Everywhere we look, organisations are touting their ability to innovate, to generate cutting edge ideas, to change the game. They’re doing it to stay ahead of the competition which, thanks to digitisation, has changed beyond all recognition. However, if everyone is innovating, is anyone doing anything new? In other words, in the rush to innovate, are enterprises losing sight of what it actually means?
According to ‘Innovating in the exponential economy’, a report from Cass Business School and VMware, being able to innovate does not necessarily mean coming up with something new time and time again – quite often, it is a slight adjustment, rather than a complete overhaul.
This is particularly true when it comes to business models. Think about the most disruptive, agenda-setting businesses – how often is their business model completely different to what’s gone before? Google made the sharing of information worth its while by allowing businesses to pay to feature more prominently – how is that any different to what newspapers have been doing for over a hundred years? Apple didn’t invent the mobile phone, or the desktop, and there were cars before Ford.
What they all did was take something and make it better. The reality is, as the report states, that the most successful ‘new’ approaches are quite often updated versions of established practices. Almost always deploying the latest technology.
Indeed, the speed of digitisation means that new ways are available to companies that might have been closed off historically. Taking from other sectors and industries, they are no longer restricted to just one model, but can apply any number of structures in a variety of combinations to kick start innovation and, ultimately, growth.
This approach is known as the portfolio model.
Show me your portfolio
There are a number of ways companies can adopt a portfolio business model:
- The Market Model. This is where a firm operates in multiple markets simultaneously to target different audience segments, potentially deploying two or three approaches simultaneously to target different audience segments. Luxury fashion lines would be a prime example of this – mindful of the attraction of their brand but unwilling to sacrifice price points, they create diffusion and entry-level lines, perhaps with an emphasis on lower-cost accessories. This allows buyers with less spending power to purchase one set of products, those with more spending power or a greater motivation to buy at a higher level, and true luxury buyers to be targeted with top level of pricing.
- The Product Portfolio. Rather than creating multiple, complementary items (like a clothing manufacturer might do), this model takes a single product and aims to monetise it at different stages of its development or production. A games developer might release a beta version which is free, with participants ‘earning’ an early version of the game once the testing process has completed and a small fee to access the full game. In the wider market, the completed game might then be charged at full price, with additional add-ons and updates costing a nominal amount to increase the experience.
- Multi-sided. With a multi-sided model, different approaches are deployed to engage customers, suppliers, government and other stakeholders as appropriate. So, customers are served directly, but they may also be attracted through interactions with an enterprise’s own suppliers, or via government lobbying. Facebook earns nothing from its users directly but, by being able to offer value to them, it in turn derives revenue by attracting customers who want access to that end consumer. Another, more established example would be a container shipping company. It deals directly with customers wanting to move cargo from point A to point B. To do that, as well as ships, it needs port access. Ports in this instance are a supplier to the shipping company, but at the same time add value to the end customer through their location and abilities.
- Over time. The fourth model requires understanding the lifespan of a product, how it evolves and how each iteration can be pushed out to customers. A band might record and release songs for download (or even to niche audiences as a vinyl record). It then uses those songs as the centre point of live performances, before selling the recordings of those live versions and incorporating them in a broader album. In this way they are selling noticeably different versions of a core product and crossing into selling an experience as well.
In each of these instances, the actual models being used are not new. However, they can be deployed in new settings quickly. Suddenly, enterprises known for one thing are entering new markets with different iterations, giving themselves new audiences and sources of revenue.
The common denominator here is technology. Digitisation is allowing companies to borrow new models and move quickly. Updates to computer games used to take years – now they can be developed alongside the main game and released as downloads. Clothing brands can now sell in a huge variety of locations, from out of town discount centres to own bricks and mortar and e-commerce and everywhere in between. As long as they have the right technology infrastructure in place, one that allows them the flexibility to move quickly and experiment without significant up-front costs, then they can trial and adopt as many models as they want.
Using what works, not what worked
Portfolio models are a change from the traditional one-size approach we’ve seen in the past. Yet digital technologies make it much easier to pick and choose what works now, rather than what worked in the past.
Ultimately, enterprises want to connect with the customer. In the digital era, that means offering the right experience for to the right audience – they expect nothing less. Only through a portfolio model, underpinned by a flexible technology infrastructure, can that be achieved effectively and in a cost-efficient manner.