I have known Dr. William Miller (co-founder of Value Centered Innovation) for a number of years and every conversation with him on business model innovation and beyond has been delightful and insightful. Hers is a quick interview with him on the topic.
[ Note: If you are in the bay area on March 28, you have an opportunity to meet Dr.William Miller as he is the featured speaker at the SIPA event. You can register here and if you use coupon code SIPA25, you will get $5 off ]
Now, to the interview
RS: Is the main purpose of a business model to define how the company will make money?
WM: No business is an island, separate and independent from the society it operates in. Its actions impact not only itself, but a wide range of constituents with whom the business is inter-dependently bound.
In this holistic perspective, the main purpose of a business model is to define the over-arching purpose of a business in terms of the contribution and impact it can make to the larger whole of society, and how it is structured to achieve that purpose.
The normal way of thinking about a business model is “what is the value proposition” it offers. A value proposition is the promise of value to be given to a constituent (customer, client, community, etc.). The source of measuring the “value” is the set of “values” held by the organization and its constituents.
“Values” represent what is most important to us. In an expanded way of thinking of a business model, the value proposition is held within a larger context of personal, organizational, and societal values. As those values might change over time, a value proposition might gain or lose relevance.
For example, as the societal values of environmental sustainability have arisen over the past decade(s), the value proposition of businesses have had to shift to offer “green” products to match those values.
This brings to light the concept of a “business model with a conscience” guided by the highest human values and aspirations for serving that larger whole of stakeholders with whom the business is inter-dependently linked.
RS: What are the main components of a business model?
WM: A business model describes how we create, deliver, and produce value – where “value” includes not just financial flow, but also personal, social, cultural, and other benefits. A business model includes eight factors:
Principles: The purpose and values that shape the model
People: The relationships with all stakeholders
Product: The products and services offered to customers
Process: The systems and practices by which work gets done
Partners: The allied people and organizations who enable the model
Planet: The means of sustaining the earth’s resources
Prosperity: The flow of benefits and well-being
Proposition: The promise made to constituents
Any one or two of these factors can be the driving force(s) for the business model. For example:
• Charles Schwab disrupted the brokerage industry in the 1970-80s using a business model driven by Principles of high ethics, no conflicts of interest, being trustworthy, and helping everyone become financially fit
• Fuji Xerox took a lead in the electronics industry using a business model driven by Planet considerations, developing a line of copiers that minimized the use of new raw materials while also minimizing emissions from manufacturing them
• Dell Computers changed the way the personal computer industry operated using a business model driven by Process innovations in manufacturing and inventory, offering customized computers assembled according to a customer’s own specifications
• The Grameen Bank (Bangladesh) revolutionized banking services using a business model driven by People considerations: how to extend banking to, and create employment opportunities for, poor men and women
RS: What are the larger considerations to defining and innovating a business model?
WM: There are many assumptions about the purpose/goals of business in general, and about the nature of life in society, that always form the foundation for a business model. Over the past 125 years, four co-existing contexts have emerged: rationalist (from the early 1900s), humanistic (from the 1950-60s), holistic (from the 1970-80s), and spiritual-based (from the 1990s). The first consideration for business model innovation is to be conscious, clear, and explicit about which context and set of assumptions will drive the business model.
The second, larger consideration is to define the larger scope of outcomes you strive for. Eastern cultures call for a multi-level definition of personal and social prosperity that occurs within the bounds of harmony within creation, and for fulfillment of desires within the bounds of fulfilling our higher human nature.
Keeping our ambitions and intentions for prosperity and fulfillment of desires within the bounds of harmony with creation and fulfilling our higher nature – these are essential for a healthy business and society.
RS: Is business model innovation a subject only for top level executives?
WM: A person might play a role in their company’s business model in various ways, such as researching a new product, marketing a service, developing the company’s talent base, providing customer service, streamlining a work process, ensuring quality, conserving natural resources, serving a strategic partnership or even designing the business model itself.
When we understand our own company’s business model – and the recurring need and means to innovate that model – we work more collaboratively and help enable personal, organizational and stakeholder success. We can then participate in anticipating when a new business model is needed to lead or respond to changing market and societal conditions.