When you think of innovation it’s easy to slip into thoughts about some new technology or other.  Of course, that isn’t the be all and end all of innovation whatsoever, and it certainly isn’t the most important kind.

I’ve written previously about the valuable role process innovation often plays in converting new technologies into something useful and valuable in the way we work and behave.  What’s more, whilst buying a new piece of technology is often incredibly quick, changing our processes and behaviours often takes considerably longer.

We have technologies emerging that can fundamentally change the way our organizations operate, but too many organizations are simply dumping these tools onto the same industrial style processes that existed previously.  The social technologies are generally good enough already, it is the organizational processes that will need to evolve for the productivity gains from social business to fully materialize.

Of course, process innovation isn’t the only unloved element of the innovation landscape.  Business model innovation is often just as unloved as the un-sexy sibling of technological wizardry.  A new paper underlines why we should be giving our business models as much attention as our technology however.

The research, led by Wharton’s Raffi Amit, suggests that business model innovation can be especially valuable in challenging times as it usually involves recombining existing resources within a firm rather than expensive R&D.

For instance, the iPod was a change in business model for Apple, because it allowed them not just to make money from selling the gadget, but also from how people are using the gadget.

“Innovation is not limited to the innovation of product [but also includes] innovation of the very way a company engages in business.”

The researchers propose a mnemonic called NICE (Novelty, Lock-in, Complementaries), by which managers could assess the current state of their business model.

The paper found that the process used by IDEO for designing products could equally be applied to that of business model design.  This results in a five phase process approach being created:

1. Observe – how do people use your product or service?  What do they like and dislike about it?  When do they use it and how are buying decisions made?
2. Synthesize – take the information you’ve gathered above and pull it together into something tangible.
3. Generation – you then generate various models of how you could potentially do business
4. Refinement – these models are then refined by vigorous thought and analysis
5. Implementation – before the most robust is then implemented

Of course, this process should never be a one off event but rather an ongoing process of sense and respond.  The paper suggests that to do this requires employees to shift from a silo’d mindset towards something more holistic, whereby they see things from an organizational perspective.

From a managerial perspective, there’s a need to shift away from thinking as design as something that only applies to products towards something that applies equally to business models.

Generally speaking however, organizations lack the capacity internally to undertake this continuous analysis of their business model, and so organizations need to build this capacity in order to stay on top of changes in their environment.

Does your own organization have the capacity to do this?  How important is business model analysis to you?