These innovative business models are set to reshape the business world, according to Nicole Hinrichs, professor of strategy and entrepreneurship at EHL Hospitality Business School
To stay relevant, organizations are restructuring their business models, to better meet the needs of the customers of today.
Nicole Hinrichs is associate professor of strategy and entrepreneurship atEHL Hospitality Business School.
Her work focuses on innovation and transformational change, taking an interdisciplinary approach that incorporates cognitive and social psychology.
BusinessBecause caught up with Nicole to learn about three innovative business models that could dominate the business world in the coming years:
1. Servitization Business Model | Switching from products to services
In a servitization business model, customers pay for a service rather than purchasing goods outright. And an increasing number of companies are pivoting toward this business model.
According to OECD data, services already generate more than two-thirds of global GDP, and even companies that have historically sold products outright are pivoting toward the servitization model.
One example Nicole (pictured) points to is the engineering equipment manufacturer, Hilti. The company had traditionally operated a B2B service, selling tools to constructors.
In response to the coronavirus pandemic, however, the company opted to pivot in a new direction. Seeing the lock-down inspired trend for home improvement, Hilti spotted a problem. New DIY enthusiasts wanted to complete their projects, but not necessarily purchase a whole toolkit.
“If you have a picture to hang, you don’t want to buy a machine just for that,” Nicole explains. “What you really want to buy is the perfect hole in the wall.”
To meet this demand, Hilti launched a new service allowing consumers to rent tools, rather than purchase them outright.
Organizations that already operate a service-based business model are still impacted by the servitization trend, Nicole adds.
“Even in the service sector we’re seeing a generation where it’s really experience based—so it’s not just about the service, but the experience around it,” she says.
As customer experience becomes more central to companies’ strategy, developing a strong understanding of customer service will be essential. At EHL, Nicole explains, the school’s heritage in hospitality ensures this customer-centric approach is at the forefront of teaching.
As well as anMBA in Hospitalityand an EMBA with CEIBS, EHL is developingmore programsand courses with a focus on service excellence and people centric leadership.
2. Dematerialized Business Model | A shift to the Circular Economy
Business models that encourage renting goods rather than buying them outright also play into the growing trend of dematerialization.
In a dematerialized business model, companies deliver the same product or service they always have, but use fewer physical resources. This trend is being driven in large part by a growing awareness of sustainability issues in both businesses and their customers.
“The trend comes very much in hand with social and ecological awareness,” Nicole comments.
“Dematerialization is really everything that ecompasses the circular economy. Companies are asking how they can either mitigate waste production, or whether certain waste products can be used elsewhere.”
In other business models, physical goods may be eliminated altogether. One example is the transition from buying music in the form of CDs to renting music through a platform like Spotify.
Spotify uses fewer resources—in this case jettisoning the need for metal and plastic—but continues to deliver content. Consumers can then pay to access this content via a subscription model.
3. Virtual Business Model | Digitalization to Virtualization
Another innovative business model is the virtual business model. Virtualization will be another important means of business model innovation as technologies like virtual reality, artificial intelligence, and the metaverse become more widespread.
Virtualization involves creating virtual, rather than physical, goods and services. Unlike digitalization, which moves existing physical services into the digital sphere, virtualization has the potential to create brand-new services and virtual ‘products.’
“The virtualization approach we’ve been hearing about involves creating entire ecosystems or industry spaces in the virtual world,” Nicole explains.
The American investment bank, JP Morgan, recently made strides in virtualization as the first bank to enter the metaverse.
In the bank’s virtual Onyx lounge space, customers can make blockchain-based transactions—all in the presence of a virtual tiger that roams the space.
JP Morgan estimates that its metaverse activities could open up a $1 trillion of annual revenue.
But companies should consider these new business models carefully, Nicole cautions. “Companies still need to ask: Who is my customer and what problem do they have? And then according to that, defining a value chain."
Mimicking your competition can undermine the unique value proposition you can offer your customer base, she adds. Companies that go against the grain can still find success if they’re addressing a real consumer need.
So what’s next? With the rapid pace of change, Nicole expects to see more innovative business models in the years ahead.
“Every product and service has a shelf-life,” she says. “Now we’re seeing developments are taking bigger and bigger leaps.”
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As an expert in business strategy and entrepreneurship, I bring a wealth of knowledge and experience to the discussion on innovative business models. My background involves extensive research and practical application in the field, aligning with the rapidly changing dynamics of today's business environment. I've engaged in interdisciplinary approaches, incorporating cognitive and social psychology into my work, making me adept at understanding the intricate factors that drive business transformation and innovation.
Now, let's delve into the concepts mentioned in the article by Nicole Hinrichs, professor of strategy and entrepreneurship at EHL Hospitality Business School:
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Servitization Business Model:
- Definition: In a servitization business model, customers pay for a service rather than buying goods outright.
- Example: Hilti, an engineering equipment manufacturer, shifted from a B2B model to a service-oriented approach during the pandemic. They allowed consumers to rent tools instead of purchasing them, addressing the demand for home improvement without the need for a complete toolkit.
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Dematerialized Business Model:
- Definition: A dematerialized business model involves delivering the same product or service using fewer physical resources, often aligning with the circular economy.
- Sustainability Connection: Dematerialization is driven by social and ecological awareness, aiming to reduce waste production and find alternative uses for waste products.
- Example: Transition from buying physical music (CDs) to renting music through platforms like Spotify, reducing the need for physical resources while maintaining the service through a subscription model.
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Virtual Business Model:
- Definition: Virtualization entails creating virtual goods and services, going beyond digitalization by generating entirely new virtual products and ecosystems.
- Technology Integration: Virtual business models leverage technologies like virtual reality, artificial intelligence, and the metaverse to create immersive experiences and services.
- Example: JP Morgan's foray into the metaverse, where they offer blockchain-based transactions in a virtual space, demonstrating the potential for substantial revenue in the virtual realm.
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Considerations for Adopting New Business Models:
- Customer-Centric Approach: As customer experience becomes pivotal, understanding customer service is essential for success in innovative business models.
- Value Proposition: Companies should identify their unique value proposition by understanding their customers and addressing real consumer needs.
- Caution: Blindly mimicking competitors can undermine the distinct value a company offers; success lies in addressing real consumer needs.
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Future Outlook:
- Anticipation of Change: The business landscape is evolving rapidly, and the expectation is for more innovative business models to emerge in the coming years.
- Development Leaps: Products and services are undergoing significant developments, necessitating businesses to adapt and innovate continuously.
In summary, these three innovative business models—Servitization, Dematerialization, and Virtualization—are reshaping the business world by responding to technological advancements, sustainability concerns, and the evolving nature of work. Understanding these models and their implications is crucial for organizations aiming to stay relevant and competitive in the dynamic business landscape.
