Business Model Innovation: Concepts, Analysis, and Cases by Allan Afuah. Routledge, 2014. 358 + xvi pages. US$73.95 (soft cover).
As anyone who works in innovation knows, the world is changing rapidly. Not only is technology advancing at a faster pace than ever, global markets are opening and shifting at a breakneck pace as well. Keeping up with existing customers is a challenge yet companies must also be innovating to sustain growth in this new paradigm. Beyond product and service innovation, business model innovation can secure a firm’s place in a rapidly changing global marketplace.
Allan Afuah’s new book, “Business Model Innovation,” is a guide to unlocking processes and capabilities for growth. He expands Mark Johnson’s definition of business model innovation  to include the customer value proposition, market segments, revenue models, growth models, and capabilities (Chapter 1). With market segments, the author also recognizes a parallel growth trend in new product and service development – open innovation. Market segments include the group of customers to whom a new value proposition is offered and characteristics (number, willingness to buy, etc.) of that group. Additionally, market segments of a business model should recognize suppliers, complementers, competitors, and others that lead to value creation (pg. 6).
The book is divided into four parts with Part I (Chapters 1 and 2) focusing on definitions and frameworks applicable to business model innovation. For example, Chapter 2 introduces the VARIM framework which Afuah uses to assess the value of a business model. VARIM represents the value, adaptability, rareness, inimitability, and monetization of a product, service, or idea. A case study of Google’s paid advertising is presented to emphasize the VARIM framework for a well-known business model.
Part II addresses the external elements of a typical SWOT analysis – opportunities and threats. While a basic understanding of macroeconomic principles will make this section more enjoyable to read, Afuah does a good job explaining fundamental economic concepts for application to business model development.
Chapter 3, for instance, encourages companies and individuals to recognize and capitalize on the “long-tail.” While most product and service inventions focus on high price /profit offerings to a select market, lower margin goods with low market selectivity can also be profitable. By shifting the long-tail, companies can effectively tap into underserved customers who were previously unable or unwilling to purchase existing products or services. This chapter, as well as Chapter 7, is highly reminiscent of Clayton Christensen’s theory of disruptive innovation .
Open innovation takes a leading role in Afuah’s vision of business model innovation. Crowdsourcing, social media, and “less-is-more” all garner significant attention in the book. Chapter 4 offers a nice introduction and summary of current thinking in crowdsourcing, co-creation, and competitions for innovation. Chapter 5 links the business model framework (customer value proposition, market segments, revenue model, growth model, and capabilities) to a case study of Twitter. Meanwhile, Chapter 6 discusses the concept of “less-is-more” by scaling back product features and serving the long-tail customers.
Internal components of SWOT (strengths and weaknesses) are the focal point of Part III of “Business Model Innovation”. The four chapters in Part III discuss capabilities, value creation, first-mover advantages, and business model implementation. Chapter 10 should be particularly interesting to new product development practitioners as it addresses not only the advantages and disadvantages of a first-mover, but also describes traditional handicaps of incumbent firms in disruptive innovations. First-mover advantages allow a firm to preempt markets and to set product standards, for example.
Just one chapter on globalization comprises Part IV, Applications. While might imply a lack of examples, it is not true. Afuah follows with twelve specific business case studies in Part V. The case studies cover consumer goods, technology products, pharmaceuticals, entertainment, and health care. A history of the industry and company are provided in each scenario, but the reader is left with the task of mapping the story to the business model and VARIM frameworks.
“Business Model Innovation” is a timely text and provides the reader with a good background on business models. Unfortunately, like many books on innovation, historical recognition of what works is presented at a higher level than what can be done to foresee effective business model innovation (recognizing that this is easier said than done!). With that said, however, Afuah does a better job than most authors by describing – in detail – elements of the business model and by giving many, many excellent examples of success. “Business Model Innovation” is recommended for new product development professionals and managers working in strategic innovation. This book was the focus of the LinkedIn Innovator’s Book Club and full discussion questions are available here.
M. W. Johnson, Seizing the White Space, Boston, MA: Harvard Business Press, 2010.
C. M. Christensen, The Innovator's Dilemma, Boston, MA: Harvard Business School Press, 1997.