Sunday, January 18, 2009

Business model innovation vs new business models: - organizational implications

"New ventures within established organizations are best created as separate units. In fact, they should be built as though they are startups coming together from scratch. "

Chris Trimble is making this conclusion when discussing the newspaper industry with regard to the print and online operations. He declares two reasons for his conclusion:

"First, new ventures face much greater uncertainty, and, as a result, everything that established companies think they know about planning and assessing business performance gets turned upside down. Second, major business model change simply does not happen without sharp organizational change."

I believe Chris is both right and wrong. Yes, new ventures face a higher risk. That is an obvious statement. A new venture It does not have a track record. No customers. No nothing. It's just an idea that we are trying to commercialize. Priorities are different in infancy compared to maturity, but a new venture is still a business and should be run like one.

I agree with Chris's second reason but I would state my conclusion slightly differently:
  • New ventures within established organizations are best created as separate units, if the venture is based on a new business model.
  • New ventures within established organizations should not be created as separate units, if the venture is based on business model innovation.
Why? Because when the company offers a new value proposition they need a new business model. A new business model equals new knowledge, new operations, new customers or new customer segments, new supply chain etc. Hence it makes perfect sense to set up the venture as a new unit or as a start-up company.

When the company "simply" make changes in the existing business model it's called business model innovation. The value proposition does not change, though different parts of the business model change. Creating a new organization for the business model innovation makes no business sense as it creates confusion for all parties involved, from employees to customers.

And here is the key, in my opinion, to understanding why the newspaper business is consolidating their print and online operations. They did not understand the principles discussed above. Instead of viewing the online operations as a new business model, they should have viewed it as a business model innovation, and have incorporated the new operations in their existing organizations. This way they would have saved tons of money by not having to re-organize their companies two times, first by starting up new venture organizations and later by consolidating these ventures into their regular operations.


  1. Tja!
    Could you elaborate more on a new business model versus business model innovation?

    As innovation per definition is a new way of doing something, may it be incremental or radical, business model innovation should per definition create a new business model or?

    TheBusinessModelDatabase (

  2. Hi Anders!

    Good question! If we start with a definition of a business model: "a representation of how an organization makes (or intends to make) money."

    For me a new business model would be to have a whole new value proposition, while the value proposition would be more or less the same in business model innovation. Instead you would change all the other parameters, i.e customer relations, financing, infrastructure. Hope that clarified my thoughts.


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