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Creating Value Through Business Model Innovation

Companies are increasingly turning toward business model innovation as an alternative or complement to product or process innovation. This article defines a company's business model as a system of interconnected and interdependent activities that determines the way the company "does business" with its customers, partners and vendors. In other words, a business model is a bundle of specific activities — an activity system — conducted to satisfy the perceived needs of the market, along with the specification of which parties (a company or its partners) conduct which activities, and how these activities are linked to each other.

Business model innovation can occur in a number of ways: (1) by adding novel activities, for example, through forward or backward integration, (2) by linking activities in novel ways, or (3) by changing one or more parties that perform any of the activities. Changes to business model design can be subtle; even when they might not have the potential to disrupt an industry, they can still yield important benefits to the innovator.

The article offers a number of examples of business model innovation and poses six questions for executives to consider when thinking about business model innovation.

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