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The rules of the game and business models in primary prevention

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  • 1. FP7-ICT-2009.5.1 – Support Action Directions for ICT Research in Disease Prevention This project is partially funded under the 7th Framework Programme by the European Commission The Rules of the Game and Business Models in Primary Prevention Henri Hietala 8.11.2010
  • 2. www.preve-eu.org Content 1. Concepts & Theory 1. Understanding Business Models 2. Acknowledging the ”Rules of the Game” 3. The Transformation of Business 2. The Business Model Framework & Primary Prevention 3. Discussion
  • 3. www.preve-eu.org UNDERSTANDING BUSINESS MODELS “Competition today is not between different products - it’s between different business models” Gary Hamel
  • 4. www.preve-eu.org What is a Business Model?
  • 5. www.preve-eu.org What is a Business Model? The business model illustrates how the company makes money. What’s a revenue model then? Hmmm???
  • 6. www.preve-eu.org What is a Business Model? • A young concept first introduced in the 1990’s • Numerous different definitions, but no consensus has been reached on its meaning • Business models are not revenue models although the two concepts are mistakenly used as synonyms – Financial flows, both revenues and costs, are the consequence of creating value. • Business models illustrate how an organization creates value and captures a portion of this. – Value is the root of the business model – This is where managerial focus should be
  • 7. www.preve-eu.org What is a Business Model? Key questions to ask: Offer &Value proposition: What do you sell? What value does the company create for customers and partners? Customer: Who are your customers? How do you reach them? Infrastructure: What resources do you need for this and how do you organize them? Finance: How do you translate the created value into earnings and what does creating the value cost? COST STRUCTURE ACTIVITY CONFIGURATION CORE CAPABILITIES VALUE NETWORK INFRASTRUCTURE VALUE PROPOSITION OFFER FINANCE REVENUE STREAMS CUSTOMER RELATIONSHIPS CUSTOMER SEGMENTS CUSTOMER DISTRIBUTION CHANNELS Source: Modified from Osterwalder (2007)
  • 8. www.preve-eu.org What is a Business Model? • Business models can also be seen as: – Narratives that convince, typifications that legitimate, recipes that guide social action… – Therefore, we need a common understanding of what it means… • Business models are sources of competitive advantage • Business models conceptually vs. Business models in real life: – Conceptually built from the same elements – In practice every business model is unique What about business models in ICT enabled primary prevention?
  • 9. www.preve-eu.org ACKNOWLEDGING THE RULES OF THE GAME Prevention of diseases
  • 10. www.preve-eu.org What are the ”Rules of the Game”? 1. We are surrounded by rules… 2. The rules are different…
  • 11. www.preve-eu.org What are the ”Rules of the Game”? 3. Some also try to bend the rules… 4. Rules are needed…
  • 12. www.preve-eu.org What are the ”Rules of the Game”? • What about business? • All economic actors act in the context of society, culture, the economy and politics. • Economic activities cannot be viewed in isolation from other institutions or from the technological, political, and social context in which organizations exist • Institutions are the rules, consisting of both the formal legal rules and the informal social norms that govern individual behavior and structure social interactions – Institutions = Rules
  • 13. www.preve-eu.org What are the ”Rules of the Game”? • Institutions are constraints devised to structure interaction due to the uncertainties involved in human interaction. • For markets, to work as they should, we need institutions that govern the way business is conducted. • In other words, rules create “interoperability” in business and decrease risk for all stakeholders. • These rules however, are not necessarily or even usually created to be socially efficient • Rather they, or at least the formal rules, are created to serve the interests of those with the bargaining power to create such rules.
  • 14. www.preve-eu.org What are the ”Rules of the Game”? INSITUTIONAL LEVEL: ECONOMY ORGANIZATIONAL LEVEL: BUSINESS MODEL MARKET / INDUSTRY ECONOMICCONTEXTPOLITICALCONTEXT SOCIALCONTEXTTECHNOLOGYCONTEXT LEGAL CONTEXT • The Rules have a significant impact on the value creation potential of organizations on a market level.
  • 15. www.preve-eu.org What are the ”Rules of the Game”? • Creating or changing the rules has potential to create markets – A much greater effect than a change in a single business model Case A: The Railway System Case B: The Lead Market Initiative What about the ”Rules of the Game” for ICT enabled primary prevention?
  • 16. www.preve-eu.org THE TRANSFORMATION OF BUSINESS “The only thing we know about the future is that it will be different. The best way to predict it is to create it.” Peter Drucker
  • 17. www.preve-eu.org Service Dominant Logic • The role of services in current economies has grown. S-D Logic goes further in arguing that everything is a service. • Foundational premises from S-D Logic: – 1. Goods are distribution mechanisms for services – 2. The customer is always a co-creator of value – 3. All economic and social actors are resource integrators – 4. The enterprise cannot deliver value, but only offer value propositions – 5. Value is always uniquely and phenomenologically determined by the beneficiary
  • 18. www.preve-eu.org Value • Business models illustrate how an organization creates value. But what is value? – Benefits against sacrifices – Financial and / or non-financial • Value-in-exchange: – Value is created by the firm through a series of activities, and is embedded in the form of products and services that are distributed in the market to consumers, usually through exchange of goods and money – Firms create value, consumers consume/”destroy” it • Value-in-use: – Value is fundamentally derived and determined in use (value-in- use) rather than in exchange – The roles of producers and consumers are not distinct, meaning that value is always co-created, jointly and reciprocally
  • 19. www.preve-eu.org Value co-production & -creation • Value co-production: – Represents the joint activities of the firm and the customer in the creation of firm output. It involves the participation in the creation of the core offering itself. It can occur through shared inventiveness, co-design, or shared production of related goods, and can occur with customers and any other partners in the value network (Vargo, Maglio & Akaka, 2008) . • Value co-creation: – Value can only be created with and determined by the user in the ‘consumption’ process and through use or what is referred to as value-in-use. Thus, it occurs at the intersection of the offerer and the customer over time: either in direct interaction or mediated by a good because goods are distribution mechanisms for service provision. (Vargo, Maglio & Akaka, 2008)
  • 20. www.preve-eu.org The N = 1 and R = G World (a) (b) ”Old World” New N = 1 & R = G World 1900 2015 • N = 1: Refers to a shift from a focus on masses to a focus on the centrality of the individual. • R(esources) = G(lobal): Refers to a shift from ownership of resources to access to resources. Source: Prahalad & Krishnan (2008)
  • 21. www.preve-eu.org Value Networks • The locus of value creation is no longer perceived to reside within firm boundaries but value is considered to be co- created between various actors in the networked market • Value network: Complex socioeconomic systems that consist of various actors that form a commercial infrastructure whose constituent companies have mutually reinforcing economic models. • Value networks rely on the capabilities of others to enhance their value creation potential they tend to be collections of complementary and substitutive resources possessed by different economic entities
  • 22. www.preve-eu.org Value Networks TIER 2 ENABLERS TIER 1 ENABLERS SERVICE PROVIDERS CONSUMERS AUXILLIARY ENABLERS VALUE NETWORK Source: Basole & Rouse (2008)
  • 23. www.preve-eu.org THE BUSINESS MODEL FRAMEWORK & PRIMARY PREVENTION
  • 24. www.preve-eu.org The Business Model Framework VALUE PROPOSITION COST STRUCTURE CUSTOMER RELATIONSHIPS CUSTOMER SEGMENTS ACTIVITY CONFIGURATION CORE CAPABILITIES VALUE NETWORK REVENUE STREAMS INFRASTRUCTURE CUSTOMEROFFER FINANCE DISTRIBUTION CHANNELS ORGANIZATIONAL LEVEL: BUSINESS MODEL SERVICE SYSTEM LEVEL: VALUE NETWORK INSITUTIONAL LEVEL: INSTITUTIONAL ENVIRONMENT ”Rules of the Game”
  • 25. www.preve-eu.org The Business Model Framework • 3 layers: Business model, value network, ”Rules of the game” – Internal fit, external fit, configuration & re-configuration • Conceptually easy to understand, but in practice: – Business models are extremely complex – Value networks are extremely complex – ”The Rules of the Game” are extremely complex • Robustness (Aaltonen, 2010): Preferring common sense over lots of knowledge – Aristotelian reasoning: It is impossible to know in advance the right means to any end as the ends emerge in the acting situation of all its complexities • The framework does not necessarily give the right answers but helps in asking the right questions…
  • 26. www.preve-eu.org • Guidelines on a conceptual level that will help enhance value creation potential for individual service providers The Business Model Framework VALUE PROPOSITION COST STRUCTURE CUSTOMER RELATIONSHIPS CUSTOMER SEGMENTS ACTIVITY CONFIGURATION CORE CAPABILITIES VALUE NETWORK REVENUE STREAMS INFRASTRUCTURE CUSTOMEROFFER FINANCE DISTRIBUTION CHANNELS N = 1R = G S-D Logic, value co-creation Value co-production  Open Business Models Decrease costs through R = G Increase revenues N=1 & R = G
  • 27. www.preve-eu.org Primary Prevention: • 1) What about business models in ICT enabled primary prevention? • 2) What about the ”Rules of the Game” for ICT enabled primary prevention?
  • 28. www.preve-eu.org The Value Proposition to End-users • Value proposition: – A value proposition is a product or service that helps customers complete a job they’ve been trying to do more effectively, conveniently and affordably (Christensen et. al., 2009). • What is the ”job to be done” in primary prevention? – Sick population: To get healthy – Well & At risk population: Stay healthy or not to get sick • The ”graveyard” of failed products and services: People didn’t want what they should have wanted – Consumers are different, do we need different strategies? – Active Health & Worried Well vs. ”At Risk”
  • 29. www.preve-eu.org The Value Proposition for End-Users COMMON GOAL: STAY HEALTHY CARLO, 10 YEARS AT RISK SONJA, 20 YEARS AT RISK JENNI, 31 YEARS AT RISK ROBERTO, 48 YEARS AT RISK Value
  • 30. www.preve-eu.org The Value Proposition for End-Users CARLO, 10 YEARS AT RISK SONJA, 20 YEARS AT RISK JENNI, 31 YEARS AT RISK ROBERTO, 48 YEARS AT RISK Value Value Value Value 1) UNIQUE PERCEPTION OF WHAT VALUE IS 2) VALUE PERCEPTION MAY NOT BE HEALTH RELATED 1) LONG TERM HEALTH RELATED VALUE HIDDEN BEHIND OTHER PERSONAL VALUE PERCEPTIONS HEALTH & WELLNESS
  • 31. www.preve-eu.org What kind of Value is the Goal? • Hidden health benefits are needed because the end-user does not necessarily pay for the service: – Individual: Unique perception of value, ”perceived ROI” – Corporate Wellness: ROI – Society: ROI • Why not just a health related value proposition? – All health related value is dependent on the end-user in the long- term (value-in-use) – If health is not the job end-users want to do they will not use and no value will be created • Personalized value propositions with hidden health benefits
  • 32. www.preve-eu.org Technology & Resources • Technology: – New technologies have no intrinsic value – The value of technologies stems from the ability of entrepreneurs and firms to construct, often ex novo, organizational structures and networks of stakeholders and audiences in ways that allow for value realization ( = business model) – ”The Engineer way of developing” – Technology & Value-in-use: – S-D logic: Goods are distribution mechanisms for services – Value is created through use • Resources: – Emphasizing the behavioral context of primary prevention – Healthcare and ICT professionals alone is not enough
  • 33. www.preve-eu.org HealthMedia • Personalized Digital Health Coaching: – N = 1 & R = G – ICT enabled synergy and scale effects
  • 34. www.preve-eu.org What about the ”Rules of the Game”? Hospital Pharmacy Specialist- centre General Practice Home Restaurant Super- market Museum Sports centre Farm Work Car
  • 35. www.preve-eu.org What about the “Rules of the Game”? • Regulated health market: Loop 1 – Growing demand for healthcare services, shortages of resources – Strict rules to assure safety and create trust – Structures do not sufficiently support personalized primary prevention (system triggered for acute care) – Difficult to conduct business for prevention service providers • If we know prevention is a good thing why not change the rules?: – Case Railway: One change created a market – Case Prevention: Would one change be enough? What would it be? – Much more complex: Changing an existing system with long traditions, both the ”old” and ”new” system are needed, cross-sectoral politics (horizontal and vertical), conflicting value perceptions and different emphasis (electric cars or healthcare?), bargainning power & lobbying…
  • 36. www.preve-eu.org What about the “Rules of the Game”? • “Unregulated market”: Loop 2 – Co-Producers as the drivers of primary prevention: 1) The healthcare system is a small part of our lives when we are healthy 2) Factors contributing to positive or negative health = Life – Creating a favourable market for this by changing the ”Rules of the Game”. Policy tools including taxation, subsidies, R&D… • Making creating wellness / health lucrative – Service Providers in this market could create more attractive services to consumers – Liability issues, trust issues, validation of value proposition… • Integrating the two loops: – HSR’s vision: Engineering Awareness – Co-producers supporting the healthcare system in achieving the same goal: creating ”health” – The current way has not worked, we need new ways of thinking to solve the problem
  • 37. www.preve-eu.org • Positioning of market has major implications for business models because the rules may be different What about the “Rules of the Game”? REGULATED HEALTHCARE MARKET: PRIMARY PREVENTION ”UNREGULATED” MARKET: WELLNESS OR JUST LIFE HEALTHCARE PROVIDERS: Rules A CO-PRODUCERS: Rules A or Rules B?
  • 38. www.preve-eu.org Where to begin? • Who are / will be the innovators and early adopters? INNNOVATORS 2,5% EARLY ADOPTERS 13,5% EARLY MAJORITY 34% LATE MAJORITY 34% LAGGARDS 16% 100% 75% 50% 25% 0% MARKETSHARE% Current market ”THE CHASM” REALIZING POTENTIAL MARKET WILL REQUIRE SYSTEM LEVEL CHANGES
  • 39. www.preve-eu.org “Doggy Bag” • Business models: – Not the same as revenue models. Conceptual models of creating and capturing value, but in real life all business models are unique. – N = 1: Shift from a focus on masses to a focus on the centrality of the individual. – R(esources) = G(lobal): Shift from ownership of resources to access to resources. • The ”Rules of the Game”: – Market creators – Much greater impact than a change in an individual business model • Primary prevention: – We need rules that support prevention oriented value creation – Sustainable business models will be a consequence of these rules
  • 40. www.preve-eu.org • Complexity: A little luck never hurts the business model… ”Doggy Bag” Rovio Oy: Angry Birds – They could have not seen it coming…
  • 41. www.preve-eu.org THANK YOU & DISCUSSION Prevention of diseases
  • 42. www.preve-eu.org PREVE partners Valtion teknillinen tutkimuskeskus, VTT Aarhus University Fondazione Centro San Raffaele del Monte Tabor Universidad Politécnica de Valencia

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