The Foundational Elements of Business Innovation

When launching a business, besides aiming for profit, the main objective is to create value. To achieve this effectively, the business structure must be refined and continuously evolve to translate its core processes into effectively and uniquely meeting consumer needs. This concept relates to business model innovation, which involves actively creating and capturing value for stakeholders by redefining the business model. The framework for business model innovation includes four key areas: value proposition, operational value, financial value, and human capital.

The value proposition concerns the purpose behind what you are providing to consumers which is determined by consumer needs and the perceived value compared to what is being offered. It addresses the “why” questions such as why offer the product/service, why should people choose and purchase your product/service and why target specific groups. Innovation for the value proposition, generally, requires one to take a user-based perspective and further involve them in the development of the business. By doing this, you are actively capturing the needs of the user by assessing how they react to what is being offered allowing the business to align the value proposition to observable needs.

Next is operational value which focuses on the elements that address the “what” questions. The key elements involve configuring key assets, specifically arranging project tasks, securing strategic relationships and optimising distribution channels that ensure the delivery of the value proposition. These being considered; it is crucial that they are tailored to the specific processes of the business to optimise value production.

Following this is human capital which involves the “who” behind the core processes. It places focus on the engagement of competent individuals within the business by prioritising organisational learning efforts which align with specific skills and characteristics of different individuals. Moreover, human capital is concerned with maintaining and improving competency, doing so by providing necessary incentives and relevant training to individuals as drivers of change.

The fourth element is financial value, addressing the “how” behind business model innovation. The primary elements that are necessary for contributing to financial value include revenue streams, cost structure, cash flow and surplus margins which all combine to effectively capture value. Further, by assessing the financial viability and profitability of a business, it contributes to better informed decisions regarding pricing mechanisms and cash flow schedules.

Overall, what is crucial to understanding and executing on business model innovation is the ability to adapt. The four key elements provide a framework foundation for which innovative solutions can be applied. However, evolution or revolution can only occur through research, development and experimentation.