Executive Interviews: Interview with Prof. John T Delaney on Business Model Innovation
April 2009 - By Dr. Nagendra V Chowdary

Prof. John T Delaney
Dean, College of Business Administration and Joseph M. Katz Graduate School of Business.

• A few existing companies come out with a steady flow of innovations. For instance, Virgin, Google, P&G, Apple, etc. How do you distinguish a product or process innovation from a business model innovation?
  Business model innovations are more general than process or product innovations. At the same time, if a firm understands its business model, it may be irrelevant what we call the innovations it choose. Such innovations may simply be termed successful.

• Through its ‘Design Thinking’ initiative and other initiatives, P&G was able to instill a new innovation DNA in its organizational culture. How should companies go about fostering an innovation culture, wherein innovation is no longer the prized prerogative of only the R&D department and it can come from any corner of the company?
  P&G is a good example of a firm that can afford to foster changes in its culture and has chosen to drive such change. Underlying the approach is a focus on the organization’s strengths and a recognition of changes taking place in the marketplace. Other organizations have less latitude or less courage to change a model that seems to be working today. Look at the number of financial institutions, full of smart analysts and MBAs, that lost extreme sums of money investing in subprime mortgages. Managers sometimes become shortsighted when the current approach seems to work. This also means that anyone (from anywhere on the planet) with a good understanding of a business model and a plan can create a franchise.

• Many new companies come with innovative business models. However, only a very few actually succeed in the marketplace. Why is it so difficult to carve a success out of a well-planned business model?
  As noted above, success is in the details. A strong business plan must be created to leverage the resource potential of the model. In addition, other factors need to come into alignment for some new models to succeed. The field of alternative energy is being held back by existing business models in the US electric utility industry. A great business plan for residential customers may fail because the industry business model has not evolved to the point that customers can capitalize on the value in their business plan.

• Is there difference between business model creation for a small company and a larger company? For instance, in the US, there are approximately 25 million small business owners, who create approximately 70% of all jobs in the country. Some of them go on to become listed companies and also increase their scale and scope of operations. Many others remain for years as they were when they had started out. Is this difference anything to do with the business model creation and execution?
  No. The failure rate for new businesses is greater than that for established and larger companies. Success depends on having a plan that is in alignment with a valid business model.

• What is the role of leadership and what should be the leadership initiative in creating/ innovating business models?
  Leaders must first understand the business model that drives their firm’s success. Some of the recent publicly documented business failures suggest that we cannot assume that leaders have this understanding. Indeed, the elevation of corporate leaders (CEOs) to the lofty levels and salaries of today may make it more difficult for them to generate business model or product or process innovation. Such vision cannot be ordered or managed in ways that Wall Street desires. It must be cultivated and outstanding leaders provide room for such cultivation. To me, leaders today must have more humility than has been the case in recent years. Because our executive selection systems probably view humility as a weakness rather than a strength, it is probably in short supply in the executive suite. Now, why is this an issue? In existing organizations, new business models must prevail over the existing and entrenched ones. A leader must be comfortable enough to question the current model and path knowing that some constituencies will level strong criticism. A leader must be willing to encourage smart organizational members to create better models, to support tests of those models, and to implement changes that are warranted by the tests. We need to recognize that leaders don’t singlehandedly create results.