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Growth through innovation - Refresh your business model regularly to achieve competitive advantage - EY - Global

Innovating for growth: a spiral approach to business model innovation

Refresh your business model regularly to achieve competitive advantage

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In a global economy, the major block on progress is protectionism.

Companies that alter their business model are more likely to achieve a sustainable competitive advantage.

It is much more difficult for a competitor to copy a business model than it is to replicate products or services. “Enterprises need to be more platform-oriented — continuing to innovate the business model — in order to be able to transform faster,” says Markus Heinen, Performance Improvement Advisory Leader for Germany, Switzerland and Austria at EY.

Today’s most innovative companies have changed their business models from a set focus on geographies, local markets and products to a dynamic focus on:

  • Customer experiences
  • Value generation
  • Problem-solving

In a global economy, the major block on progress is protectionism: the disrupter for this is collaboration. Innovation leaders can further economic progress by collaborating with a broader group of peers, including consumers, suppliers and competitors, leading to further innovation in business models.

Supporting “managed” innovation

At Zytek Automotive, a UK-based clean-vehicle technology specialist, the ownership structure favors innovation that achieves a balance between the investment needed for it and profitability.The chairman and founder of Zytek has an equal share of the firm’s ownership with Continental, one of the largest Tier One automotive suppliers in the world.

“Being owned by a company used to quarterly reporting and monthly performance figures, we don’t do innovation for innovation’s sake,” says Neil Heslington, Managing Director of Zytek.

“Innovation has to result in a product that achieves revenue for further investment in R&D. So, it’s a question of getting the balance right between the appropriate investment and realizing the benefits from it.”

Zytek has won investment from the UK government’s Regional Growth Fund (RGF) in the Midlands, through which the company will develop an electric powertrain technologies center. In addition to funding R&D, the RGF provides funding for training activities, helping to ensure the success of the investment.

Sharing risk and reward

Boston-Power does not base its business model on traditional contract manufacturing agreements but on business partnerships with shared risk and reward.

“In a capital-intensive industry, this solved a major funding issue, enabling us to access spare capacity on manufacturing lines, paying a contract manufacturing fee per battery,” says CEO Lampe-Onnerud.

“We also included some of our management in the team to co-lead the factory to ensure work quality. It was a financial win-win. We were able to enter a capital-intensive industry through scalable manufacturing, while for our partner; we absorbed some of the costs associated with switching over to our product, including yield losses involved.”

Collaborating with competitors

Companies in the same industry can unite to create a shift in consumer habits or spearhead the development of a common technology platform. This involves careful management of intangible assets and requires that companies:

  • Make rigorous decisions on their IP
  • Collaborate in areas where there are complementary capabilities
  • Protect strategic intellectual property

“A lot of our partners are in some ways also our competitors,” says the managing director for Greater China of a US-based telecom company. “When you look at big companies, typically they will be partnering in some cases and competing in others. It’s part of developing the market as a whole and ensuring that you don’t become so much of an outlier that you are beyond the spectrum of consumer behavior.”

Creating an independent licensing and royalty model

ARM Holdings was formed 22 years ago in the UK as a spin-off from two competing technology companies for whom collaboration was not possible.

ARM was created to exploit the low-power chip design for handheld computers, based on a licensing and royalty model for the two companies involved. The revenue from this model has supported the further development of ARM’s own microprocessors, which now have a 95% market share in mobile phones.

Developing a new paradigm for R&D

With social media playing an increasing role in the commercial landscape, consumer-led growth plans are driving companies to become more interactive to gain a wider perspective on what the customer wants.

A new paradigm for R&D is emerging:

  • Internal inputs
  • Consumer data
  • Social media analysis
  • Customer insight

Companies can achieve this with the spiraling approach to innovation, where internal R&D expertise meets external customer input.

In high-performance industries, this push-pull combination is particularly important. Zytek’s Heslington explains, “I think things are changing, not purely from R&D-led to consumer-led, but to a blend. If innovation comes from a customer requirement, you have the advantage of an end market but the disadvantages of limited time and budget.

“If you are not working to a customer request, the end market has to be pursued through R&D enriched by customer data and insight.”

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EY - Growth through innovation - A spiral approach to business model innovation

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  • Maria Pinelli
    Global Vice Chair
    Strategic Growth Markets
    +44 (0) 207 980 0960

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