The whole topic of business model innovation receives ever more attention. Looking at what has been published recently still there is a strong tendency to focus on business to consumer (B2C), incl. cases and examples.
Business to business (B2B) seems to be ignored. Odd, because understanding business model innovation in a B2B context and being able to deliver successful models is more challenging, but also much more rewarding.
Most challenging aspect is typically the value chain. By the term value chain not the typical Porter kind of value chain is meant, but a series of interlinked activities, performed by various entities that deliver customer value.
Based on this view a value chain does not exist within companies, but amongst companies active within industries form value chains together.
Typical B2B business model innovation impacts either the positions more closely to the end users (forward business model innovation) or the positions that supply the firm that aims to change its business model (backward business model innovation).
With forward and well as backward business model innovation the current situation will change. Effectively the power within the chain and therefore the margins firms make are about the change. Nobody likes change…
Typically it seems that for most forward business model innovations it is extremely difficult not to disturb current relations with direct customers.
For innovating B2B business models a thorough understanding of all entities active throughout the chain is required. How is value being built up with each stage in the chain? Who is the captain that has most power over rest of the chain? What trends are influencing the value chain? Etc.
Most value chains seem difficult to change. The way firms have done business has not changed within recent years and leadership of companies is reluctant to start experimenting. Only in situations of entering new markets or when competition forces to apply other business models, companies step away from status quo.
Traditionally the B2B side of value chain is one that hasn’t seen much change in financials as well over the last years. Only by competition and crisis companies have been forced to lower their costs via optimization. Margins seem to be stuck; there is no room to be found to improve them.
Via business model innovation companies are able to step out of the margin squeeze and apply new ways they create and capture their value, and with better numbers. The concept is simple:
- backward business model innovation
For all resources and activities that can be sourced in a better way; more efficient, more effective or simply cheaper the cost concerned with that specific element of the business model lowers, having a direct positive impact on margin for the overall business model. Means to improve sourcing can be e.g. via new forms of partnerships.
- forward business model innovation
Value builds as the product or service that is created by the value chain becomes closer (in terms of proximity) to the end user. Leapfrogging forward has the potential to extremely grow margins. Coping with some of the challenges mentioned must be taken care off, if the goal is not to upset the current set of companies too much.
Even though the concept is simple the process itself is rather delicate. Deciding when to move forward and engage with others and partners pas proven to be critical to the business model success. If applied wrong there could be damage done to the existing models; if done well B2B business model innovation is extremely rewarding.