IM Week 3: Business Model Innovation

What are today’s learning objectives?

  1. Explain the nature of business model innovation. In particular, refer to its components, dimensions and stages.
  2. Reflect on the business models of innovative companies and how companies can improve their business models.
  3. Formulate questions and refer to models that help companies to reinvent their business models.
  1. Explain the nature of business model innovation. In particular, refer to its components, dimensions and stages
  1. Reflect on the business models of innovative companies and how companies can improve their business models.
  1. Formulate questions and refer to models that help companies to reinvent their business models.

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

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

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

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:

  1. articulate the value proposition, that is , the value created for users by the offering
  2. identify a market segment, that is, the users to whom the offering is useful and for what purpose
  3. 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
  4. 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
  5. 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
  6. formulate the competitive strategy by which the innovating firm will gain and hold advantage over rivals

Value proposition
-Product offering
-Service offering
-Pricing

Value creation
-Core competencies
-Key resources
-Governance
-Complementary assets
-Value networks

Value delivery
-Distribution channels
-Target market segments

Value capture
-Revenue model
-Cost structure
-Profit allocation


Value Communication
-Communication channels
-Ethos and story

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

Internal (core competencies, key resources and governance) and external (complementary assets, value networks) factors

How value is delivered to customers

  • Distribution channels
  • Target market segments (value is delivered differently)

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

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

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

e. Business Model Innovation Takes Many forms

  1. Value proposition: the product as service and outcome, the product as an experience, thrust premium, free (or nearly free)
  2. Operating model: deconstruction, integration/acceleration of the supply chain, low cost, direct distribution
  3. 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

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)


b. A new approach to business-model innovation: 5 steps to turn your beliefs upside down (McKinsey & co.)

e.

e.