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IM Week 3: Business Model Innovation (Explain the nature of business model…
IM Week 3: Business Model Innovation
What are today’s learning objectives?
Explain the nature of business model innovation. In particular, refer to its components, dimensions and stages.
Reflect on the business models of innovative companies and how companies can improve their business models.
Formulate questions and refer to models that help companies to reinvent their business models.
Explain the nature of business model innovation. In particular, refer to its components, dimensions and stages
a. ‘A better business model often will beat a better idea or technology’ Chesbrough (2007)
b. Commercialisation
Value creation: segmentation and value proposition
Value capture: revenue and IP
c.Generic business models
Technology input, i.e invention
Generic business models:
-current business
-licensing
-new venture
Economic output ie commercially available products
d. But first of all, why does business model innovation matter?
i.Among the most sustainable forms of innovation
ii. Important capability for every firm seeking success in the long term
eg. Apple's performance, before and after business model changes: in recent years, Apple's revenues, profit and stock price change have reflected its successful business model innovations
iii. Firms introducing business model innovation have a higher profitable growth than those that do not
BCG innovation survey 2008 founds that Business Model Innovators Outperforms traditional innovators (process and product innovators) over time
e. Business Model Innovation Takes Many forms
Value proposition: the product as service and outcome, the product as an experience, thrust premium, free (or nearly free)
Operating model: deconstruction, integration/acceleration of the supply chain, low cost, direct distribution
Business system architecture: open, person to person, adjacency, serial
f. Stages of business model advancement Chesbrough (2007)
Type 1 – company has an undifferentiated business model
Type 2 – company has some differentiation in its business model
Type 3 – company develops a segmented business model
Type 4 – company has an externally aware business model
Type 5 – company integrates its innovation process with its business model
Type 6 – company’s business model is an adaptive platform
Reflect on the business models of innovative companies and how companies can improve their business models.
a. Twitter Business model
b. Osterwalder’s canvas: critique
i. Typically applied retrospectively to explain why many ventures fail while other have been successful
-Has little predictive value
ii. Does not acknowledge causality and correlation between elements in the business ecosystem
iii. Provides no guidance to which business model is best suited to a specific industry context
c. Clayton Christensen (2009)
The Value proposition: a product that helps customers do more effectively, conveniently and affordably a job they've been trying to do
profit formula: assets and fixed cost structure, and the margins and velocity required to cover them
resources: people, technology, products, facilities, equipment, brands. and cash that are required to deliver this value proposition to the targeted customers
processes: ways of working together to address recurrent tasks in a consistent way: training, development, manufacturing, budgeting
d. Functions of a business model are:
articulate the value proposition, that is , the value created for users by the offering
identify a market segment, that is, the users to whom the offering is useful and for what purpose
define the structure of the value chain required by the firm to create and distribute the offering, and determine the complementary assets needed to support the firm's position in this chain. This includes the firm's suppliers and customers, and should extend from raw materials to the final customer
specify the revenue generation mechanism(s) for the firm, and the cost structure and profit potential of producing the offering, given the value proposition and value chain structure chosen
describe the potential of the firm within the value network (also referred to as an ecosystem) linking suppliers and customers, including identification of potential complementors and competitors
formulate the competitive strategy by which the innovating firm will gain and hold advantage over rivals
Value proposition
-Product offering
-Service offering
-Pricing
How the products and services of a firm are offered to customers
How companies can convince customers that their products and services can fulfill their needs
As value comes at a cost, pricing model is part of the value proposition
Value creation
-Core competencies
-Key resources
-Governance
-Complementary assets
-Value networks
Internal (core competencies, key resources and governance) and external (complementary assets, value networks) factors
Value delivery
-Distribution channels
-Target market segments
How value is delivered to customers
Distribution channels
Target market segments (value is delivered differently)
Value capture
-Revenue model
-Cost structure
-Profit allocation
Revenue model enables firms to directly capture a part of the value created
Car dealers make money from servicing cars
Ryanair from onboard sales, advertising, hotel and car rental referral
Cost structure
Profit allocation
Value Communication
-Communication channels
-Ethos and story
The way companies communicate with their customers and partners about the value that is created by their products and services
The way a company communicates about its story and ethos
e. Improving a firm’s business model
The importance of trial and error: Firms ‘plan, design, test and re-test alternative business model variants until they find the one that best suits their objectives’ Sosna et al. (2010)
It takes time, though, ‘to develop business model experiments, obtain clear results, interpret and understand the results, and then carry out a broad deployment of those results’ Chesbrough (2007)
e.
e.
Formulate questions and refer to models that help companies to reinvent their business models.
a. Incremental v radical
i. The difference between incremental and radical business model innovation relates to the number of business model components affected
ii. Hence, a radical innovation
arises when the business model has changed simultaneously within more than one aspect or dimension
modifying more than one value component at a time can lead to more radical innovations
b. A new approach to business-model innovation: 5 steps to turn your beliefs upside down (McKinsey & co.)
