Business Model Innovation (Book Review)

Business Model Innovation: Concepts, Analysis, and Cases by Allan Afuah. Routledge, 2014. 358 + xvi pages.  US$73.95 (soft cover).

Many chemical engineers spend their entire careers in technical positions, while others will be promoted to supervisory roles, middle management, and even to executive leadership positions. In all cases, however, chemical engineers are called upon to innovate.

Innovation is often associated with designing and developing new products or improving an operating process. Yet, innovation really starts with the question of why the business exists in the first place. Directing our technical development activities to align with the organization’s purpose is at the heart of Business Model Innovation. This is the title of a new book by Allan Afuah.

In Part I of Business Model Innovation, Afuah defines the framework for a business model: customer value proposition, market segments, revenue models, growth models, and capabilities. For any product or process to be successful, the elements of a business model must be properly designed and synchronized.

Chapter 2 of Business Model Innovation offers a tool, called the VARIM model, to help engineers and managers evaluate the potential success and profitability of a new business innovation. VARIM stands for value, adaptability, inimitability, rareness, and monetization. One of the ways to take advantage of these characteristics is to establish strong intellectual property for the firm’s technologies. A second way is to capture first-mover advantages by pre-empting the competition (Chapter 10).

Parts II and III are organized according to a SWOT analysis of business models. Part II addresses the external factors (opportunities and threats), while Part III tackles internal elements (strengths and weaknesses). Social media, crowdsourcing, and disruptive technologies are all current topics leading to new opportunities in the way we develop products and improve operating processes. Chapter 6 in this section is a great reminder for engineers that “less is more.” The concept of simplifying products and processes is powerful, and can lead to substantial profits for a firm.

Internal factors (strengths and weaknesses) in Part III largely address the organizational capabilities. Chapter 9, for example, describes a short economic model to illustrate value capture (customer’s viewpoint) and value creation (company’s perspective).  Understanding the value of our products and process design work as engineers is also important to our personal success in the long run.

Part IV of Business Model Innovation describes globalization and various approaches to our rapidly changing world. Because most chemical engineers today work in global teams or with global process implementation, this chapter may be of special interest.

Finally, Part V provides a series of twelve business model case studies. These case studies range from technology and gaming to pharmaceuticals. Engineers of all stripes will enjoy these educational scenarios that emphasize key points from the main text. Understanding the framework of a business model in theory is one thing, but following an example from a nascent idea (e.g., mailing videos) to a blockbuster business (Netflix) allows engineers to apply the VARIM framework from theory.

While Business Model Innovation is not a traditional engineering book, chemical engineers can benefit from reading and acting on the information presented by Allan Afuah. It is an especially insightful text for engineering managers looking for growth in product or service development and process improvement.

Do you know what your company or division’s business model is?  How does this business model frame your work activities?