what is business model innovation?
TRANSCRIPT
Get the business model wrong and there is almost no chance of success.
Prof. David TeeceUniversity of California, Berkley.
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This isBusiness Model
Innovation
Marc Sniukas
WHATWHY HOW
WHY is business model innovation important?
What advantages could it bring
to your organization?
Source: IBM Global CEO Study 2006
Why do companies engage in business model innovation?
Source: IBM Global CEO Study 2006
Business Model Innovators outperform competition.
Source: IBM Global CEO Study 2006
Higher operating margin growth.
Source: Businessweek / BCG Innovation Survey 2008
Higher shareholder return.
Source: Moore, GA 2004, Darwin and the Demon: Innovating Within Established Enterprises. Harvard Business Review, 82
Stagnating or declining revenues
Sustainable product success.
Source: Moore, GA 2004, Darwin and the Demon: Innovating Within Established Enterprises. Harvard Business Review, 82
Sustainable product success.
Align to changing markets andtake advantage of trends.
“Get the business model wrong, and there is almost no chance of success...”
Prof. David Teece University of California, Berkley.
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
Your business model needs to be managed, renewed and changed.
How to do it?
WHAT is business model innovation?
Really!
© Marc Sniukas - Doujak Corporate Development
WHAT is business model innovation?
a
THE BOSTON CONSULTING GROUP DECEMBER 2009
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.
Reinventing Your Business Model
54 Harvard Business Review | December 2008 | hbr.org
How Great Models Are BuiltTo illustrate the elements of our business model framework, we will look at what’s behind two compa-nies’ game-changing business model innovations.
Creating a customer value proposition. It’s not possible to invent or reinvent a business model with-out fi rst identifying a clear customer value proposition. 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 fi rst 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 fi ve 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 fi nishing 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 effi ciently 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 fl eet-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 profi t 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 diffi cult 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 profi t 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 profi tably. Might include:� People� Technology, products� Equipment � Information� Channels� Partnerships,
alliances� Brand
KEY PROCESSES, as well as rules, metrics, and norms, that make the profi table 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
The Elements of a Successful Business Model
Every successful company already operates according to an effective business model. By systematically identifying all of its constituent parts, executives can understand how the model fulfi lls a potent value proposition in a profi table way using certain key resources and key processes. With that understanding, they can then judge how well the same model could be used to fulfi ll 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 fulfi ll an important need for the target customer
� Offering, which satisfi es the problem or fulfi lls the need. This is defi ned 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
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?
Business Model Innovation…
…is the invention of new ways of doing business,…
Marketing
Content
TraditionalBusiness Model
NewBusiness Model
Infrastructure
Marketing, Branding, Customer Relationship
3rd party developers
Outsourced to Nokia, Siemens, Ericsson, IBM
Source: www.hilti.com
Source: www.hilti.com
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.
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
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
Business Model Innovation as a Strategic Choice. Traditional Strategic Choices.
Markets
Products
Existing
New
Business Model Innovation as a Strategic Choice. The Strategy Cube.
Existing
New
Existing
New
Markets Customer Segments
Products Services
Business Models
Business Model Innovation
Markets Customer Segments
Products Services Business Models
Books United States Retail Bookstores
Online Retail
40
Markets Customer Segments
Products Services Business Models
Books United States Retail Bookstores
Range ofonline businesses
Global Online Retail
Markets Customer Segments
Products Services Business Models
Air Transportation United States Hub
Point to Point
Rental by the day
Markets Customer Segments
Products Services Business Models
Cars People living in cities Sell the car
Rental by the minuteMobility Solutions
Markets Customer Segments
Products Services Business Models
Furniture Young familiescity areas
Home delivery
Do it yourself
Will this work in our company?
Yes!
HOW to design new business models?
…even in established organizations…
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
The Business Model Innovation Loop.
Discover
Design
Do1
2
3Finding Opportunities for
Business Model Innovation
Testing and Implementation
Designing the new Business Model
The Business Model Innovation Loop.
Discover1
Finding Opportunities for
Business Model Innovation
Sources of inspiration. Where to look for opportunities?
PeopleIndividuals
Groups
Peers
Experts
Customers
Non-customers
Your company
Trends
The Market
YourselfExtreme Users
Existing offeringsCompetitors
Substitutes Suppliers
Business Model
Existing business models
Strategy
Strengths Weaknesses
Core competences
AssetsCapabilities
Culture Technological
Legal / RegulatorySociety
Socio-economic
Macro-economic
Customer segmentsBuyer Experience
Strategic groupsScope of offerings
Appeal
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
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?
Non-Customers - Small and medium sized enterprises. - Start-Ups.
Why don’t they buy? - Cannot afford. - Don’t have the skills.
The Business Model Innovation Loop.
Design2Designing the new Business
Model
www.sniukas.com/designthemes
Idea: - We give our advertising minutes for free. - We help them with production. - In return we receive a share of revenues
made.
The Business Model Innovation Loop.
Do3Testing and Implementation
How to test your idea?
- 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.
Experimentation & Testing =
Learning =
Reducing your risk of failure (before you commit a lot of money and resources)
The Business Model Innovation Loop.
Discover
Design
Do1
2
3Discover what works and what doesn’t
Testing and Implementation
Adapt the Business Model
Dedicated company & team. Hired private equity & investment banking
skills. Developed the new business model.
Uses the results in traditional business.
20%3 years after launch
How to get started?
A Road Map. Action Steps to Take.
1
Assemble a team.
Are you committed?
Train your team!
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Want more?
www.businessmodelgallery.com
The difficulty lies not in the new ideas, but in escaping from the old ones.
John Maynard Keynes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
