Karan Girotra explains how companies can use business model innovation to stay ahead of the competition. Uber, for example, has disrupted the car for hire industry by their clever handling of risk and demand. Girotra is Professor of Technology and Operations Management at INSEAD. He is the author of The Risk-Driven Business Model: Four Questions That Will Define Your Company (http://goo.gl/xPZ9QW).
Karan Girotra: BMI stands for business model innovation. Innovation is often thought to be doing something new, but mostly doing something new by developing a new technology, finding a new market or designing a product to better match consumer needs. Business model innovation is a different kind of innovation. This is where you produce basically the same product, address the same market needs, but the way in which you provision this product to the market involves a new business model. This could be a new revenue model. This could be a new cost model. Or most interestingly it could be a different risk model. All of these models might help you disrupt incumbents, change the way things are done in an industry and provide superior product, superior services and disrupt the game in the industry.
So first off I think of BMI as an approach is not only about mitigating risk, it is more about managing risk. So we often think risk is a bad thing. Risk is going to hurt our business; risk is always a bad thing. It turns out companies that can better manage risk, companies that can differentiate themselves from the incumbents in how their business model deals with the risk might have a significant advantage over the incumbents, over the folks who don't do that. So we can think of in the transportation industry a company like Uber, which is this transportation network provider company with taxi hailing apps, as some of you might know, compare that to a traditional taxi service provider or a black car service provider. Now a black car service provider has much more risk in its business model because it has to invest in a heavy asset load before any demand shows up. A company like Uber on the other hand has a business model which has a lot lower risk, because it's the cost and revenue scale up together. If a lot of people want taxi rides, Uber ends up bringing in a lot of drivers on board. If nobody wants a taxi ride there are no drivers who are paid. And that business model manages the demand risk in a superior fashion than a traditional taxi model does and that allows it to differentiate itself from the traditional model and provide a superior service to consumers; basically a service which allows them to almost guarantee a car within a few minutes irrespective of where they are or irrespective of the time of the day. So that's using risk to differentiate yourself, not only as something we have to worry about or try to mitigate.
Directed/Produced by Jonathan Fowler, Elizabeth Rodd, and Dillon Fitton