According to BCG, Business model innovation is the art of enhancing advantage and value creation by making simultaneous—and mutually supportive—changes both to an organization’s value proposition to customers and to its underlying operating model. Professors Girotra and Netessine, economists of Cornell and Wharton universities, have presented a framework for identifying opportunities and becoming systematic about the process of taking business model innovation to the level of a reliable and improvable discipline.
Since business model innovation comes down to make changes to the decisions of how a business earns its revenue, incurs its costs, and manages its risks, it should be seen as a continuous process, rather than an organizational project task. Additionally to the procedural aspect, comes another pre-condition for sustainable business model innovation: decentralization. Decentralization entails the non-existence of a central authority that aggregates power and defines all decision making, as well as the necessity to collaborate. Working in a decentralized network, all participants must co-ordinate their individual responsibilities and work packages and they have to agree upon a governance framework that allows for defining the rules and processes within the network.
At first sight, decentralization is nothing you would expect to take place in a typical enterprise. Typically, companies or other organizations are hierarchically structured, with strategy and major decisions defined by an executive level, and lesser important aspects organized downwards in the org chart. Some organizational structures, e.g. the matrix organization, have implemented elements of decentralization. However, you won’t find a traditional organization besides cooperatives, that would do without a top-down command chain.
Since I have never been a huge fan of classic centralized structures, Blockchain technology has been warmly welcomed. For the first time, there is a foundational technology that allows for decentralized structures and processes in the real world — by leveraging its inherent components of trustlessness, immutability, and security. For me, Blockchain is the paradigm shift that is needed to build and develop future businesses that are aligned with the Sustainable Development Goals. In decentralized systems, enterprises become part of an overall protocol to which they add their organization-specific elements, s.a. brand, expertise, products, and services. There are mechanisms ensuring that each participant receives a fair return on investment into the network, depending on their contributions.
The Next Level Of Business Model Innovation — The Decentralized Network
On the basic level of a decentralized system, all participants collaboratively build, develop, and maintain foundational aspects of technology, legal, regulatory and organizational affairs. On the second level, participants coöperate to run transactions in the decentralized network. On the third layer, participants can compete with one another, building their individual applications on top of the jointly created platform. This 3‑layered Network Model is sustainable and resilient against economic downturns. However, it is far from being easily created. The challenges of setting up such a model mostly lie in overcoming the traditional beliefs of many top-level, and most middle-level managers in enterprises, who try to preserve legacy organizational structures and processes. For them, terms, s.a. open-source, decentralization, or collaboration sound harmful to the economy, or at least they are signs of weakness: who would collaborate or share IP if profits should be maximized when used proprietarily?
The simple truth is, that the size of the economic cake isn’t fixed. And, the more enterprises collaborate, the lower their fixed costs. In other words, collaboration pays-off. It does not only pay-off but is an indispensable presupposition for environmental-friendly, sustainable businesses. While many large enterprises have learned that cooperating on individual levels makes sense, only a few of them are ready to move to the next level and integrate not another model in their organization, but — vice versa — integrate their organization in a new (business) model. I think that a generally more negative economic outlook, combined with the actual COVID-19 pandemic, will motivate more enterprises to think about entering the new level of business model innovation, and to join decentralized networks in their respective industries.