business model innovations blue ocean strategy disruptive innovations desai

Business Model InnovationsBlue Ocean Strategy

Disruptive Innovations

Desai

Prepared for PTO Feb 2015

Risks of Innovation

R

Market Risk : Will they want it?

Tech

nolo

gy R

isk:

Will

it w

ork?

Routine and Minor

Incremental

Fundamental

Breakthrough

Product Innovation

Business Model Innovation

Product Innovation

Business Model Innovation

Primary Risk

Technology Market

Secondary Risk

Market Technology

Business Model

Resources

AssetsRevenues

and Profits

Use resources to create Assets

Selective Monetizing of Assets

Use Profits to reinforce resources

Business Model



Key Business Model Innovation questions

What unmet customer needs will the new business model address?

Who should perform those activities?

How could those activities be linked in novel ways?

What novel activities will satisfy those needs? How will value be created

for each of the stakeholders?

How many revenue models does the new business model innovation offerWhat novel

governance mechanisms can be offered?


Types of Business Models


Types / classifications of Business Models


Classification of Business Models -1

• Advertising• Affiliate• Brokerage • Community• Infomediary• Manufacturer• Merchant• Subscription• Utility


Business Model Canvas


Empathy Map

Empathy Map

• What does a user say and do?– Attitude in public appearance, behaviour towards others

• What does a user hear?– Boss, friends, influencers

• What does a user think and feel?– What really counts, major worries and aspirations, major preoccupation?

• What does a user see?– Friends, environment, what the market offers?

• Pains– Fear, frustrations, obstacles

• Gains– Wants, needs, measures of success



Validating Business Models

Value Proposition Designer

Gain Creators

Pain Relievers

Prod

ucts

and

Se

rvic

esCustom

ers’ Jobs

Pains

Gains

VALUE PROPOSITION

DESIGN

CUSTOMER SEGMENT

OBSERVE

WH

ATW

HY



Value Propositions

1.Value propositions come in two forms: they solve a problem or they fulfill a human social need

2.Social Needs are :friendship, dating, sex, entertainment, art, communication,

blogs, confession, networking, gambling, religion, etc.• Social needs have always been initiated face-to-face• They are now initiated on-line• The market size for these applications equals the entire human race• These are the ultimate applications


Business Model Canvas

KEY PARTNERS

Identify key network of partners and suppliers that will make the business model work

VALUE PROPOSITION

What do you provide to the customer? Define the value to the customers

CUSTOMER SEGMENTS

Which group of customers do you propose to serve? Describe their profile.

KEY ACTIVITIES

What are the critical activities that will achieve the business model?KEY RESOURCES

What assets do you need to deliver the value to your customers?

CUSTOMER RELATIONSHIPS

How do you foster and retain relationship with customers?

CHANNELS

How do you propose to deliver your goods and services to customers?

COST STRUCTURE

Describe the major cost categories that are required to implement the business model

REVENUE STRUCTURE

What are the different means by which you can generate revenue from your customers?


Customer Development

Customer Discovery

CustomerValidation

Customer Developm

ent

Business Building

Pivot


Lean Startup

IDEA

CODEDATA

LEARN

BUILD

MEASURE


Business Model Patterns


Types of Business Models - 4

• (Two) Multi-sided market• Razor and Blade• Rent instead of Buy• Peer to Peer• Lock-in• Franchising


Business Model Patterns 1-20

1. Add-On2. Affiliation3. Aikido4. Auction5. Barter6. Cash- Machine7. Cross Selling8. Crowd Funding9. Crowd Sourcing10. Customer Loyalty

11. Digitization12. Direct Selling13. Ecommerce14. Experience Selling15. Flat rate16. Fractional Ownership17. Franchising18. Freemium19. Push to Pull20. Guaranteed availability



21. Hidden Revenue22. Ingredient Branding23. Integrator24. Layer Player25. Leverage Customer Data26. License27. Lock-in28. Long Tail29. Make More of it30. Mass Customization

31. No Frills32. Open Business Model33. Open Source34. Orchestrator35. Pay per use36. Pay what you want37. Peer to Peer38. Performance based contract39. Razor and Blade40. Rent instead of Buy



41. Revenue Sharing42. Reverse Engineering43. Reverse Innovation44. Robin Hood45. Self Service46. Shop in Shop47. Solution Provider48. Subscription49. Supermarket50. Target the poor

51. Trash to cash52. Two sided Market53. Ultimate Luxury54. User Designed55. White Label


Growing Amazon

Amazon Store 1995

Amazon Web Services 2002

Amazon Kindle2007


Growing Nestle

Nespresso1986

Special T2010

BabyNes 2012


Growing NetFlix

Flat rate Subscription Long Tail1999

Digitization2008


Business Model Types – 4.1

Two Sided Market1950 Diners Club

1964 JC Decaux

1984 Sat.I

1995 Amazon Store

1997 Priceline

1998 Google

2004 Facebook

2005 MyHammer

2007 Zattoo

2008 Groupon

Razor and Blade1880 Standard Oil

1904 Gillette

1984 Hewlett Packard

1986 Nestle Nespresso

2003 iPOD , iTunes

2007 Amazon Kindle

2010 Nestle Special T

2012 Nestle BabyNes



Rent Instead of Buy1916 Saunders System

1959 Xerox

1985 Blockbuster

1987 Rent a Bike

1997 Mobility car share

2000 Machinery Link

2001 CWS – boco

2006 Luxusbabe

2007 FlexPetz

2008 Car2Go

Peer to Peer1995 eBay

1996 Craigslist

1999 Napster

2003 Couchsurfing

2005 Zopa

2006 Slideshare

2006 Twitter

2008 Airbnb

2010 RelayRides

2011 Gidsy



Lock-in1904 Gillette

1949 Lego

1975 Microsoft

1984 Hewlett Packard



2012 Nestle BabyNes

Franchising1860 Singer Sewing M/C

1948 McDonald’s

1967 Marriott Intl

1971 Starbucks

1974 Subway

1992 Fressnapf

1992 Naturhouse

1997 McFit

2001 Backwerk



Digitization1994 Spiegel Online

1994 WXYC

1996 Hotmail

1997 CEWE color

1998 SurveyMonkey

1999 Napster

2001 Wikipedia2004 Facebook

2007 Dropbox

2008 Netflix

Experience Selling1903 Harley Davidson

1956 IKEA

1958 Trader Joe’s

1971 Starbucks

1983 Swatch


1987 Red Bull

1993 Barnes and Noble


Business Model Design Tool


Business Model Design Canvas

Key Partner-ships

Key Activi-ties

Key Resour-ces

Cost Model

Value Proposi-tions

Customer Relationships

ChannelsRevenue model

Customer Segments

Key Partners In Store sales Local resourcesGet others to do the work

Faster Loyalty programs Physical to Cyber upfront payment Main Stream

Where used salesCloud based resources

Capex Cheaper Standardized offering Direct to Customers Subscription Long Tail

Local Processing Buy resources Opex Better (___________)Customized offering

Customer pick up Transaction Fee Expert

Remote processing Lease resources Indoor to outdoor Broadcast Company delivery Discount Hobbyist

In house Client based Outdoor to Indoor On Demand Social Networks Freemium Novice

Outsourced Server based Wireless Retail Premium Developer

Managed Mobile Dealer / Distributor Razor and Blade Educated

Person to Person Push based on profile Resellers Reverse Auction Lesser educated

Person to Thing Pull when neededAggregator

Auction Gold collar

Thing to Thing Deliver and not pick up Portal EMI White collar

Long activities Ease of carrying Margin play Blue collar

Short activities Hire purchase Volume Play Teenagers

Purchase in partsMilestone base d payment

Working adults

Renewable Retired professionals


Blue Ocean Strategy


Steps in business model innovation design

1. List past business model innovations relevant to your company2. Categorize the business model innovations 3. Rearrange the categories under Business Model Canvas

components4. Draw the Business Model Curve for your current business model5. Modify the current Business Model Curve to create a new

Business Model 6. Validate the feasibility and viability of the new business model7. Repeat steps 5 and 6 until you find a viable new business model

Blue Ocean Strategy - prepared especially for PTO

Innovation opportunities• Substitute industries

– Southwest

• Strategic product groups– Walkman

• Chain of buyers– Philips Alto, Canon

• Complementary products and services– Borders

• Functional and emotional appeal– Swatch, Body shop

• Trend – Ecommerce


Blue Ocean Strategy

Buyer Utility

Cost

Price

AdoptionHurdles

Viable Blue Ocean Idea


Utility Levers

• Customer productivity• Simplicity• Convenience• Risk • Fun and Image• Environmental friendliness


Buyer Experience Cycle

• Purchase• Delivery• Use• Supplements• Maintenance• Disposal


Buyer Utility Map

Buyer Experience CyclePurchase Delivery Use Supplements Maintenance Repair

Utility

Levers

Productivity

Simplicity

Convenience

Risk

Fun and Image

Environmental


Profit Model of Blue Ocean Strategy

Strategic Price

Target Cost

PartneringStreamlining andCost innovations

Pricing Innovation

Target Profit


Strategy CanvasE

atin

g fa

cilit

ies

Arc

hite

ctur

al A

esth

etic

s

Loun

ges

Bed

Qua

lity

Hyg

iene

Roo

m n

oise

Pric

e

low

High

Factors dear to the customers


Value Curve IE

atin

g fa

cilit

ies

Arc

hite

ctur

al A

esth

etic

s

Loun

ges

Bed

Qua

lity

Hyg

iene

Roo

m n

oise

Pric

e

low

High

Two Star Hotels


Four Actions Framework

Reduce

Raise

Eliminate CreateNew ValueCurve

Blue Ocean Strategy


Value Curve IIE

atin

g fa

cilit

ies

Arc

hite

ctur

al A

esth

etic

s

Loun

ges

Bed

Qua

lity

Hyg

iene

Roo

m n

oise

Pric

e

low

High

Two Star and One Star Hotels

2* hotel

1* hotel


Value Curve IIIE

atin

g fa

cilit

ies

Arc

hite

ctur

al A

esth

etic

s

Loun

ges

Bed

Qua

lity

Hyg

iene

Roo

m n

oise

Pric

e

low

High

Accor Chain - Formule 1 hotels

Formule 1

1*

2*


Disruptive Innovation

Technology disruption / evolution

From Nomura Research InstituteTime

Cost

Analog Cellular, 1992

Der

egul

ation

1993

Cordless phones1994

800 MHz Digital Cellular,1995

PersonalHand Phones, 1997

1.5 GHz Digital Cellular,1997 3 G Digital Cellular

2004

Innovator’s Dilemma

Incumbents’ Dilemma: Pioneer or Follow? Pr

oduc

t Per

form

ance

Time

Performance demanded at the high end of the

market

Progress due to

supporting innovations

Progr

ess

due

to

disr

uptiv

e in

nova

tions

Performance demanded at the low end of the market or in a new emerging segment

Innovator’s DilemmaP

rodu

ct P

erfo

rman

ce

Time

Performance demanded at the high end of the market

Progress due to


Progr

ess

due

to

disr

uptiv

e in

nova

tions

Performance demanded at the low end of the market or in a

new emerging segment

Innovator’s DilemmaP

rodu

ct P

erfo

rman

ce

Time

Performance demanded at the high end of the

market

Progress due to


Progr

ess

due

to

disr

uptiv

e in

nova

tions

Performance demanded at the low end of the market or in a new emerging segment

Types of disruptions

• High end disruptionNew Market Disruption

• Low End disruption– BOP– Addressing those left behind

Technology disruptions in Disk Drive Industry

Core technology 1975 -1990

Ferrite Oxide Heads 1-50 millions of megabytes per square inch (MoMBPSI)

1985 – 1995 Thin – film heads 12 – 600 MoMBPSI (12x)

1992 - Magneto resistive heads > 1000 MoMBPSI (>20x)

Innovations in Disk Drive Industry

1962-1978

14 inch Winchester drives 300 – 400 MB

1978-80

8 inch – Shugart Associates, Micropolis, Prism, Quantum 40-60 MB 1980 - 83

5.25 – Seagate, Micropolis

1988 -

3.5 – Conner Peripherals spin off of SeaGate and Miniscribe

1992

1.8 – IBM ….

Innovation Evolution Paths

Aka Innovation Rule

From Niche to consumers

Special - Defense

Innovation Rule 1

Enterprise – mainframes

Departmental - minicomputers

Personal - PCs

Mobile - Laptops

Pocket - Smartphones

If an innovation is in “Enterprise”stage

Then if the markets and technology are ready then create innovation for department level

Else

if the technology is ready then wait for the markets to be ready

if the market is ready then develop the technology …

Innovation evolution paths

Innovation evolution path for computers

Drivers for innovation of computers

Innovation evolution path for computers

Drivers for innovations in computers

Market leadership & Innovation evolution


Summary

• Understand the role of Business Model in a company

• Introduction to multiple types of Business Models

• Business Model Reengineering• Business Model Design Canvas

business model innovations blue ocean strategy disruptive innovations desai

Documents

business model canvasprepared

new business model address

key activities

novel activities

customers customer segments

key resources

humansocialneedsocial

group of customers