INSEAD innovation experts offer roadmap for business model reinvention

INSEAD, the Business School for the world, today announced that two of its professors, Karan Girotra and Serguei Netessine, launched a new book entitled The Risk-Driven Business Model: Four Questions That Will Define Your Company, which addresses a crucial aspect of competitive advantage for modern firms: the very architecture of their business model. How firms are built can determine how well they will succeed in the face of global market challenges. The book reveals how companies can design and adapt their business models systematically to unlock value and game-changing competitive advantage.

In their new book, Girotra and Netessine provide a toolkit to help innovators design better business models to create value and even revolutionise industries by disrupting the status quo. The text’s framework follows what the authors call the “business model audit,” a process of taking stock of key strategic elements of the firm’s structure, followed by the opportunity generation process to identify potential changes in the business model, which they divide into four major parts: the What, When, Who and Why of business model innovation. Girotra and Netessine provide ample examples of their innovation model in action.

It draws inspiration from classical antiquity—notably Archimedes’ famous claim. “Give me a lever long enough, and a fulcrum strong enough on which to place it, and I will move the world,” said the Greek mathematician and engineer.  “Our book aims to show how making even seemingly minor changes to a business model—in the proper way—can lead to major competitive advantages,” says Girotra, Professor of Technology and Operations Management, whose research has focused on innovation. Girotra, a former entrepreneur with multiple successful exits, works with both startups and established companies to define their innovation strategies.

In the book, the INSEAD thought leaders outline how to transform a company by revisiting the assumptions around the firm’s key decisions.  ‘The Risk-Driven Business Model is about building business models that are informed by a robust understanding of risk’, says Netessine, The Timken Chaired Professor of Global Technology and Innovation.

“Your business model’s design will either increase or decrease two characteristic types of risk—information risk and incentive alignment risk,” says Netessine, an innovation expert with extensive experience in consulting governments, large corporations, and advising prominent start-ups.

He and Girotra define information risk as a challenge that requires business leaders to make decisions even when they lack sufficient information. Incentive alignment risk, on the other hand, involves risks that arise when one’s business model conflict with the broader interests of a “value chain”—such as a network of partners or suppliers.

“Information risks most often occur within an organization (or between an organization and its customers), whereas incentive alignment risks typically occur between or among two or more organizations,” write Girotra and Netessine.

The co-authors admit that business model innovation (BMI) per se is not a new concept, but rarely has it been approached in a systematic way or in a way capable of being developed into a well-defined and orderly process that can be repeated.

“Our book emphasizes the importance of BMI as a discipline within firms, a practice that strengthens innovation and resilience in a challenging market,” say Girotra and Netessine.

They acknowledge that BMI can prove more challenging—though no less critical—in established firms as compared with start-up ventures. Established companies, they write, can be “captives of their industries’ entrenched ways of doing things.” Still, the INSEAD professors note that enhancing one’s business model to secure competitive advantages entails relatively lower degrees of difficulty and uncertainty than traditional forms of product innovation. As a result, firms can gain value through BMI without creating breakthrough technology or a brand-new market.

The keys for successful business model innovation, say Girotra and Netessine, involve changes of WHAT major decisions are made in a business, WHEN those choices are made, WHO makes them and WHY those people make the decisions they do. By changing a company’s approach to those choices, say the co-authors, a firm fundamentally changes the risks involved and can invent a stronger, more resilient business model. “Many businesses are not very good at ‘self-disruption’ that can lead to new value creation. Business model innovation is a powerful tool for changing that track record,” say Girotra and Netessine. “After all, it’s much better to disrupt yourself than to have it done to you on somebody else’s timetable.

For more information about the book: http://www.defineyourcompany.com