Large enterprises that have a linear business modelin which they sell a product or service directly to their customers can innovate through incremental or disruptive tactics. Incremental innovations are ideas and process improvements that provide a measured increase in performance from a current product or offering. On the other hand, disruptive innovations require the complete ‘rethinking’ of the existing enterprise’s business model.
Disruptive innovations typically provide the most impact and the greatest return on investment. However, it’s difficult to allow for the incubation of a disruptive startup within a larger business. The ROI isn’t always clear right away, and it may take a while to pay off. There’s also the risk of your new business model cannibalizing the old one. The benefits of continuing to innovate will eventually flow through to your bottom line. But it’s hard to let your new business grow in the meantime. So, here are a few tips about how best to structure your startup.
There are several types of business model innovation, yet Platform Innovation is the best type to invest in during today. It’s also the type of innovation that is most under-invested in. And considering that in 25 years, as much as 50% of the profits for companies in the S&P 500 will come from platforms, these enterprises need to start getting serious about platforms if they want to thrive in the era of Modern Monopolies.
Incremental innovation can be found in different parts of an enterprise depending upon the organization’s setup. In some instances, there might be an innovation officer and/ or an innovation lab. Anheuser Busch’s “Beer Garage” and Wal Mart’s innovation lab are both located in San Francisco. These initiatives are focused on improving the existing linear business model, not tearing it down and rethinking it for the 21st-century economy.
Platform Innovation opens up a whole new world of possibilities. Enterprises must be comfortable with the prospect that a successful platform business could replace their current business models at scale. What if Hyatt had started Airbnb? In comparison to Hyatt’s recent launch of “The Unbound Collection”, Airbnb started with a lot less money and is now worth almost double Hyatt’s current market cap.
On paper, an existing, linear enterprise has a competitive advantage to kickstart a platform compared to a startup.;