What is Business Model Innovation?
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The document discusses the importance of business model innovation, emphasizing that getting the business model right is crucial for success. It outlines how effective business model innovation can provide competitive advantage, adapt to changing environments, and address downturn-specific opportunities. The text also highlights practical examples, challenges, and strategies for designing and implementing new business models.
What is Business Model Innovation?
- 1. Get the business model wrong and there is almost no chance of success. Prof. David Teece University of California, Berkley. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 5. 1st week
- 10. Marc Sniukas
- 11. WHATWHY HOW
- 12. WHY is business model innovation important? What advantages could it bring to your organization?
- 13. Source: IBM Global CEO Study 2006 Why do companies engage in business model innovation?
- 14. Source: IBM Global CEO Study 2006 Business Model Innovators outperform competition.
- 15. Source: IBM Global CEO Study 2006 Higher operating margin growth.
- 16. Source: Businessweek / BCG Innovation Survey 2008 Higher shareholder return.
- 17. Source: Moore, GA 2004, Darwin and the Demon: Innovating Within Established Enterprises. Harvard Business Review, 82 Stagnating or declining revenues Sustainable product success.
- 18. Source: Moore, GA 2004, Darwin and the Demon: Innovating Within Established Enterprises. Harvard Business Review, 82 Sustainable product success.
- 19. Align to changing markets and take advantage of trends.
- 20. “Get the business model wrong, and there is almost no chance of success...” Prof. David Teece University of California, Berkley.
- 22. Why is Business Model Innovation important? Major element of differentiation and sustainable competitive advantage Means to adapt to the rapidly changing environment and seize opportunities Fundamental to performance Key to the commercialization of new technologies
- 23. Your business model needs to be managed, renewed and changed.
- 24. How to do it?
- 26. © Marc Sniukas - Doujak Corporate Development
- 28. Business Model Innovation 2 Cost Model.◊ How do we configure our assets and costs to deliver on our value proposition profitably? Organization.◊ How do we deploy and develop our people to sustain and enhance our competitive advantage? As Apple has demonstrated, innovation in a business model is more than mere product, service, or technological innovation. It goes beyond single-function strategies, such as enhancing the sourcing approach or the sales model. Innovation becomes BMI when two or more elements of a business model are reinvented to deliver value in a new way. Because it involves a multidimensional and orchestrated set of activities, BMI is both challenging to execute and difficult to imitate. Distinguishing business model innovation from product, service, or technology innovations is important. Companies that confuse the latter for the former risk underestimating the requirements for success. Why Business Model Innovation Is Relevant Today Business model innovation is especially valuable in times of instability. BMI can provide companies a way to break out of intense competition, under which product or process innovations are easily imitated, com- petitors’ strategies have converged, and sustained advantage is elusive. It can help address disruptions— such as regulatory or technological shifts—that demand fundamentally new competitive approaches. BMI can also help address downturn-specific opportunities, enabling companies, for example, to lower prices or reduce the risks and costs of ownership for customers. In our experience, the companies that flourish in downturns frequently do so by leveraging the crisis to reinvent themselves—rather than by simply deploying defensive financial and operational tactics. Moreover, during times of crisis, companies often find it easier to gain consensus around the bold moves required to reconfigure an existing business. BMI may be more challenging than product or process innovation, but it also delivers superior returns. The Boston Consulting Group (BCG) and BusinessWeek recently conducted their annual survey to identify the most innovative companies. We analyzed our database of innovators, segmenting them into business model innovators and product or process innovators. Our analysis showed that while both types of innovators achieved a premium over the average total shareholder return for their industries, business Business model Value proposition Operating model Exhibit 1. A Business Model Typically Consists of Six Components Source: BCG research. 54 Harvard Business Review | December 2008 | hbr.org Often, it starts as a quite simple realization. Imagine, for a moment,that you are standing on a Mumbai road on a rainy day. You notice the large number of motor scooters snaking precariously in and out around the cars. As you look more closely, you see that most bear whole families – both parents and several children. Your first thought might be “That’s crazy!” or “That’s the way it is in developing countries – people get by as best they can.” When Ratan Tata of Tata Group looked out over this scene, he saw a critical job to be done: providing a safer alternative for scooter families. He understood that the cheapest car available in India cost easily five times what a scooter did and that many of these families could not afford one. Offering an affordable, safer,all-weather alternative for scooter families was a powerful value proposition, one with the potential to reach tens of millions of people who were not yet part of the car-buying market. Ratan Tata also recognized that Tata Motors’business model could not be used to develop such a product at the needed price point. At the other end of the market spectrum, Hilti, a Liechtenstein-based manufacturer of high-end power tools for the construction industry, reconsidered the real job to be done for many of its current custom- ers. A contractor makes money by finishing projects; if the required tools aren’t available and functioning properly, the job doesn’t get done. Contractors don’t make money by owning tools; they make it by using them as efficiently as possible. Hilti could help con- tractors get the job done by selling tool use instead of the tools themselves – managing its customers’ tool inventory by providing the best tool at the right time and quickly furnishing tool repairs, replacements, and upgrades, all for a monthly fee. To deliver on that value proposition, the company needed to cre- ate a fleet-management program for tools and in the process shift its focus from manufacturing and distri- bution to service. That meant Hilti had to construct a new profit formula and develop new resources and new processes. The most important attribute of a customer value proposition is its precision: how perfectly it nails the customer job to be done – and nothing else. But such precision is often the most difficult thing to achieve. Companies trying to create the new often neglect PROFIT FORMULA Revenue model How much money can be made: price x volume. Volume can be thought of in terms of market size, purchase frequency, ancillary sales, etc. Cost structure How costs are allocated: includes cost of key assets, direct costs, indirect costs, economies of scale. Margin model How much each transaction should net to achieve desired profit levels. Resource velocity How quickly resources need to be used to sup- port target volume. Includes lead times, throughput, inventory turns, asset utilization, and so on. KEY RESOURCES needed to deliver the customer value proposition profitably. Might include: People Technology, products Equipment Information Channels Partnerships, alliances Brand KEY PROCESSES, as well as rules, metrics, and norms, that make the profitable delivery of the customer value proposition repeat- able and scalable. Might include: Processes: design, product development, sourcing, manu- facturing, marketing, hiring and training, IT Rules and metrics: margin re- quirements for investment, credit terms, lead times, supplier terms Norms: opportunity size needed for investment, approach to customers and channels can then judge how well the same model could be used to fulfill a radically different CVP – and what they’d need to do to con- struct a new one, if need be, to capitalize on that opportunity. Customer Value Proposition (CVP) Target customer Job to be done to solve an important problem or fulfill an important need for the target customer Offering, which satisfies the problem or fulfills the need. This is defined not only by what is sold but also by how it’s sold. 1711 Johnson.indd 541711 Johnson.indd 54 10/30/08 2:02:48 PM10/30/08 2:02:48 PM your company other company client transaction possible transaction product service experience reputation money less money attention exposure
- 29. HOW DO YOU DO BUSINESS? Which activities do you perform? Which assets and capabilities are necessary to perform these activities? Who performs the activities and provides the assets and capabilities? How do you organize and manage the activity system?
- 30. Business Model Innovation… …is the invention of new ways of doing business,…
- 31. Marketing Content Traditional Business Model New Business Model Infrastructure Marketing, Branding, Customer Relationship 3rd party developers Outsourced to Nokia, Siemens, Ericsson, IBM
- 34. Business Model Innovation… …is the invention of new ways of doing business, with the aim to provide new and/or increased value for the customers, the company itself and its partners.
- 35. WHAT VALUE DO YOU CREATE? Customer Value Proposition Firm Value Proposition Ecosystem Value Proposition Fulfilling customers’ needs and making their life easier. Offering your partners advantages. Strategic Operational Financial
- 36. Customer Value Proposition Firm Value Proposition Ecosystem Value Proposition Convenience Low cost Revenues Customer Lock-In Platform for other services / products Copyright protected downloads Access to customers & global distribution
- 37. Business Model Innovation as a Strategic Choice. Traditional Strategic Choices. Markets Products Existing New
- 38. Business Model Innovation as a Strategic Choice. The Strategy Cube. Existing New Existing New Markets Customer Segments Products Services Business Models Business ModelInnovation
- 39. Markets Customer Segments Products Services Business Models Books United States Retail Bookstores Online Retail
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- 46. Markets Customer Segments Products Services Business Models Books United States Retail Bookstores Range of online businesses Global Online Retail
- 48. Markets Customer Segments Products Services Business Models Air Transportation United States Hub Point to Point
- 49. Rental by the day Markets Customer Segments Products Services Business Models Cars People living in cities Sell the car Rental by the minuteMobility Solutions
- 50. Markets Customer Segments Products Services Business Models Furniture Young families city areas Home delivery Do it yourself
- 51. Will this work in our company?
- 52. Yes!
- 53. HOW to design new business models? …even in established organizations…
- 54. Major challenges and barriers. (1) Business Model Innovation Challenges Different type of innovation High risk and uncertainty (2) Organizational Challenges Lack of capabilities New organization required: Yes/No? (3) Individual Challenges Change in behavior Mental models/cognitive maps
- 55. The Business Model Innovation Loop. Discover Design Do 1 2 3Finding Opportunities for Business Model Innovation Testing and Implementation Designing the new Business Model
- 56. The Business Model Innovation Loop. Discover 1 Finding Opportunities for Business Model Innovation
- 57. Sources of inspiration. Where to look for opportunities? People Individuals Groups Peers Experts Customers Non-customers Your company Trends The Market Yourself Extreme Users Existing offerings Competitors Substitutes Suppliers Business Model Existing business models Strategy Strengths Weaknesses Core competences Assets Capabilities Culture Technological Legal / Regulatory Society Socio-economic Macro-economic Customer segmentsBuyer Experience Strategic groups Scope of offerings Appeal
- 58. Look at Non-Customers. Who is not buying our product / services? Why are they not buying? What are the barriers to consumption? 2 1 3
- 59. Pro7Sat1 is the largest German television network and a major player in Europe. The questions they asked themselves: - How can we increase our revenues? - How can we make better use of our underutilized assets (e.g. advertising minutes not sold)? - How can we turn non-customers into customers and become more independent of our existing customers?
- 60. Non-Customers - Small and medium sized enterprises. - Start-Ups. Why don’t they buy? - Cannot afford. - Don’t have the skills.
- 61. The Business Model Innovation Loop. Design 2 Designing the new Business Model
- 63. Idea: - We give our advertising minutes for free. - We help them with production. - In return we receive a share of revenues made.
- 64. The Business Model Innovation Loop. Do 3 Testing and Implementation
- 65. How to test your idea?
- 66. - Client company needs to have the resources and capacities to meet the demand we create. - Online sales can be tracked best. - Share of revenues as only revenue stream is not enough for us.
- 67. Experimentation & Testing = Learning = Reducing your risk of failure (before you commit a lot of money and resources)
- 68. The Business Model Innovation Loop. Discover Design Do 1 2 3Discover what works and what doesn’t Testing and Implementation Adapt the Business Model
- 69. Dedicated company & team. Hired private equity & investment banking skills. Developed the new business model. Uses the results in traditional business.
- 70. 20%3 years after launch
- 71. How to get started?
- 72. A Road Map. Action Steps to Take. 1 Assemble a team. Are you committed? Train your team! 2 3
- 77. Want more?
- 79. The difficulty lies not in the new ideas, but in escaping from the old ones. John Maynard Keynes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- 80. Thanks for your attention! Get in touch! Marc Sniukas marc@sniukas.com www.sniukas.com @sniukas