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The Risk-Driven Business Model: A Guideline for Innovation in Distribution?

Submitted by Annie Eissler on Tue, 09/02/2014 - 12:39pm

I sat down with a cup of coffee yesterday morning to peruse Modern Distribution Management's latest newsletter, featuring an interview with Karan Girotra, INSEAD professor and co-author of The Risk-Driven Business Model.

Normally I just skim through MDM's newsletters but "innovation" and "distribution" have been on my mind quite a bit as we've just become a sponsor of UnleashWD, a new conference designed to help distribution owners and executives become catalysts for change through exposure to inspirational leaders and innovators from outside of the distribution industry. Kind of a TED forum designed exclusively for distributors.

Girotra and his co-author, Serguei Netessine, set out to study operations and distribution systems and found that outside of technology and bio tech what most people were calling innovation really wasn't innovative at all. Plus, the kinds of technological breakthroughs seen in the high tech and bio tech industries are just not likely to happen in most businesses. But every business does have a business model and an operational system, and these can be "a lever for innovation" regardless of the sector, stage or size of the business at hand.

Girotra and Netessine recommend that businesses adopt a "risk-driven" business model, one that embraces risk as an opportunity to innovate not just something to be avoided or minimized. Girotra sites the European fashion company Zara as an example. 20 years ago Zara's leaders turned the fashion world upside down by embracing the risk in not knowing what the market will want. By changing their business model to produce closer to store locations, Zara closed the gap between designing and selling from 6 months to two weeks.

I haven't read the book yet (although I did order it and it is now sitting on my Kindle!) but I am intrigued by the emphasis placed by the authors on decisions in business model innovation:

  1. What key decisions get made in a business?
  2. When do they get made?
  3. Who makes them?
  4. Why individuals make the decisions they do?

Every day here at MITS we see the power information access and informed decisions can have on the performance of a distribution business. Does the The Risk-Driven Business Model provide a framework for taking this to the next level, to institutionalize innovation in an industry that isn't generally known for being innovative?

Listen to the MDM interview with Girotra. Read the book. I'd love to hear what you think.