The INSURTECH Book

Business Model Innovation – From Incremental to Disruptive

By Dan Smith

Co-Founder and Managing Partner, Exponential Ventures

“The worst place to develop a new business model is from within the existing one.”

Clayton Christensen

At its most conceptual level, a business model is no more than a strategic configuration of the various components constituting a business and the logic of how this business intends to operate and make money. The application of technologies permeates all aspects of each business model and holds the potential to reconfigure existing business models or create entirely new ones, in a quick efficient manner leveraging the context of the consumer. In order to provide a sense of where the focus is across innovation models, we categorize them according to Nagji and Tuff’s¹ three-tier innovation ambition framework (see Figure 1):

1. Core – optimize existing products for existing customers (not the focus of this chapter);
2. Adjacent – entering adjacent markets and customer segments;
3. Transformative/Disruptive – creating new markets, and targeting new needs.

McKinsey’s three horizons framework, if you are familiar with this, is equally interchangeable.² Most companies anecdotally strive for the “golden balance” of 70-20-10 split for core, adjacent, and transformative initiatives in terms of innovation asset allocation. However, research has consistently identified that the financial returns are broadly the inverse of this, with core innovations returning around ...