instead pay sales staff based on their technical knowledge and quality of service – completely changing the incentives for sales, and opening up new opportunities for innovation that better serve customers.

3. The largest companies tend not to be the source of new models, but they can help evolve and scale them.

This seems to be a pattern acknowledged by corporates within the SBN network, who are now developing business units, or parts of staff roles, to identify start-ups to partner with, or acquire.

4. Business model innovation doesn’t happen in a vacuum.

This insight recognises the reality that industry shifts rely also on government policy, consumer demand, new technology, and so on, rather than solely on the will and clever strategic thinking of executives.

5. It can be less risky to trial new business models with a new product rather than betting the whole business

At SBN we see the value new business models add to the future of individual businesses, as well as their role in helping New Zealand become a model sustainable nation. One thing we’ve learnt is that it can often be good risk management for companies to trial out the viability of a new business model with a new product to market, rather than betting the whole business.

The SBN LABS is a series of workshops designed to help businesses develop competitive new sustainable products and services to market based on new business models. We’re working with businesses that operate within our four transformation areas, who aim to be the ones to crack the big business model challenges and pave the way in their sectors, for the good of New Zealand.

SustainAbility’s report details 20 interesting new business models to engage with, ranging from innovative financing models to social enterprise. You may already be familiar with some of them, such as crowd-funding or microfinance, whereas others such as ‘freemium’ or ‘inclusive sourcing’ may be new to you. Example companies are given for each.

Look out for a follow-up article in our newsletter, examining successful new business models that are emerging in New Zealand