There is a tendency to think of innovation in terms of the introduction and application of exciting, life changing new technologies. People like Alexander Graham Bell and Thomas Edison with the telephone and the electric light bulb, and latterly Stephanie Kwolek and Steve Jobs with Kevlar and the iPhone, have a lot to answer for!
The new technologies that they introduced brought big changes both for work and the home. It would be fair to say that they transformed the lives of millions. Perhaps its not surprising then that in the process these individuals caught the public’s imagination, becoming the model for the innovator as hero – that is the creator of technological marvels.
Reality is normally somewhat different. While single individuals make for a better story, especially if they can be portrayed in heroic terms, the development of new technologies is more commonly the product of teams. Similarly while technology often lies at the heart of an innovation, in fact innovation is about more than new technologies. The internet age and the changes and disruption it has brought in its wake, has increasingly brought another kind of innovation to the fore, notably innovations that involve not merely the introduction or application of a new technology but the introduction of a new business model.
Business models have been described as a ‘recipe for making money’. That’s to say they are the means by which the technological potential of an innovation is unlocked and converted into economic value. To put it in somewhat simpler terms, business models are about finding new ways to get innovation users to part with their money. This has risen to prominence with the growth of the internet because innovations involving the internet are typically new services and it isn’t always obvious or easy to determine just how one will get the consumer to pay for such services. Though that doesn’t seem to have been too much of a problem for some of today’s tech giants like Google, Facebook or Amazon!
Innovations that require a new business model aren’t actually an especially new phenomenon. Innovators have had to do this in the past. When King Gillette in the early years of the twentieth century developed the safety razor, utilizing thin, inexpensive and disposable steel blades, he introduced a new business model: charging a low price for the razor, in order to persuade customers to switch to his innovative new kind of razor, but then charging a high price for consumables in the form of replacement razor blades.
Currently the automotive industry is attracting a lot of attention by virtue of the technological innovations it is beginning to embrace in order to tackle the problems surrounding climate change. These innovations are centred around engines and powertrains, in particular new propulsion technologies that are more environmentally friendly and capable of reducing the industry’s dependence on fossil fuels. Chiefly this involves a switch from vehicles powered by internal combustion engines to ones powered by electric motors. But while electric vehicles (EVs) are grabbing headlines because of the technological innovations they are bringing to the market, behind the scenes or at least beyond the limelight, what may well prove to be more significant innovations in business models are beginning to pop up in the automotive industry.
The French car maker Renault for example has introduced a new business model for its small urban EV the Zoe. With this business model the car and the energy supply have been separated. Thus while the car is sold in a conventional way, the battery can simply be rented on a monthly basis. The advantage that this offers the consumer is that it removes the uncertainty and risk associated with battery technology.
In America Tesla too has introduced a new business model for its EVs. Not only does the company manufacture cars, it sells them through its own network of retailers and distributors who also handle maintenance and repairs. At the same time the company is also engaged in energy supply through its electric charger network. What is novel and innovative about this business model is that it enables Tesla to capture more value from the automotive value chain.
A more radical business model is to be found in Britain or more precisely in Wales. Here in the sleepy market town of Landrindod Wells are the headquarters of Riversimple, a company that recently unveiled a hydrogen fuel cell powered car. Called the Rasa (short for tabula rasa meaning clean sheet), this two seat design weighs in at a mere 580 kgs and features electric motors powered by a fuel cell supplemented by a bank of supercapacitors and regenerative braking. Capable of accelerating from 0-60 in 10 seconds and achieving the equivalent of 250 miles to the gallon, the Rasa represents a radical departure from conventional automotive technologies. But new technologies aren’t the only aspect of the Rasa that is innovative. When it goes on the market in 2019 you won’t be able to buy one. Instead the company plans to lease them charging a fixed tariff plus a mileage fee. The logic behind this novel business model is that the ultra lightweight carbon fibre chassis is expensive to produce and has a long life. Unlike a conventional car it won’t rust! Also, with fewer moving parts the engine and powertrain are likely to be more durable. Long life products are good for the environment because they save resources but they are often expensive. Hence the logic behind this novel business
model, is that it is a way of making it easier for the consumer to acquire the benefits of this environmentally friendly design while also reducing the uncertainty surrounding something new.
Really one shouldn’t be too surprised at what’s happening in the automotive industry. Innovations, especially more radical innovations tend to be disruptive both for producers and consumers. Consequently when major changes are manifest in any industry we shouldn’t be too surprised to find that innovations don’t only involve new technologies but also far reaching changes associated with innovative business models as well.