Business Model Innovation for Social Enterprises
Innovating BMs to foster impact
Focusing on businesses, innovation activities generally move on a spectrum that ranges from exploiting (improving) current models to exploring new opportunities for radical disruption. Here, each business can choose where to place the needle, reshaping its business model accordingly.
Business Model Innovation explained
- target market (the “Who?” of their business models)
- value proposition (the “What?” of their business models)
- operating model and value architecture (the “How?” of their business models)
- revenue model (the “What’s in it?” of their business models)
Types of Business Model Innovation for Social Enterprises
As anticipated, BMI can act on one or more of the following dimensions: the “Who?“, the “What?“, the “How?” and the “What’s in it?” of an existing business model. Let’s now discuss common innovation pathways for each category.
Innovating the “Who?” of a BM
To begin with, social enterprises may leverage existing resources, competences and capabilities to expand their current reach. In most cases, BMI happening at this level relates to:
- looking for new beneficiaries and customers within the same sector;
- looking for new beneficiaries and customers in other business segments and industries.
Similar strategies work best when organizations can easily identify (or even anticipate) trends and overcome those barriers keeping away potential new targets and audiences. BioLite is a great example of that, as this social enterprise understood early on how to use its innovative thermo-electric technology to serve two very diverse segments: outdoor recreation users and off-grid households. Apparently unrelated targets that allowed the company to successfully expand in American, European and African markets.
Innovating the “What?” of a BM
Let’s move onto exploring other opportunities for BMI, especially those impacting on the Value Proposition. This is the dimension where so-called product/service innovations usually take place. Here, socially-oriented organizations can typically choose among:
- Improving performances of existing products/services
- Introducing new functionalities and features to existing products/services
- Changing the way products/services are used by the target
- Developing complementary products/services to existing offerings
- Replacing existing products/services with new ones
As you may see, such options move from improving current models (“incremental innovation”) to radically reinventing them (“disruptive innovation”). Proximity Designs, a Myanmar-based social enterprise, has pretty much experienced them all, since it first improved its initial value proposition and then created over time new, complementary products and services for its target market, adjusting to their evolving needs.
Innovating the “How?” of a BM
Innovating the operating model means rethinking the way we deliver value to both beneficiaries and customers. Thus, it relates to core activities, key resources and strategic partnerships arranged by a social enterprise. The most diffused innovations falling in this category are:
- Introducing new technologies and/or new key resources
- Associating with competitors and “supplementors” (namely, companies offering complementary products/services)
- Modifying, removing or adding steps in the value chain
- Including “impact creation” at one or more steps of the value chain (i.e. employment of vulnerable targets, sustainable sourcing, etc.)
Probably innovations at this stage are among the most radical ones a social enterprise can implement. But benefits may be huge. For instance, Aravind Eye Care reinvented its core processes by adding two surgical tables to every operating room, in order to more quickly and affordably treat blind people in India. Again, RecyclePoints added impact to its value chain, supporting low-income, waste-pickers through economic incentives and empowerment. Thanks to similar innovations, both organizations have been able to magnify impact.
Innovating the “What’s in it?” of a BM
Finally, BMI can also relate to the revenue model itself. Here, main pathways include:
- Changing pricing and/or payment mechanisms for current revenue streams
- Creating new revenue streams
Since impact organizations often deal with vulnerable targets, price increases are quite uncommon in social entrepreneurship, especially when beneficiaries are unable to directly pay for a product or service. Thus, social enterprises may need to create new revenue engines and identify new customers to add to the equation, just like Sanergy did with its byproducts.
Timing, opportunities and implications of BMI
Although introduced as silos, BMI strategies can be deeply intertwined. As a matter of fact, a change happening on one dimension (i.e. targeting new beneficiaries) usually has implications on the other ones too (i.e. developing new products/services, modifying the value chain, creating new revenue streams). But when does a social entrepreneur should begin thinking about BMI?
As previously said, BMI is often driven by either internal or external factors (or a combination of both). So, it is fair to claim that social enterprises may choose to innovate their business models when they identify to new opportunities to pursue, new threats to overcome (i.e. technology, competition, regulation) or new untapped needs to tackle. Failing in that often compromises long-term sustainability of the enterprise.
In this article, we explored business model innovation for social enterprises and analyzed ways to turn it into practice. In general terms, BMI can impact on value creation (“Who?” and “What?” of a BM), value delivery (“How?”) as well as value capture (“What’s in it?”). Each having its own pool of strategies to choose among.
Although social enterprises and social businesses primarily exist to tackle complex social problems, at times business model innovation may be needed in order to survive in the long run. Thus, we hope the framework provided will be helpful for social entrepreneurs to more easily and effectively navigate business model innovations and successfully keep generating positive impact!
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