Mercado

Business Model Innovation
The Strategy of Business Breakthroughs
by

By Langdon Morris

reprinted from

International Journal of

Innovation Science

Volume 1 · Number 4 · December 2009

Multi-Science Publishing
1757-2223

191

Business Model Innovation
The Strategy of Business Breakthroughs
By Langdon Morris

•
•
•

Co-Founder, InnovationLabs LLC
Senior PracticeScholar, Ackoff Center for the Advancement of Systems
Approaches (A-CASA), The University of Pennsylvania
Senior Fellow, Economic Opportunities Program, Aspen Institute

Abstract
While a commonly-held mental image suggests that big corporations live very long lives,
the reverse is actually true quite often, and the lifespan of companies is decreasing as the
rate of change increases. Thesituation of accelerating change places ever greater
challenges before each and every company, and while innovation is obviously a response
to this dilemma, it turns out that not all types of innovation are equally valuable. Business
model innovation, the subject of this paper, has proven to a tremendous source of
competitive advantage. This paper examines many dimensions of business modelinnovation, focusing particularly on the relationship between a company and its
customers, and the methods that companies use to grasp the bigger picture, or whole
system perspective, that enables them to understand how their enterprise relates to the
larger industry and broader economy in which it operates.

INTRODUCTION
The average lifespan of a major corporation isn’t very long. If current trendshold, only one-quarter of
today’s S&P 500 companies will be part of the index by 2020, and the other three-quarters probably
don’t even exist yet.1
In today’s turbulent markets, companies that were once dominant are struggling to survive, and
managers are constantly probing to understand what makes the difference between success and failure.
Looking at today’s companies, for example, we mightask why the market capitalization of Southwest
Airlines is greater than that of United, American, Delta, and Northwest Airlines combined? Why is
Toyota’s Scion subsidiary successful while GM’s Oldsmobile, Pontiac, and Saturn units were put out of
business? Why are Fedex, Charles Schwab, and Home Depot widely admired while dot-com boomers
Webvan and AtHome and Netscape are gone, and Enron,WorldCom, Xerox and apparently quite a few
others resorted to falsified accounting to preserve the illusion of success when failure loomed?
There’s a story behind each of these business successes and business failures. Sometimes it’s a story
of a great idea; sometimes it’s one that failed. Sometimes it’s a story of insightful management, or
management that failed. But almost always it’s a storyabout change. Change in the market; change in
the economy; change in a particular product or service that transformed a failure into a success, or vice
versa. Hidden behind many of these changes, or sometimes as a result of them, there is a change in what
the customer experiences, and as a result, a change in their perceptions and attitudes.
While we study the stories to learn about thespecific changes, events, insights, and breakdowns in
each case, we also look for broader and deeper explanations that show how change applies across
industries and the whole of the economy.
The broader patterns are the subject of this white paper. Here we propose a specific model
explaining how large companies create and sustain market leadership, or the traps that they fall into that
prevent themfrom doing so.
Part I: The Mortality of Companies
The capacity of organizations to adapt to rapid and unexpected change is frequently discussed, but
managing for adaptability is a little understood and poorly practiced art even as the pace of change
1Richard

Foster and Sarah Kaplan. Creative Destruction. Currency Doubleday, 2001. P. 14.

Volume 1 · Number 4 · 2009

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Business...