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Innovative vs. Imitative Business Models

Instructor: Elizabeth Wamicha

Elizabeth teaches undergraduate courses in Business and Information Technology for the last 7 years. She is currently on course to completing a Doctorate in Information Systems

This lesson provides a comparison and definition of innovative and imitative business models. The lesson also provides the benefits and limitations of both business models

Innovative Business models

Innovative business models promote new approaches to doing business that are able to provide value to a business, especially an online business, while at the same time conserving the available resources and reducing wastage. Innovative business models can provide organizations with a new perspective as they carry out business online. These approaches also offer organizations an opportunity to utilize resources in an efficient manner. Most of these business models attempt to redefine how businesses carry out their online operations. Other innovative business models are even known as disruptive. This is because they completely change the norm, or how traditional businesses carry out their operations. For example, Uber with its innovative marketplace business model offers a meeting point for taxi drivers and people in need of a ride. Their business model has completely changed the landscape of the taxi industry.

Benefits of Innovative Business Models

1. Increased profitability: These business models provide a number of new ideas that can improve the profitability of an organization.

2. More efficient waste management: Organizations that are focused on innovation also try to address wastage in their processes, they strive to have processes that are more streamlined and efficient.

3. Cost reduction: that use innovative business models are more inclined to reduce cost of operations possibly by adding greater flexibility within the business

4. Increased product range: With innovation, comes a greater sense of creativity and a greater ability to build a product range. A bigger product range can help an organization drive sales and increase profits

Limitations of Innovative Business Models

1. Increased competition: innovative business models face stiff competition from other businesses that emulate their business approaches. The innovative company, in most cases, will carry the burden of risk at the initial stage of innovation with numerous similar businesses replicating what they have done and with a reduced level of risk.

2. Uncertainty of returns on investment: innovation is many times based on a new idea and new research. This can be largely speculative and the innovative business may be unable to clearly know what profit will be accrued from the innovation.

3. Lack of funding: innovative business models require significant resources to build innovations. Given the amount of risk involved, innovative businesses require that innovations bring in a high rate of return. Most businesses do not have the resources to maintain consistent innovation.

Imitative Business models

These business models are also known as me-too business models. Imitative business models are used to describe those businesses that enter a crowded market that is full of visible or innovative competitors. These businesses enter the market with relatively low differentiation. This means that, the product they offer is very similar to what their competition is already offering. For example, think of a new entrant to the mobile phone industry and the new entrant is offering a mobile phone with the Android operating system. This is a product that is already quite common in the mobile phone industry. An imitative business model may be used due to the following reasons:

  • An innovative business has developed unique product or service
  • The innovative business is now taking a chunk of the market share due to the unique product or service
  • The innovative company can price the product or service highly because of reduced competition that comes with early market entry.

These situations may lead a business to offer similar products in order to remain competitive or relevant within a particular industry.

Benefits of Imitative Business Models

1. Reduced Research and Development (R&D) risk burden: They do not bear as much R&D risk as innovative business models as much of the ground work for the product or service has already been laid out.

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