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The Future of Service Business Innovation


The Future of Service Business Innovation

The Future of Service Business Innovation

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  • 1. The Future of ServiceTekes Review 272/2010 Business Innovation
  • 2. 2
  • 3. The Future of Service Business Innovation Tekes Review 272/2010 Helsinki 2010 3
  • 4. Tekes, the Finnish Funding Agency for Technology and Innovation Tekes is the main public funding organisation for research and development (R&D) in Finland. Tekes funds industrial projects as well as projects in research organisations, and especially promotes innovative, risk-intensive projects. Tekes offers partners from abroad a gateway to the key technology players in Finland. Tekes programmes – Tekes´ choices for the greatest impact of R&D funding Tekes uses programmes to allocate its financing, networking and expert services to areas that are important for business and society. Programmes are launched in areas of application and technology that are in line with the focus areas in Tekes’ strategy. Tekes programmes have been contributing to changes in the Finnish innovation environment for twenty years. Copyright Tekes 2010. All rights reserved. This publication includes materials protected under copyright law, the copyright for which is held by Tekes or a third party. The materials appearing in publications may not be used for commercial purposes. The contents of publications are the opinion of the writers and do not represent the official position of Tekes. Tekes bears no responsibility for any possible damages arising from their use. The original source must be mentioned when quoting from the materials. ISSN 1797-7339 ISBN 978-952-457-504-1 Cover picture: Kari Lehkonen Layout: DTPage Oy Printed by Libris Oy, Helsinki 20104
  • 5. ForewordThis report is written for companies and organizations interested in challenging and renewing theircurrent thinking on services business. “The Future of Service Business Innovation” takes a Silicon Val-ley focused yet a globally relevant look at the trends, business models and forerunner attributes thatactivate thinking around service business innovation opportunities. Report is written in a handbookstyle to provide seeds for further thinking in the individual company’s business development. This report highlights ten trends that are both driving and enabling global and local level busi-ness transformation. It also explores what kinds of business models are needed to compete in thisever changing business environment. Trends presented here are considered broad based enablersof various business-to-business models in services across industries. The report argues that the fu-ture business opportunities are most likely found in the intersections of these, and other, trends byexperimenting, challenging and questioning current assumptions and conventions. The report presents four key business model innovation strategies that are commonly used bycompanies possessing forerunner characteristics. These strategies highlight innovations based uponattributes, knowledge, mobility and solutions. Business case examples are provided from each ofthe four strategies to describe the characteristics required from a forerunner in each category. Whenreading the cases it is important to keep in mind that the provided categories are ideal types, andin real life they are often merged. One could say that most forerunners mix features from differentstrategies. However, the business cases are presented under those categories that are dominatingchange in company’s service business. The world of services business innovations is without a question complex, multidimensionaland constantly changing. The challenge is to think out of the box: how to make yourself and yourcompany to think and see beyond the obvious, looking at the intersections of trends, ideas andmodels. What is your company’s version of the Cemex model to change your industry’s pricing modelsand how you “Zipcar” your business model to challenge longstanding assumptions how to meet yourcustomers’ needs? This report has been written by Soren Kaplan and Derrick Palmer from InnovationPoint ( Tekes sincerely thanks writers for taking us on this journey to the future ofservices business innovation. The report is a result of collaboration between Tekes Silicon Valley andTekes “Serve – Pioneers of Service Business” – programme. Tekes would also like to thank collectively all those people inside and outside of Tekes who haveparticipated in the work through interactive workshops and by commenting the drafts of the report. On 1 July 2010 in Helsinki and Santa Clara Tekes 5
  • 6. Table of Contents Foreword ..............................................................................................................................................................................................5 Introduction ......................................................................................................................................................................................7 Objectives .......................................................................................................................................................................................7 Service Business Innovation Framework .....................................................................................................................8 Methodology ................................................................................................................................................................................8 Forerunner Case Examples ...................................................................................................................................................9 Service Forerunners – Competencies for the Future ........................................................................................9 Global Megatrends – Enablers of New Business Models ............................................................................ 11 Business Model Innovation – Creating New Value for the New Economy........................................ 17 Forerunner Innovation Strategies .................................................................................................................................17 Working with the Case Examples..................................................................................................................................17 Forerunner Innovation Strategy #1: Attribute-Based Innovation ..............................................................19 Forerunner Innovation Strategy #2: Knowledge-Based Innovation ........................................................31 Forerunner Innovation Strategy #3: Mobile Web-Based Innovation .......................................................39 Forerunner Innovation Strategy #4: Solution Based Innovation ................................................................52 Harnessing the Future............................................................................................................................................................ 69 Reference Charts ........................................................................................................................................................................ 71 Tekes Reviews in English ...................................................................................................................................................... 73 List of Tables Table 1. Seven Attributes of Forerunner Service Businesses....................................................................10 Table 2. Innovation Strategies and Corresponding Business Models ................................................17 Table 3. Business Model Relevance Chart ...........................................................................................................18 Table 4. Forerunner Innovation Strategy #1: Attribute-Based Innovation.......................................19 Table 5. Forerunner Innovation Strategy #2: Knowledge Based Innovation .....................................31 Table 6. Forerunner Innovation Strategy #3: Mobile Web-Based Based Innovation .................39 Table 7. Forerunner Innovation Strategy #4: Solution Based Innovation.........................................52 Table 8. Innovation Strategies, Business Models & Cases by Megatrends & Forerunner Attributes ....................................................................................................................................71 Table 9. Case Examples by Primary and Secondary Business Models ...............................................72 List of Figures Figure 1. Service Business Innovation Framework............................................................................................8 Figure 2. Service Business Innovation Global Megatrends.......................................................................116
  • 7. IntroductionIt is no secret – services now account Our premise is simple: gaining in- within a B2B context. What does existfor over 75% of US output (GDP) and sight into emerging megatrends helps tends to be focused on IT services, andover 70% of output across other indus- you obtain a deeper understanding is often heavily influenced by large ITtrialized nations globally1. The num- of the most promising business mod- service providers like IBM2.bers are growing and the implications els for the future. This is exactly whatare significant. Around the world and we’ve done. A key component of this Objectivesacross industries, a wide array of organ- report is a portfolio of exemplary busi-izations – consumer focused, business- ness models that each represents an With this context, there are three objec-to-business, non-governmental, and “early signal” with respect to the serv- tives of this report:even governments – have embarked ice business approaches that will drive • Highlight emerging service busi-on an explicit journey of defining and growth and create differentiation in ness innovation megatrendscreating new service-related value an increasingly competitive services • Outline the characteristics of Fore-targeted at our ever-expanding, net- environment. runner services companiesworked global knowledge economy. And because we know that ideas • Provide tools for defining practical While we recognize it is impossible don’t equate to innovation, we also implications and opportunitiesto predict the future, this report high- highlight the qualities and characteris-lights the key megatrends and business tics of what we call “Forerunner” service To expand on these points, the firstmodels that will influence and shape companies. These Forerunner Attributes, objective is to highlight the globalthe future of service business innova- we suggest, are essentially the core megatrends that individually or col-tion. By “service business innovation”, competencies required for driving the lectively will drive the service businesswe mean the creation of business-to- service innovation of the future – com- innovation opportunities of the fu-business (B2B) services that deliver value petencies and mindsets that represent ture. Given the potentially broad focusdirectly to business customers, and then a radical departure from traditional of this activity, we have zeroed in onultimately to end-customers, end-users manufacturing or product-based ap- trends that are the broad-based ena-or consumers, depending on the spe- proaches to innovation. blers of various B2B business modelscific service. We also care deeply about While the academic and popular across industries. We have done this inthe question: “So what?” To this end, we presses are full of articles related to two ways – first by outlining a numberprovide practical questions and tools for “business models” and “innovation,” lit- of key megatrends and second by in-thinking about what these trends and tle has been written from a services troducing case examples from a vari-business models could mean for your perspective. Even less has been writ- ety of industries that existing compa-own company. ten about service business innovation nies can learn from or even potentially Berry, L. et al (2006). Creating New Markets through Service Innovation, MIT Sloan Management Review, Vol. 47, No. 2.1 Succeeding through Service Innovation by IBM and University of Cambridge. White Paper, Cambridge Service Science, 2 Management and Engineering Symposium, July 2007. 7
  • 8. adopt as they make their own transi- stories, but also includes examples you have an understanding of the tions to becoming Forerunner services from unproven (and sometimes strug- what (the specific opportunities you businesses themselves. gling) start-ups since these fledgling want to pursue) the question of how The second objective is to out- upstarts are often the ones introduc- to achieve these then follows (the ca- line the characteristics of “Forerunner” ing and proving out the intriguing pabilities needed to drive the oppor- services businesses. By “Forerunner” principles and business models of the tunities) (see Figure 1). we mean a company that takes a truly future. innovative approach to providing busi- Methodology ness-to-business services. In a sense, Service Business Innovation the concept is an ideal type or arche- Framework The methodology used for this report type, since few (if any) companies are included three primary activities: true Forerunners in every sense of the The perspective that informs this re- • A research scan of the popular word. The intent here is to outline the port comes from the belief that new press, academic literature, and the full portfolio of characteristics of this opportunities reside at the intersec- internet; ideal organization, and to illustrate tion of emerging trends and cus- • Interviews of experts from aca- these characteristics through case tomer needs (either articulated needs demia, business, consultants and examples that profile one or more at- but more importantly unarticulated think tanks; tributes at a time. needs). When insights gleaned at this • Application of InnovationPoint’s The third objective is to ensure intersection are overlaid with a lens own insights from 15 years’ work that all of these insights are presented focused on business model innova- in the area of product, service and in a way that is as practical as possible. tion, it becomes possible to define business model innovation and re- To this end, the report presents key new approaches for capturing and search across industries. questions for aspiring service compa- deliver value. These approaches, of nies to stimulate further strategic in- course, must be supported by specific Our research included interviews with sight. organizational capabilities that lead to a small but diverse group of thought Because the field of services is tangible innovation – in the context leaders who we knew could provide extremely broad and can be inter- of this report we call these Forerunner a stimulus to help challenge conven- preted in many different ways, it is also Service Business competencies. Once tional ways of looking at services and important to define what this report is not. It does not attempt to classify or map out the domain of services by Figure 1. Service Business Innovation Framework type of offering, company or industry, nor prescribe implications and recom- mendations for specific industries or Service Innovation businesses. Rather, it highlights trends Megatrends and proposes implications that may have cross-industry applications. And Business Forerunner while the emphasis is on business-to- Model Service Business Innovation Competencies business, it does not just focus solely Strategies on B2B examples, since certain con- Customer & Customer’s sumer-focused trends are sometimes Customer better indicators of important weak Needs signals that may eventually become usable in the B2B world. Finally, it does External Opportunity Focus Organizational Focus not only highlight proven success8
  • 9. service innovation. Interviewees repre- value they desire, and the value that provide essentially lies in the physicalsented organizations including: can only be delivered through collabo- product itself. The customer buys and• ANWB Netherlands ration and co-creation3. The challenge uses the product, it meets a need, and• NHTV Breda University of Applied goes beyond one of service develop- everyone moves on. Similarly, many Sciences ment to the heart of an assumption service-based companies in industries• Hewlett-Packard that is ingrained into the fabric of such as insurance, finance, healthcare,• Cisco Systems business and society – that delivering and education approach the provision• Institute for Global Futures value comes from selling something, of their services with a similar mindset• Solar City exchanging goods for money, and that – they “productize” their offering to al-• New York City Department of customer interactions are inherently low for scalability, efficiency and re- Public Transportation transactional. Of course value is deliv- peatability. Thus, the customer receives• Charles Schwab ered and money is made when prod- the service, it meets a need, and the in-• Whirlpool ucts and services are exchanged. The teraction generally ends there, at least point is, however, that future growth until the service is needed again (forForerunner Case Examples and competitiveness lie in a company’s example, at annual renewal time for an ability to tap into the power of this new insurance policy). Even for these typesThe companies we selected as case service logic. of service companies, the value of theirstudies in this report are used to high- The visionary companies that chal- offering resides in a pre-defined, rela-light specific elements or principles of lenge these assumptions are “Forerun- tively inflexible “product” based on aservice business innovation. Some of ners” of the new economy. These com- transaction-based mindset.these cases focus on large companies panies are emerging every day, and the At first blush, it is natural to thinkthat are over 100 years old, while oth- seeds within their innovative business that a Forerunner company that em-ers involve start-ups with just a handful models promise to sprout entirely new bodies the future of service businessof employees. None of these compa- ways of doing business. So why should innovation would be a pure servicesnies are “perfect” per se, but they have we care? Because these new business company. No so. Forerunner compa-all approached service innovation in models provide us with clues about nies can sell products and/or services,novel ways that challenge existing as- ways we can think differently to create but most importantly they possess asumptions in order to introduce what significant future growth. They contain different mindset – a lens from whichmay ultimately become viable new di- the design principles for creating and they operate and participate in therections for the service business mod- delivering new value – designs for our market.els of the future. future products, services, experiences Forerunner companies have moved and even for our organizations them- beyond the transactional mindset andService Forerunners selves. engage with customers in ways that– Competencies for Many manufacturing companies expand the definition of value. For ex-the Future take a product-centric view of their ample, their customer relationships business – they start by thinking about are unique, with interactions that areAlthough it is no secret that services what they can make using their exist- often ongoing, collaborative and thatrepresent a driving force for business ing technologies and capital equip- “co-create” value for both their custom-growth in the future, there is a secret. ment, and then sell a product to some- ers and themselves. Enabled by deepAnd it is only known by firms willing to one for a given price. Though they may insight into their customers’ stated andembrace new “service logic” – a new provide a warranty and customer sup- even unarticulated needs, the valueway of thinking about customers, the port if needed, the value of what they they provide is often differentiated Lusch, R. & Vargo, S. (2006). The Service-Dominant Logic of Marketing. M.E. Shape Inc: New York.3 9
  • 10. through novel business models that companies are anchored in informa- value for both customers and custom- are unique in the industry. tion, knowledge, and technology, often ers’ customers – which often includes While Forerunner companies may creating solutions by tapping into rela- customers and customers’ customers indeed be pure services companies tionships within a larger value network themselves. that never deal directly with tangible of stakeholders. On the financial side, rather than products, they may be companies that Forerunner companies recog- focus solely on revenues and profit, deliver products, usually in combina- nized that value no longer comes Forerunner companies recognize that tion with services. A manufacturing from “chains” but from networks. Value market value is equally important, and company that simply provides goods chains are linear. Value networks are focus on building up capabilities be- in combination with ancillary services adaptive. Chains take time to change. yond technologies and other hard as- purely to support the product trans- Networks are complex, multidimen- sets. Intangible assets are seen as equal action, however, does not fit the defi- sional and ever-changing. The increas- to, if not more important than hard nition. Forerunner companies believe ing pace of change increases the pace assets, and include non-quantifiable that any products sold are actually at which products, services and busi- or physically visible things such as vehicles for delivering various services ness models must be changed in order knowledge and know-how, customer that meet both tangible and intangible to remain relevant and to continue relationships, brand equity, employee needs – even when products contrib- delivering value. Whereas value chains alignment, community goodwill, and ute revenue streams, the definition of generally focus on hand-offs of mate- other intangibles. These intangible as- “product” resides in the context of a rials and goods, value networks collec- sets all contribute to the overall value broader service-oriented solution. tively deliver value through exchang- and competitiveness of the firm – and The implications of this service- ing and integrating knowledge and in fact boost them significantly over centered mindset on the organization intangible assets such as brand iden- the long term. Forerunner companies itself can be profound. A continuous tity and know-how. Forerunner compa- are also more inclined to recognize yearning to understand, empathize nies broaden their frame of reference that value creation ultimately involves with and deliver value against the around the potential players and their a focus on the triple bottom line – peo- evolving needs of the customer drives roles in contributing to the creation of ple, purpose, and profit – in ways that everything. Employees are seen as service providers and given opportuni- Table 1. Seven Attributes of Forerunner Service Businesses ties to deepen their knowledge of cus- tomer needs and to build skills focused Traditional Product Forerunner Service on satisfying these needs. Business Attributes Business Attributes When it comes to defining and Transactions are the ultimate driver of Building relationships drives financial building core competencies, Forerun- financial value value ner companies know that their tan- Delivering value means selling to Value delivery comes from collaborating gible and intangible assets are both customers and co-creating with customers critical to success. Beyond technolo- Distribution is the best way to reach Designing and managing experimental gies, processes and physical assets, customers interactions is the best way to reach they realize that success is built on customers how well they manage their evolving Products satisfy customer needs Solutions satisfy customer needs brand identities, the ability to manage Technology development drives Technology enables service and business relationships and facilitate customer innovation model innovation networks, and harness information and Strategies focus on participating within Strategies focus on building or tapping into knowledge in ways that continually one part of the value chain value networks deliver new forms of value. Finally, the Bottom line profit is the primary goal Profit is one goal among others business models of Forerunner service10
  • 11. create benefits for employees, share- to understand the broader context in – whether global, local or industry spe-holders, the community, the environ- which these emerging business mod- cific – and how these may connect to orment and society as a whole. els reside. support what is presented here. The collective set of Forerunner A number of global megatrends Not surprisingly, a number ofattributes is anchored in a number of are currently shaping the future busi- megatrends presented here are rootedassumptions about what will drive ness landscape, and will continue to in technology, since new technologyvalue in the future. Companies seek- have dramatic impact on creating new often creates new possibilities for valueing to become truly service-centered possibilities for service business innova- delivery. But technology is not the onlymust shift their mindsets to embrace tion. A great number of these trends im- enabler. What is important for the fu-these assumptions as they move be- pact the overall economic and business ture of service business innovation isyond traditional product-focused (and environment globally, from increasing what can be created, accomplished, ortransaction-focused) thinking. “democratization” of the political land- delivered by tapping into the collective scape, to the interdependence of finan- power of various megatrends to deliver cial and economic systems, to shifting new forms of truly meaningful value toGlobal Megatrends demographics, to global health issues customers.– Enablers of New and challenges, and the list could go on. The business models presentedBusiness Models While these overall trends are important in the next section highlight the meg- to acknowledge and understand, we atrends that have allowed them to be-The world of “trendspotting” is a big chose here to conduct deeper dives come viable new sources of customerplace, so finding focus is critical. While into those megatrends that are the most value in today’s world. The followinga great many trends could have been profound drivers of the specific business ten Service Innovation Megatrendshighlighted in this report, the end- models that were identified through appear again and again, in variousgoal here is to share emerging services our research (see Figure 2). We encour- combinations, as the fundamental driv-business models. It is helpful, however, age readers to consider other trends ers of new service business models.Figure 2. Service Business Innovation Global Megatrends 11
  • 12. The Cloud The world is getting cloudy. “The Cloud” is the term used to de- scribe the pervasive virtual infrastruc- ture that will support new applica- tions, connected collaboration across individuals, groups, and organizations. While “cloud computing” is now a relatively widely discussed phenom- enon – driven forward by the likes of Microsoft, Oracle, Google, Apple, Cisco Systems, etc. – the ultimate impact of the Cloud is still unfolding since this is still in its infancy. What is important to understand is not the technology behind cloud computing per se, but result from it. While we do not know computing infrastructure that will be how other interdependent trends will how things will materialize, it seems the fundamental backbone of various interact with it – that is, how they will that the future will be characterized new service applications, models and help drive it, be impacted by it, or will by a growing and pervasive cloud experiences. Web Based Value Delivery The world is wired. Today, almost 75% of the population of North America, 52% of the popula- tion of Europe, and almost 50% of the population in China are internet users4. Internet usage percentages hit close to 100% when applied to mid- and large- sized businesses. The web will continue to serve as the essential interface for tapping into a wide range of applica- tions delivered via computers and other devices. Across industries, existing busi- ness services are increasingly being transformed to web-based delivery. Whole new applications and services are also being created that use the web tions to providing complete customer ing to various devices beyond comput- to deliver value that spans the gamut, solutions. These services use the inter- ers. The future will be characterized by from delivering location-based informa- net and web browsers as the delivery increasing web services available across tion to facilitating collaborative interac- platform, and are increasingly expand- a range of devices. As of September 30, 2009, 412
  • 13. Mobile Value DeliveryThe world is going mobile.Mobile devices have become ubiqui-tous with approximately 4 billion mo-bile subscribers worldwide5. And theyare getting smarter too – smart phonesales continue to increase with over150 million sold in 20096. Mobile valuedelivery involves web-based services,but this megatrend includes any serv-ice delivered through mobile devices,from web-enabled to SMS/text tovoice and other delivery forms. Thesedevices can also include phones,smart phones, MP3 players, PCs, GPSsystems, tablet computers, wearablecomputers, or any other device that acterized by the increasing ubiquity anywhere service solutions that theyis “portable,” The future will be char- of mobile devices and the anytime- enable.Everything as a ServiceThe word is servicizing.In the late 1990’s companies like and WebEx challenged con-ventional wisdom and established “soft-ware as a service” (SaaS) models. Today,the proponents of cloud computinghave extended the “as a service” conceptto include Platforms as a Service (PaaS),Networks as a Service (NaaS), Communi-cation as a Service (CaaS), and Infrastruc-ture as a Service (IaaS). The overarchingidea: with a ubiquitous, always-on tech-nical infrastructure, a whole new worldof opportunities arises to create newservice offerings based on instant ac-cess. Although still focused primarilyon technology, an early signal that thismegatrend is about to explode is that a (XaaS) – to describe the boundless pos- by an increasing number of “as a Service”new term is emerging – “X” as a Service sibilities. The future will be characterized delivery and business models. www.canalys.com5 www.cleantech.com6 13
  • 14. Experience Design The world is experiential. While it used to be that “design” was a concept strictly applied to prod- ucts and user interfaces, experience design has emerged as a new way of approaching innovation – from the end-user or end-consumer perspec- tive. With a recognition that the overall experience is what ultimately delivers value, and can be a significant differ- entiator for both products and services, experience design is rapidly becoming the de-facto standard as an approach for research, technology development value to customers. This value often with service offerings in new ways. and creating new delivery models. By goes beyond tangible products and The future will be characterized by an focusing on the overall experience, it services by eliciting human emotions increasing awareness of the power of becomes possible to create end-to-end as a response to physical product at- design as an experience and process or total solutions that provide greater tributes or being involved or engaged for innovation. Sensing & Monitoring The world is being tracked. With the growth of embedded micro- chips, RFID, GPS, barcodes, and a wide range of sensor technologies, it be- comes possible to sense and monitor things in ways that provide real-time information and aggregated data to re- veal new insights and inform decisions. From sensing temperature changes, carcinogens, food contaminants, mo- tion, noise levels, light, humidity, and other aspects of the physical environ- ment, to monitoring and tracking the movement and attributes of physical objects, it becomes possible to create “sensing networks” that capture pat- terns that can become the source of ties of what can be tracked and how accelerometers to detect motion, and value added knowledge, and the basis is virtually endless. The future will be GPS enabled location-based services of new revenue-generating services. characterized by increasing services – that provide instant access to the With trillions of potential “data events” delivered through mobile phones and knowledge and insights driven by a occurring worldwide, the possibili- devices – such as bar code scanners, wide range of sensing networks.14
  • 15. Collaborative ContributionsThe world is collaborating.New ways of working are emergingthat are enabled by both new technol-ogies and a fundamentally new mindsetaround the types of interactions that de-liver customer value. Group and com-munity collaboration tools like WebEx,LiveMeeting, GoToMeeting, TelePres-ence, iCohere, Tomoye, SharePoint, andhundreds of others, open new possi-bilities for anytime-anywhere meetings,learning events, knowledge-sharing,and communication across time zones,cultures, and organizational boundaries.Along with these tools comes a newmindset – a new mental model thatadvocates co-development and co- stakeholders both within and outside within and across individuals, workingcreation of new products, services, proc- the organization. The future will be char- groups, business functions, suppliers,esses, and business models with the key acterized by increasing collaboration and especially customers.Social Networking &CommunicationThe world is socializing.As opposed to “collaboration” whichis generally focused on an explicitlydefined group objective or task, so-cial networks create new possibilitiesfor grass-roots organizing, knowledgeand resource sharing, new relation-ships, and personal gratification. Withthe rise of professional networks likeLinkedIn and Spoke, to general socialnetworks like FaceBook and Twitter,more and more businesses recognize networks provide ways for tech-savvy create value. The future will be charac-the potential for tapping into the organizations to gain insight into real- terized by the continued growth andpower of social Networks. From the time emerging customer/consumer integration of existing and new socialVisa Small Business Network on Fa- needs and opportunities, to generate networks as a fundamental compo-ceBook to hundreds of business and awareness, to influence participants, nent and driver of service experiencesprofessional groups on LinkedIn, these and to engage them in activities that and business models. 15
  • 16. Globalization with Local Relevance The world is small. With new communication, network- ing and collaboration tools comes the ability to reach global markets and cus- tomers in ways never before possible. “Going global” is no longer a strategy limited to large multi-national firms. In fact, more and more, local relevance and global presence will become in- tertwined as localized offerings and services may rely on globally sourced products, information, and knowledge and vice versa. Smaller and medium are often nimble and flexible enough characterized by increasing competi- sized firms, especially, will increasingly to be able to instantaneously tap into tion locally, as well as opportunities for challenge conventional ways of doing global supply chains, new channels, global expansion for those who recog- business around the world since they and local resources. The future will be nize that the world is truly small. Climate Change & Sustainability The world is purposeful. More and more research, press and new business innovation is focusing on op- portunities tied to climate change and sustainability. A tipping point has oc- curred in which the vast majority now recognizes that a fundamental shift is needed, and that “good business” and “doing good” are no longer mutually exclusive. From the US $5.6 billion in- vested in cleantech innovation in 20097 to the multitude of business ventures like the Grameen Bank that have proven rately from “business,” sustainability is There are many other megatrends that out their “profit with purpose” business rapidly becoming an equally assumed could have made this list. Those that models, socially meaningful business component of simply doing business. were selected represent key enablers is becoming a pervasive element of The future will be characterized by the that underlie the emerging business business as usual. Just like today we increasing adoption of financially viable, models that are shaping the future of no longer talk about “e-business” sepa- socially beneficial business models. service business innovation. 716
  • 17. Business Model Table 2. Innovation Strategies and Corresponding Business ModelsInnovation – Creating Innovation strategy Description Business ModelsNew Value for the New Attribute Based Innovation focused on redefining 1. Time Based modelsEconomy Innovation certain core attributes of existing 2. On Demand models products in ways that fundamen- 3. Product Transformation tally shift the financial model away modelsWhile a service mindset and an un- from goods to servicesderstanding of future trends are key Knowledge Based Innovation focused on leveraging 4. Data Aggregation elements of the new “service logic,” Innovation data, information and knowledge modelsthey are not enough – an organization gathered automatically or through 5. User-Generated must develop and tap into its creative customer interactions that rein- modelsimagination to conceive of a winning force existing products or services, business model within its own market or create new revenue-generating servicescontext. Here, “business model” is de-fined as the way in which an organiza- Mobile Web Based Innovation focused on transform- 6. Digitize it models Innovation ing existing products or services 7. Make it Mobile modelstion creates, delivers and captures value – of creating entirely new value 8. Platform as a Service economic, social, or other types of value. through internet or mobile deiv- models While there are many approaches ery and experienceto business model innovation, one Solution Based Innovation focused on expanding 9. Adjacency Complement tried and true method is to borrow Innovation the value of existing products or modelsinsights from other companies and in- services by adding services that 10. Experience Service dustries. The goal isn’t to apply a rub- meet a broader set of customer models needs or by introducing comple- 11. Consultative Value ber stamp model from one industry to mentary service offerings modelsanother – rather, by exploring business 12. Profit with Purpose models from companies in adjacent or modelsnon-adjacent industries, the seeds forcreative inspiration and imaginationcan be sewn. it, and the lifecycle of the customer re- Our goal here is to provide an lationship. understanding of the core principlesForerunner Innovation The four business model innova- underlying each model, in order toStrategies tion strategies are: highlight insights that can serve as the 1. Attribute Based Innovation starting point for aspiring service inno-Four key business model innovation 2. Knowledge Based Innovation vators to identify new opportunities forstrategies are commonly used by 3. Mobile Web Based Innovation their own industries and markets.companies that possess Forerunner 4. Solution Based Innovationcharacteristics. Each of these strategies Working with the Casetaps into the power of the service in- Each strategy can be used to create Examplesnovation megatrends and ultimately two or more distinct business modelsrelies upon a deep understanding of that are based on similar design princi- In this report, we describe four businesscustomers – and customers’ customers ples. For simplicity sake, these business model innovation strategies, under-– needs. All of these involve the funda- models are categorized under the four neath which are 12 different businessmental redefinition or wholesale crea- business model innovation strategies models, illustrated through 24 case ex-tion of the customer value equation to illustrate certain design principles, amples (see Table 3). We must empha-– what is actually valued by customers, but in reality each may contain aspects size that many of the cases actually in-how they receive it, how they pay for of the others (see Table 2). corporate elements of multiple business 17
  • 18. models, which is in many cases what models, consider the core strategies than others, we have created a chart makes these companies innovative. We that were employed and the underly- to help navigate which strategies, busi- have chosen to classify the cases based ing operating principles at work. Then ness models and cases may be of most on their primary business model – the ask yourself how you might be able to interest to you – the chart is organized model that represents the core driver of apply these principles and approaches based on the relevance of the business the value they provide and which serves to your own business context. models to established product compa- as primary underpinning of their organi- Given that certain innovation nies, established service companies, or zational strategies and structures. strategies and business models are start-ups (if both a product and a service As you become familiar with these more pertinent to some companies company then all cases will apply). Table 3. Business Model Relevance Chart Business Model Relevance & Product Firms Manufacturing Service Firms Start-Ups Cemex 3 Time-Based Value Models Attribute-Based Rolls-Royce 3 Innovation Hewlett-Packard 3 3 On Demand Service Models Zipcar 3 3 SolarCity 3 3 Product Transformation Models IFH Holdings / Expresso Fitness 3 3 Intuit 3 3 Knowledge- Data Aggregation Models Innovation Gardner Denver 3 3 Based Honda 3 3 3 User-Generated Models iStockPhoto 3 3 3 Open Table 3 3 Mobile Web-Based Digitize It Models Cisco Systems 3 3 Innovation t+Medical 3 Make It Mobile Models NeoMedia 3 Apple 3 3 3 Platforms as a Service Model Nintendo 3 3 3 Eureko / Achmea Health 3 3 Solution-Based Innovation Adjacency Complement Models Michelin / ViaMichelin 3 3 Harley Davidson 3 3 Experience Service Models Visa 3 3 FM Global 3 3 Consulatative Value Models Herman Miller 3 3 iReuse 3 3 3 Profit with Purpose Models Vodafone 3 3 318
  • 19. Forerunner Innovation Strategy #1: Attribute-Based InnovationThe business models driven by Attribute- ing these models is a deep understand- examples provide illustrations of howBased Innovation fundamentally rede- ing of what truly delivers value to cus- both established firms and start-upsfine the core assumptions of existing tomers, specifically, that it is not the ac- have reshuffled the value equation toproducts in ways that shift the financial tual physical product that is desired but shift what is often a commodity prod-model away from selling a product to rather the service-related value that the uct into a high value, higher marginselling a service (see Table 4). Underly- product enables. The Forerunner case opportunity.Table 4. Forerunner Innovation Strategy #1: Attribute-Based Innovation Business Models Case Examples Descriptions Time-Based Value Models CEMEX created a value proposition based on “timely Redefines the product offering delivery”, creating competitive differentiation and a pre- based on the value of “time” to mium pricing model in a once commoditized industry. the customer Rolls-Royce shifted from selling aircraft engines to selling ”uptime”, which led to the wholesale redefinition of its operations and created a new industry standard. On Demand Service Models HP cultivated a new-to-the-world business model that Redefines the product offering transforms the traditional magazine newsstand into an based on the value of “anytime on-demand service, and that uses its own customers access” to the customer as service suppliers. Zipcar challenged long-held industry assumptions by introducing on-demand car rentals that address a spectrum of unmet needs that traditional rental models overlook. Product Transformation Models SolarCity ”servicized” what is traditionally sold as an Redefines the product offering expensive product, lowering the customers’ barrier to based on the fundamental entry and establishing it as a major force in an emerging end-user service need market. IFH’s Expresso Fitness introduced new possibilities in fitness-related services by connecting ”equipment” to subscription services and social networks in ways that support and reinforce the core motivational drivers of its customers’ customers. 19
  • 20. Redefine the core assumptions of existing products in the ways that shift Forerunner Examples the financial model away from selling a product to selling a service Time Based Innovation As you review these cases, consider the following questions to inspire your thinking: What kinds of services or approaches could you offer based on the value of “time” to the customer? Consider things that: • Tap into the ways the customers think about “time” (e.g., the ways that they currently price their time) • Generally accelerate the customer’s current process • Help the customer to combine or eliminate steps in their current process, especially the most time- consuming or problematic steps • Entirely reinvent the customer’s process Forerunner Innovation Strategy #1: Business Description Key Innovation Attribute-Based Innovation Founded in Mexico in 1906, CEMEX has CEMEX positioned itself as a global Time-Based Value Models grown from a purely local player to one leader in the cement business by creat- of the top building materials compa- ing a new measure of customer value: nies in the world. While the majority instead of simply providing ready-mix of its sales come from cement, CEMEX concrete (a product), they promise on- does not see itself in the “cement busi- site cement delivery within 20 minutes ness.” Rather, the company views itself of a request. CEMEX realized that their URL: as in the business of providing custom- product represents a critical linchpin Headquarters: García, Nuevo León • Mexico Year Founded: 1906 ers with the most efficient and effective in the building chain – if the cement Revenue: US $14,544M building solutions – no matter what is not there exactly when it is needed, Employees: 56,791 their construction needs. The company delays can result in significant costs to has a long history of innovation, due in their customers. The only catch – cus- CEMEX created a value proposition part to its customer co-creation philos- tomers often do not know when ex- based on “timely delivery”, creating ophy: “We do more than listen to our actly the cement is needed. Because competitive differentiation and a pre- clients’ needs; we involve them in the ready-mix cement turns to useless mium pricing model in a once com- development and refinement of our in- chunks after 90 minutes, CEMEX knew moditized industry. tegrated products and services.” that customers would pay a premium20
  • 21. price for on-time delivery. Until then,typical delivery times in Mexico wereat least three hours from the time arequest was received until it was de-livered. Because change orders werethe norm and not the exception, it wasvery hard to predict when customerswould need their cement, resulting inexcess inventory, wasted product andincreased costs for suppliers like CE-MEX. To understand the requirementsof a just-in-time delivery model, an in-ternal CEMEX team went to places asfar afield as FedEx and a 911 call centerto observe the principles behind theirsuccess. As a result, CEMEX equipsits trucks with a Global PositioningSystem so that the dispatcher alwaysknows exactly where the fleet is locat-ed. Using a sophisticated, electronicscheduling system, the dispatchersends messages to reroute driversbased on traffic information or thechanging needs of customers. CEMEXeven launched a marketing campaignto make the 20 minute delivery timememorable: “Now the concrete is fast-er than the pizza.”Financial Model Value Network is coordinated through a global logis-This new thinking now gave CEMEX With operations in over 60 countries, tics network focused on one key metricthe ability to create a new model that CEMEX’s geographic expansion is – delivery within 20 minutes of a cus-moved away from commodity pricing largely the result of partnering with tomer order. It is working: overall, theand to introduce premium pricing for and acquiring other building materials company has achieved 98% on-timeready-mix cement delivered within suppliers and competitors. Its extensive delivery.20 minutes of a customer request. infrastructure of over 65 cement plants,Because they understand the cost im- 400 quarries, 187 distribution centersplications to their customers, CEMEX and 1700 ready-mix concrete facilitiesprovides discounts if the delivery islate. 21
  • 22. Forerunner Innovation Strategy #1: mise in quality. Customers did not from parts and servicing. The challenge Attribute-Based Innovation need engines – they needed airplanes comes when an engine manufacturer with “uptime.” Thus Rolls-Royce shifted sells the engine at a loss and then a Time-Based Value Models from a product-based model of sell- smaller, nimbler competitor is awarded ing engines to a service-based model the spare part/servicing business. To whereby customers pay a fee for every mitigate this risk, Rolls-Royce success- hour an engine runs. fully bundled the price of the engine To ensure continuous perform- and the service into a single “product ance, Rolls-Royce has made significant + service” solution by charging its cus- investments in an operations center in tomers a fee for every hour that the URL: Derby, England that continuously as- engine runs. Rolls Royce was the first to Headquarters: London • England sesses the performance of its 3,500 jet offer this type of service arrangement, Year Founded: 1884 engines around the world. This sophis- setting a precedent for the industry. Revenue: 13,144 Employees: 39,000 ticated equipment sends back signals Today, roughly half the company’s rev- about performance, so that Rolls-Royce enues come from services. can improve its products based on Rolls-Royce shifted from selling air- real-time customer data. It also enables Value Network craft engines to selling “uptime”, which led to the wholesale redefinition of its Rolls-Royce to predict when engines As mentioned, “uptime” is critical to operations and created a new indus- are more likely to fail, letting customers both Rolls-Royce’s and its customers’ try standard. schedule engine changes efficiently, businesses. To deliver maximum uptime, which further improves the goal of Rolls-Royce provides customers with higher “uptime”. parts and services through a network Business Description of strategic partners and suppliers that Rolls-Royce is the world’s #2 manu- Financial Model are located at major airports around the facturer of aircraft engines, behind Jet engine companies like Rolls-Royce world. And because capital and finance GE Aviation. While many associate make more profit from selling spare must be part of any major aviation ex- Rolls-Royce with the luxury car, its au- parts and providing service than they penditure, Rolls-Royce has created RRPF tomotive operations are now owned do from the engines themselves. In (Rolls-Royce & Partners Finance) to by BMW. The British government split fact, some companies sell engines provide short, medium and long-term apart the car and engine operations in at a loss just to get the larger pay-off spare engine leasing solutions. 1971, when the company was nearly insolvent and was then nationalized. How did the company transition itself from being a locally-based manufac- turer on the brink of bankruptcy to the #2 manufacturer of jumbo jets with a global customer base in 2009? The turnaround came from a brilliant blend of manufacturing and services. Key Innovation Rolls-Royce executives recognized that their airline customers had a unique problem to solve: keeping their planes running longer without any compro-22
  • 23. Redefine the core assumptions of existing products in the ways that shift Forerunner Examples the financial model away from selling a product to selling a service On Demand InnovationAs you review these cases, consider the following questions to inspire your thinking: What kinds of services or approaches could you offer based on the value of “anytime access” to the customer? Consider things that: • Increase access to a variety of different things (information, expertise, financing, customer insights, etc.) • Increase accessibility on more time occasions • Increase the flexibility of access • Increase accessibility in more locations (physical and virtual) • Increase accessibility through different mediaForerunner Innovation Strategy #1: Business Description Key InnovationAttribute-Based Innovation As the world’s largest technology com- As part of its “Everything as A Service”On-Demand Service Models pany, HP brings together a portfolio vision, HP has launched MagCloud, that spans printing, personal comput- an on-demand publishing service ing, software, services and IT infra- model focused on eliminating the structure to solve customer problems. carrying costs, waste and inventory Its products include PCs, servers, stor- issues previously associated with age devices, printers, and networking magazine publishing. For example, of equipment. HP’s services unit provides the 3.8 billion magazines delivered toURL: IT and business process outsourcing, newsstands in the USA, over 60% areHeadquarters: Palo Alto, CA • USA application development and man- delivered but never sold, resulting inYear Founded: 1939 agement, consulting, systems integra- over 2.3 billion wasted magazines. ThisRevenue: US $114,552MEmployees: 304,000 tion, and other technology services. Its service is ideally suited to publishers software products include enterprise of short-run magazines, such as spe- IT management, information manage- cial interest groups, schools, clubs or HP cultivated a new-to-the-world ment, business intelligence, and carri- niche magazines that are looking to business model that transforms the er-grade communications applications. minimize their setup, operational and traditional magazine newsstand into The company markets to consumers, print costs, and to increase their ad- an on-demand service, and that uses its own customers as service suppliers. businesses, government agencies, and vertising revenue. schools in more than 170 countries. 23
  • 24. Via MagCloud, HP has established For publishers, the service pro- Financial Model an on demand service to deliver the vides a significant opportunity to build Publishers create a set price for their highest quality print magazine at the and extend their reach while minimiz- magazine which factors in cost and de- lowest possible cost. While on demand ing overhead to almost nothing. For HP, sired profit margin (e.g., US $8). When printing has been used for books, Mag- it is a way to provide a platform that de- customers order a magazine, HP col- Cloud is the first service for magazine livers a customized service to business- lects the revenue, provides the start-to- publishing. es and that reinforces its existing com- finish print services, and ships the mag- MagCloud is essentially a virtual mercial printing business – magazines azine. Customers pay the magazine magazine newsstand. Readers can are printed at the local commercial price plus a reduced shipping rate of browse the MagCloud magazine racks, printer closest to where the order will US $1.40 (which is partially subsidized order the latest issue of their favorite be shipped, and these printer shops are by HP). Publishers receive monthly roy- magazines via the MagCloud web HP customers who use HP Indigo com- alty checks based on the price of the portal, and have it printed on demand mercial printing units, supplies and magazine, less US 20 cents per actual and delivered directly to their mailbox. maintenance services. Another synergy printed page which goes to HP. Behind the scenes, MagCloud orches- exists with HP’s enterprise computing MagCloud was officially launched trates the entire process through a business, which is actively promoting in February 2010, and created this sim- carefully designed value network, from services to help customers maximize ple business model to establish itself as receiving print-ready PDFs from pub- the value of cloud computing, on HP the leading platform. The company’s lishers, to taking individual or bulk or- servers and using HP services. Mag- leadership recognizes, however, that a ders, to printing, binding, shipping and Cloud actively demonstrates the very number of follow-on revenues stream compensating the publishers at the cloud computer services that HP sells exist which may be introduced as the end of each month. as infrastructure to its B2B customers. service gains critical mass:24
  • 25. • Targeted, local advertising with- Forerunner Innovation Strategy #1: people picked the cars up at airports or in magazines based upon data Attribute-Based Innovation rental car offices, paid for them by the known about the individual pur- day or week (even if they only needed On-Demand Service Models chaser and the content they are the car for a partial day) and returned purchasing the car to the same location.• A community that supports social Zipcar challenged the rental car networking to connect advertis- market status quo by creating a different ers, publishers and other service value proposition – renting cars by the providers URL: hour and making them readily available• Print design consultation offered Headquarters: Cambridge, MA • USA in easily accessed, designated parking through service providers from Year Founded: 1999 spots “where the people are” – starting within this community. Revenue: US $120M with city streets and college campuses. Employees: <50 Customers could now rent cars onlyValue Network minutes in advance, and could avoidThrough this innovation, HP has creat- Zipcar challenged long-held industry the cost and hassle of car ownership.ed a new way to bring consumers and assumptions by introducing on-de- Zipcar’s original value proposition was mand car rentals that address a spec-publishers together in a web-based to provide an environmentally-friendly trum of unmet needs that traditionalmarketplace, which is supported by a way to supplement public transporta- rental models overlook.back-end value network. HP has mini- tion targeted to urban dwellers and col-mized its MagCloud advertising costs lege students and professors.since publishers have taken on the Business Description As Zipcar ridership increased, thebulk of demand generation through Zipcar is the world’s leading car-shar- company began to market its servicespromoting the services using social ing service with 350,000 members and to businesses as “the new companymedia such as Facebook and Twitter 6,500 vehicles in urban areas and col- car alternative.” Zipcar for Business pro-to generate interest and direct their lege campuses throughout 28 North vides a convenient, cost effective andcustomers to the MagCloud site. To American states and provinces as well sustainable transportation alternativeprint and deliver magazines, HP con- as in London, England. Zipcar offers to car rental, taxis and personal car re-tracted with its own commercial print more than 30 makes and models of imbursement. Employers create a busi-shop customers (print service provid- self-service vehicles that can be rented ness account which employees accessers - PSPs), essentially becoming a by the hour. It offers individuals an al- via the web or mobile phone to reservecustomer of its customers. These re- ternative to the high costs and hassles a car. This car sharing vs. car renting so-lationships increase business for the of owning a car in the city and provides lution has proven to have a strong ap-PSPs while creating a new workflow businesses with an alternative to the peal to companies.that gives them a new service offer- traditional company car. It has shifted Once Zipcar members registering. eCommerce is supported through the paradigm of how cars are rented they receive a Zipcard to unlock theiran arrangement with PayPal, and rela- while simultaneously creating an envi- vehicle, which only works for the desig-tionships with UPS, FedEx and govern- ronmentally responsible solution. nated rental time. Zipcar users can alsoment-run post offices have also been lock or unlock cars with SmartPhonescreated to ensure fast delivery times to Key Innovation and can use text messages to requestmagazine purchasers. Until Zipcar was founded in 1999, con- to keep their vehicle longer. sumers and businesses did not seem to Word-of-mouth promotion is vital question the status quo of car rental: to Zipcar’s membership-based business, 25
  • 26. (e.g., individual or business). Discount programs provide lower hourly or daily fees for customers able to maintain a minimum monthly dollar commitment for usage. Value Network One of Zipcar’s greatest values is its ac- cessibility, especially for people with- out other modes of transportation. Thus Zipcar’s value network extends to the college campuses and local city so the company encourages customer Financial Model governments in the U.S. and U.K. who input. The makeup of the fleet – from Zipcar charges an easy-to-understand partner with Zipcar to make designat- Mini Coopers to BMWs – is heavily in- hourly or daily rate for car rental which ed parking places available. fluenced by member suggestions. And covers mileage, fuel, reserved parking when customers protested the $10-an- and insurance. To rent a Zipcar individ- hour price to rent a fuel-efficient Toyota ual or business drivers become Zipcar Prius, the company dropped it to $7. In members and pay an application fee pursuing non-traditional, underserved as well as an annual fee. These fees, as markets such as college students, Zipcar well as the hourly and daily car rates, has created a hip, eco-conscious brand vary based on the location and car use image that sets itself apart.26
  • 27. Redefine the core assumptions of existing products in the ways that shift Forerunner Examples the financial model away from selling a product to selling a service Product TransformationAs you review these cases, consider the following questions to inspire your thinking: What kinds of services or approaches could you offer based on your customers’ fundamental needs, challenges or issues? Consider: • Customers’ frustrations with existing products or solutions • The customer’s “end game”, i.e., their real underlying purpose in using your product • Unarticulated needs – needs that you may have observed in your customers, but which they have not expressly told you about • Barriers to greater levels of adoption of your product offeringForerunner Innovation Strategy #1: Business Description cluding Intel, British Motors and eBay.Attribute-Based Innovation Despite the downturn in the economy, SolarCity is the leading full-service solar SolarCity’s revenues continue to dou-Product Transformation Models provider for homeowners, businesses ble, year-after-year. and government organizations in the USA. It is the first company to provide Key Innovation solar power system design, financing, SolarCity helped pioneer a way to bring installation and monitoring services solar to the masses and remove one from a single source for homeown- of the biggest barriers to widespreadURL: ers and businesses. The company was adoption: start-up costs of $15,000Headquarters: Foster City, CA • USA founded in 2006 to help millions of or more for homeowners to go solar,Year Founded: 2006 homeowners and businesses adopt and significant capital investments forRevenue: Unavailable solar power, protect themselves from businesses. They help customers leaseEmployees: 525 rising electricity costs and protect their a solar system at no money down and environment from polluting power generate an average cost savings of SolarCity “servicized” what is tradition- sources. SolarCity’s customers include 10% – 15% on their combined electric ally sold as an expensive product, low- thousands of homeowners, more than and lease payment bill. ering the customers’ barrier to entry and establishing it as a major force in 75 schools and universities, govern- SolarCity’s unique value proposi- an emerging market. ment agencies, national landmarks, tion is that it provides start-to-finish and well-known corporate clients in- solar power systems all from a single 27
  • 28. source, with the emphasis on service went on to complete 30 similar commu- owners are guaranteed a fixed price for rather than product. Traditional com- nity solar programs. their electricity year after year, no matter panies in this space manufacture so- what the fluctuation is in electric rates. lar panels and then outsource design Financial Model and installation to a dealer network. SolarCity offers both purchase and lease Value Network Instead, SolarCity leads with service, options to customers. SolarCity’s leases SolarCity contracts with a variety of solar including design, installation, financing typically run for 15 years. The company panel manufacturers to obtain products and monitoring. designs, installs and maintains the sys- that are most appropriate to the cus- End-customers have helped shape tem. In lease scenarios, SolarCity owns tomer’s needs. Energy companies repre- SolarCity’s services. The community the system and receives the accompa- sent key players in their value network solar program began in 2006 when a nying federal tax credits and state incen- since excess energy can be sold back to resident in Portola Valley, California in- tives. Customers that purchase systems these utilities through net metering, a quired about a group discount if he receive the accompanying rebates and special metering and billing agreement could convince his neighbors why so- credits. Businesses typically select a Pow- between the solar system owner and lar power was beneficial. Intrigued by er Purchase Agreement (PPA) that allows the utility company. In addition, state the idea of helping communities come them to get started with solar energy and federal governments also play key together to positively affect their neigh- without any capital outlay. They pay a roles, since SolarCity receives incentives borhoods, Solar City set a group goal for monthly fee based upon the amount of and rebates directly. Finally, through a a minimum number of installations that electricity that the solar system produces. network of community programs, viral would provide the desired discount. Homeowners have a similar lease agree- marketing and promotion of SolarCity’s They installed solar power in 78 homes ment, but they pay only for the electricity services leads to new installations and in this Portola Valley neighborhood and that they use. Both businesses and home- service agreements.28
  • 29. Forerunner Innovation Strategy #1:Attribute-Based InnovationProduct Transformation ModelsURL: www.ifhholdings.comHeadquarters: Sunnyvale, CA • USAYear Founded: 2009Revenue: <US $50M Employees: <50 IFH’s Expresso Fitness introduced new working out on traditional cardiovas- relative to other riders across its mem- possibilities in fitness-related services cular fitness equipment. Because most bership base. by connecting “equipment” to sub- cardio equipment is deadly dull, health scription services and social networks club customers lose interest quickly, re- Financial Model in ways that support and reinforce the sulting in lower membership retention IHF makes the Expresso family of core motivational drivers of its cus- rates and below par word-of-mouth bikes available to commercial fitness tomers’ customers. referrals. facilities through sales or leasing ar- IFH realized an opportunity to ap- rangements. They also provide partsBusiness Description ply technology to improve the engage- and support services. In addition toInteractive Fitness Holdings (IFH) was ment and desired outcomes of health its B2B sales, the company providesfounded to bring fitness into the 21st club members through the intelligent free basic memberships to end-userscentury. The company provides com- integration of leading-edge technol- which include 90 days of historic datamercial-grade virtual reality-enhanced ogy that delivers an “immersive” experi- and the ability to compete against acardio fitness systems to health clubs ence for the customer while exercising. “ghost” rider on all rides. The companyin North America, Europe and other se- The integration of this technology also also offers a fee-based membershiplected international locations. Its mis- delivers differentiation for the fitness which provides riders with access tosion goes beyond selling equipment centers that offer this equipment. member-only virtual tours and pre-to fitness facilities. The company is fo- Via the Expresso bikes, end-users mium personal statistics.cused on the experience of their cus- can take advantage of more than 30 in-tomers’ customer – the exerciser’s need teractive visual scenarios, updated via Value Networkfor a cardiovascular fitness experience the web, that create a captivating and IHF’s value network consists of the Ex-that is both effective and mentally en- motivating fitness experience. Exercise presso bike technology, visual/interac-gaging. Its best-known product is the enthusiasts can compete on various tive equipment, parts and a distributedExpresso exercise bike which is more tours from the California coast to the network of sales and service providers.than a piece of equipment – it is a true Peruvian mountains. These experiences It also includes dozens of commercialservice experience that includes a so- can be enhanced through competition fitness centers in the U.S. and abroad. Incial network. provided via a standard “pacer,” a ghost addition, IFH’s value network includes rider based on one’s best real-time its customers’ customer – the fitnessKey Innovation challenge, or another rider from the enthusiasts who ride the bikes, com-Through its Expresso family of bikes, health club. In addition, end-users can pete and share statistics with other en-IHF has innovated around its cus- access a website that tracks all history thusiasts, and create demand for moretomers’ customer’s need: motivation, and progress of the rider, providing interactive tours and games.competition and engagement while both personal statistics and statistics 29
  • 30. Summary The Attribute Based Innovation strat- our products play a role. For exam- Challenge Questions egy drives three business models, ple, CEMEX shifted its thinking from 1. What are the core assumptions namely: “we manufacture cement” to “how about “the way things are done” in 1. Time-Based Value Models that re- does cement fit into what our cus- your own markets, industry or or- define the product offering based tomer is trying to do” (i.e., managing ganization? on the value of “time” to the cus- the complex process of constructing 2. What could be your equivalent of tomer buildings). Zipcar questioned the sta- the CEMEX success story, or any 2. On Demand Service Models tus quo of car rental – that cars must of the other cases described un- that redefine the product offering be picked up at airports or rental car der this innovation strategy? based on the value of “anytime ac- offices and returned to the same lo- 3. What kinds of services or ap- cess” to the customer cation, as well as the financial model proaches could you offer based 3. Product Transformation Mod- of paying by the full day or week. IFH on the value of “time” or “anytime els that redefine the product of- “looked beyond” its direct customer access” for your customers? fering based on the fundamental – the health club that purchases its 4. What kinds of services or ap- end-user service need equipment – and created new ways proaches could you offer based to improve the experience of the your customers’ customers’ fun- Inherent to Attribute Base Innova- end-user, the exerciser. damental needs, challenges or is- tion is the critical need to reexamine The common thread across all sues? and question the core assumptions three cases is a deep questioning and we hold about “the way things have understanding of what customers really always been done”. We also need to desire, what they are trying to achieve, look at the context in which the cus- and a bold approach to doing things tomer operates, and within which differently to meet those needs.30
  • 31. Forerunner Innovation Strategy #2: Knowledge-Based InnovationThe business models driven by Knowl- and services or to use the data to create examples provide illustrations of howedge-Based innovation tap into the wholly new service offerings (see Table both established firms and start-upspower of data. These data can be col- 5). Underlying these models is the rec- have collected and applied customers’lected in a variety of ways but the goal ognition that inherent in every custom- data – either explicitly as an inherentis the same: to interpret and give mean- er interaction are opportunities to co- part of the customer experience or asing to data in ways that reinforce and create value for the broader commu- a transparent process through automa-enhance the value of existing products nity of customers. The Forerunner case tion – to drive service innovation.Table 5. Forerunner Innovation Strategy #2: Knowledge Based Innovation Business Models Case Examples Descriptions Data Aggregation Models Through its service, Intuit aggregates anonymous Collects and interprets data to pro- user data to provide win-win solutions for both users and vide new knowledge, information B2B customers - discounts for consumers on services that and service offerings to customers meet their unaddressed needs and access to these users and customers’ customers by the companies with these services. Gardner Denver integrated wireless monitoring into its industrial product line, creating new service opportunities based on real-time feedback and aggregated data from individual customers and across its customer base. User-Generated Models Honda’s embedded navigational sensors make every Taps into content and information customer a contributor to its real-time traffic network, contributed by end-users to create reinforcing both the value of its navigation club member- new forms of value and enhance ship and its overall offering. existing offerings iStockphoto tapped into the power of a network of content contributors to create a B2B service offering that address needs that its competitors’ ”content licensing” models are unable to meet. 31
  • 32. Tap into the power of data to reinforce and enhance the value of existing products Forerunner Examples and services, or to create wholly new service offerings Data Aggregation As you review these cases, consider the following questions to inspire your thinking: By aggregating data, what kinds of services or approaches could you offer that would enhance the value of today’s products, or represent an entirely new service offering? Consider: • Points of frustration that customers feel because they lack certain data, information, or real-time feedback • Unarticulated information needs – needs that you may have observed in your customers, but which they have not expressly told you about • Data that is readily available, but has not been aggregated • Data that is “hidden” but which would be extremely valuable if it were uncovered • Data that is automatically generated without human effort Forerunner Innovation Strategy #2: Business Description Key Innovation Knowledge-Based Innovation Intuit is the leading provider of per- allows users to track bank, Data Aggregation sonal finance, small business account- credit card, investment, and loan trans- ing and consumer tax preparation soft- actions and balances through a single ware for consumers, accountants and user interface. Because Mint aggre- small businesses. With over 50 million gates and anonymously tracks custom- users, Intuit acquired in 2009 er data for nearly a million customers, URL: to enhance its position as the leading or about 1% of all US households, it Headquarters: Foster City, CA • USA provider of consumer, software-as- can help its customers compare their Year Founded: 1983 a-service offerings that connect cus- spending habits to others in similar Revenue: US $3,182M Employees: 7,800 tomers across the desktop, online and groups. For example, customers can through mobile devices. The company answer the questions: continues to provide Quicken for its • Am I spending more or less on Through its service, Intuit desktop users, while is its gasoline than the average resident aggregates anonymous user data to provide win-win solutions for both primary online personal financial man- of San Francisco? users and B2B customers – discounts agement solution. has over • How does my average purchase for consumers on services that meet 1 million users and adds over 3,000 us- price and frequency at Amazon. their unaddressed needs and access ers every day. The company currently com compare to others in the to these users by the companies with tracks $175 billion in transactions and database? these services. more than $50 billion in assets.32
  • 33. also uses the combination Value Network panies is superior to traditional on-lineof personal spending patterns and ag-’s business model is based on advertising because analyzesgregated data to offer users ways to its network of partners that can provide data, compares costs, shows potentialsave money on credit cards, checking the same or better services to cus- savings, and creates personalized rec-accounts, savings accounts, CDs, bro- tomers, at a lower cost, based on that ommendations. In addition, Mint.comkerage accounts, IRA’s and auto insur- customer’s specific needs. This net- partners with Yodlee, an online bank-ance. makes money on refer- work includes credit card companies, ing consulting company and leadingrals from these other businesses. Mint. national and local banks, brokerage provider of account aggregation serv-com estimates that its typical user finds firms, and auto insurance companies. ices to the top U.S. financial institutions,$1,000 in saving in their first visit and The customer awareness and access to provide end-user services.has identified more than $300 million that provides to these com-in potential savings for its users. has discovered thatthis aggregated, anonymous data aretremendously valuable in serving as aconsumer advocate. For example, theWall Street Journal used its empiricaldata on bank fees to identify the banksthat charge the highest rates. also publishes data related to con-sumer spending patterns, account bal-ances, investments, and so forth. “Mint on Mobile” is also availableso users can access all of their financialdata from their phones. Users can alsoset up alerts for almost any financially-related activity, from a credit card pay-ment to a low balance on their check-ing accounts. These alerts are deliveredvia email or a text message to the user’smobile phone.Financial ModelThe service that provides toits customers is free. It generates rev-enue through its relationships withits value network of providers such asbanks and auto insurance companies.By analyzing the data collected aboutpersonal buying habits, isable to show its users special offersthat can save them money. When usersaccept an offer from the “Offers” page,Mint makes money from the referral. 33
  • 34. Forerunner Innovation Strategy #2: Knowledge-Based Innovation Data Aggregation URL: www. Headquarters: Quincy, IL • USA Monitoring System. The system moni- multiple site visits, since diagnostics can Year Founded: 1859 tors air compressors and air dryers that be performed prior to dispatching a Revenue: US $2,018M comprise a compressed air system with- technician. The data monitoring system Employees: 7,700 in industrial facilities. The ESP 20/20 in- also helps guarantee long term reliabili- corporates M2M (Machine-to-Machine) ty since automatic notification of service Gardner Denver integrated wireless technology that wirelessly captures and items ensures the compressor operates monitoring into its industrial product analyzes real-time product performance at peak performance. line, creating new service opportuni- information, which is invaluable to cus- The technology also feeds data ties based on real-time feedback and tomers and service technicians alike. back to the company’s engineering aggregated data from individual cus- tomers and across its customer base. For customers, the ESP 20/20 and quality teams, providing valuable provides 24/7 real-time compressor insights for new product development. data from any location. This enables its Business Description Financial Model customers to avoid downtime, reduce With operations in 30 countries on six electric bills, improve response time, re- Gardner Denver Products, including continents and a worldwide network of duce maintenance and repair time, and the ESP 20/20 are sold globally through distributors and partners, Gardner Den- increase long-term reliability. an extensive approved Sales & Serv- ver is a leading provider of products and For technicians, the ESP 20/20 pro- ice network. In addition to products, equipment used in myriad industries. vides the ability to offer higher quality, customers can purchase personalized Gardner Denver manufactures com- differentiated customer service. In the maintenance and service contracts. pressed air products, vacuum products, past, Gardner Denver and its distributors fluid-transfer products, well-servicing didn’t have visibility into the status of Value Network pumps and water-jetting products. machines in use at customers’ facilities. Gardner Denver provides sales and serv- Based in Quincy, Illinois, more than half of If a unit required service, the field sup- ices through global network of dedicat- its sales come from outside the USA. port staff had no way of knowing unless ed authorized distributors. In addition, a customer called with a service request. it partnered with Qualcomm Enterprise Key Innovation By then, there already would be conse- Services to create its private-label ESP With the industrial equipment indus- quences ranging from a simple incon- 20/20 Smart Service solution. The ESP try becoming more commoditized, venience to a major productivity loss. As 20/20 consists of an intelligent device and customers becoming more price a result, many local third-party service directly connected to an Allen-Bradley conscious, Gardner Denver investi- companies were taking business away control system. The modem within the gated service innovation as means of from Gardner Denver’s first-responder device collects and communicates ma- growth. Realizing aftermarket service network for service and repair. chine sensor readings and alert condi- and replacement parts represent a vital With ESP 20/20 Gardner Denver tions wirelessly to the Qualcomm server growth opportunity and means for dif- can improve service response time since using a proprietary Qualcomm com- ferentiation, the company teamed up immediate notifications are sent to the munications protocol. The information with Qualcomm Enterprise Services for appropriate person via email, text, page is then transmitted via the Cingular cel- a private-labeled Smart Services solu- and voice if there is a compressor prob- lular network to a Qualcomm enterprise tion branded as ESP 20/20 Compressor lem. Likewise, the ESP 20/20 eliminates management application.34
  • 35. Tap into the power of data to reinforce and enhance the value of existing products Forerunner Examples and services, or to create wholly new service offerings User Generated InnovationAs you review these cases, consider the following questions to inspire your thinking: By leveraging user-generated content, what kinds of services or approaches could you offer that would enhance the value of today’s products, or represent an entirely new service offering? Consider: • User-generated content that is created automatically, (e.g., merely through usage of the product, like Honda) • User-generated content that is created consciously (e.g., like iStockphoto) • Expensive content provided by ‘professional bodies’ that could potentially be offered at a dramatically lower price point if it were to be created by large numbers of individual contributorsForerunner Innovation Strategy #2: Business Description improved if customers could modifyKnowledge-Based Innovation Honda Motor Co., Ltd. is a leading man- their route based on real-time traffic ufacturer of automobiles and power conditions, Honda launched a uniqueUser-Generated Content products, and the largest manufacturer onboard car navigation system for of motorcycles in the world. The com- its Japanese-market cars in 2003. The pany also makes a line of ATVs, personal InterNaviSystem features embed- watercraft, commercial and residential ded user-contribution technology to machinery, portable generators, and gather traffic data. Independent of the outboard motors that bring it into driver, the Honda vehicle continuallyURL: Tokyo • Japan contact with over 19 million custom- monitors its own speed and positionYear Founded: 1948 ers annually. Honda Motor Co. has 120 information via built-in “floating probe”Revenue: US $102,906M manufacturing facilities in 30 countries sensors. These sensors capture traf-Employees: 181,876 worldwide and generates about 85% of fic information that can be combined its sales outside Japan. with government-supplied traffic data Honda’s embedded navigational sen- and is then shared real-time with other sors make every customer a contribu- Key Innovation Honda drivers. tor to its real-time traffic network, re- Honda strives to create greater peace In addition to up-to-the minute inforcing both the value of its naviga- of mind and a better automotive driv- traffic conditions, customers also re- tion club membership and its overall ing experience for its customers. Rec- ceive congestion predictions, parking offering. ognizing that this experience could be facility information, news, weather, and 35
  • 36. roadside service information. This can be delivered to the vehicle’s navigation system or through email or to a person- alized web page that can be viewed on a mobile device. The technology has been expanded to interface to Google Earth, which provides high-resolution satellite images of cities. Financial Model This service is available exclusively for Honda car owners via its InterNavi Pre- mium Club. It is offered free of charge to owners of the Honda InterNavi system. No annual subscription or monthly service charges are required. Honda uses this unique global posi- tioning system as a way to drive new car sales in a highly competitive mar- ket. As of June 2008, 660,000 Honda drivers subscribed to the InterNavi overt action on their part but simply supplied traffic data and is supple- Premium Club. by driving their vehicles. The service mented by media sources for news improves as Honda sells more cars and and weather, as well as local providers Value Network additional drivers sign up for the Inter- of roadside assistance and parking, to Honda has created value in the form of Navi Premium Club since more data create timely and relevant services that relevant, real-time information via cus- are collected. This customer-generated lead to better driving experiences. tomers themselves – not through any data are combined with government-36
  • 37. Forerunner Innovation Strategy #2: loaded to iStock’s site provide its cus- however, iStock has innovated by cre-Knowledge-Based Innovation tomers with a collection of more than ating a member-generated image and five million files for businesses, market- design community. Contributors pro-User-Generated Content ing and personal projects. vide profiles of themselves, write blogs, and build their creative networks of us- Key Innovation ers and contributors. In turn, users rate iStock was able to address an unmet images and provide testimonials, creat-URL: www.istockphoto.comHeadquarters: Calgary, Alberta • Canada customer need by supplying quality ing a rich interchange of feedback thatYear Founded: 2008 images at a fraction of the cost of con- helps continually improve the library ofRevenue: US $23.6M ventional stock agencies, especially at- images. iStock supports this commu-Employees: 116 tractive to their target market of small nity through newsletters and training business owners and individuals. The as well as by featuring artists’ contribu- iStockphoto tapped into the power company was able to turn the pricing tions. To build loyalty among their artist of a network of content contributors structure for picture licensing on its community, iStock incentivizes Exclu- to create a B2B service offering that head by tapping into a new source of sive Contributors by doubling com- address needs that its competitors’ talent: amateur photographers instead missions and offering access to special “content licensing” models are unable to meet. of professionals. To guarantee cus- events such as iStockalypse, an annual tomer quality, iStock requires would- 3-4 day gathering in international cities be contributors to read a brief training to produce art and meet major playersBusiness Description manual, pass a quiz, and then provide in the editorial industry.iStock Photo is a pioneer in the “micro- three samples of their work for reviewstock photography” industry and has prior to uploading images. To ensure Financial Modelbecome one of the most successful the optimal inventory, iStock adheres Unlike conventional stock agencies,and profitable user-generated content to guidelines regarding the photos who charge fees based on the pub-sites in the world. The company sells they will and won’t accept. lished size of an image and circulation,royalty-free photos, illustrations, video, Beyond simply buying and selling users of iStock’s services pay a flat feeaudio and Flash files to businesses and photos and other images at a low cost, per image. They provide customersindividuals at a fraction of the cost oftraditional stock photography agen-cies. How can the company sell imagesfor as low as one dollar? The secret isin the source: their photos or other filescome from amateur photographersinstead of professionals. Aspiring pho-tographers receive a small commission(20-40%) for every image that is sold.These commissions may only amountto pennies since these royalty-free im-ages can be purchased at such lowcosts, but photographers may make upin volume what they lose in per-shotroyalties. iStock estimates that it pays$1.2 million in royalties every week. Inreturn, the files that are vetted and up- 37
  • 38. with flexibility for making purchases via three possible plans: Summary • Pay-as-you-go – users pre-pur- chase credits and spend them The Knowledge Based Innovation Challenge Questions whenever they download a file. strategy drives two business models, 1. Thinking broadly, what kinds of • Subscriptions – provides users namely: data are (or could be) available to with a download limit for three 1. Data Aggregation Models that your organization? months, six months or a year. collect and interpret data to pro- 2. In what ways could you gath- • Corporate accounts – provides a vide new knowledge, information er data, either through engaging high volume credit package and and service offerings to custom- customers or end-users explicit- ability to track subaccounts by ers and customers’ customers ly, or by “mining” their usage pat- team members. 2. User-Generated Models that terns or interactions “in the back- tap into content and information ground”? Because iStock images are royalty-free, created or contributed by end- 3. By aggregating certain types of their customers can purchase files and users to drive new forms of value data – including user-generat- then re-use them as many times as de- and enhance existing offerings ed content – what kinds of serv- sired without paying additional fees. ices or approaches could you of- Knowledge Based Innovation centers fer that would enhance the value Value Network on finding imaginative ways to use of today’s products or even repre- iStock’s value network is driven by a data, information, knowledge or con- sent an entirely new service offer- community of over 70,000 artist contrib- tent. Sometimes the data are readily ings? utors from around the world who have available, but have not yet been ag- contributed to iStock’s library of more gregated, as seen in the Gardner Den- than five million files. Equally impor- ver example. Sometimes information tant in the value chain is the customer and content is created automatically, who rates images, provides testimoni- often through embedded technol- als and ultimately drives the sale -- it is ogy and through the natural usage only when a file is purchased that com- of the product, as in the Honda case. missions are generated. iStock’s editors Other times it is created intentionally provide a conduit between contributors by individuals, as seen in the iStock- and customers to ensure that the opti- photo case. The common theme: an mal quality and right mix of images are opportunity exists to harness various added to the digital library to guarantee types of data in new ways to create continued purchases. The company new value and revenue streams. provides incentives to contributors be- yond commissions in the way of recog- nition and access to experts to develop a long-term and exclusive relationship with their top contributors. In addition they secure sponsorship from outside organizations such as Animoto for Pho- tography, The Camera Store, Lensbaby and their parent, Getty Images, to pro- duce the iStockalypse events.38
  • 39. Forerunner Innovation Strategy #3: Mobile Web-Based InnovationThe business models driven by Mobile is the view that the world is moving to tions of how both established firms andWeb-Based Innovation create value anytime-anywhere access of just about start-ups created new forms of value bythrough transforming taken for granted anything – and that value is generated offering services in ways that are avail-manual processes, physical products, or through creatively redefining existing able anywhere and anytime, and howtraditional services into a mobile or web- ways of doing things, or inventing alto- some companies actually view the verybased service platform and experience gether new ways of operating. The Fore- act of Mobile Web-Based innovation as(see Table 6). Underlying these models runner case examples provide illustra- the ultimate business model itself.Table 6. Forerunner Innovation Strategy #3: Mobile Web-Based Based Innovation Business Models Case Examples Descriptions Digitize It Models OpenTable transformed a common, labor intensive process Creates new-to-the-world into distinct service offerings that leverage the power of applications that move taken-for- network effects to create annuity revenue streams. granted non-services into service opportunities Cisco invented new options for transforming old ways of working by introducing new-to-the-world collabora- tion solutions that extend its core business into adjacent markets. Make it Mobile Models t+Medical tapped into mobile technology to create a Transforms physical products or licensed service platform for delivering consumer health- processes into mobile services care solutions for a wide range of prevalent and growing and experiences health conditions. NeoMedia created a new model for bridging the physical and digital worlds, providing a platform for digitizing various business-to-consumer products, services and experiences. Platforms as a Service Models Apple established industry-standard platforms that Creates platform by which a reinforce the value of its products while generating network of other providers and service-based revenues leveraging an open network applications are delivered to of content providers. customers Nintendo transformed the consumer gaming experience while building out a supporting platform for delivering access to additional value added services and content of its own and of third party partners. 39
  • 40. Transform taken for granted manual processes, physical products, or traditional Forerunner Examples services into a mobile or web-based service platform and experience Digitize It As you review these cases, consider the following questions to inspire your thinking: What “taken for granted” activities or processes can be “digitized” and offered as a value-added service? Consider things that: • Save time • Save effort • Save money • Reduce complexity • Streamline processes • Manage customer relationships • Generate new business Forerunner Innovation Strategy #3: Business Description in the United States, Canada, Mexico, Mobile Web-Based Innovation United Kingdom, Germany, France, OpenTable is the leading supplier of Spain and Japan. Digitize It reservation, table management and guest management (CRM) software Key Innovation for restaurants. As part of its service, OpenTable claimed new market space OpenTable installs a sleek monitor and by establishing the leading solution for mini-PC in the reception area of the transforming a set of inefficient, manual restaurant, which provides hosts with and non-standard processes in restau- URL: real-time access to reservations, table rants – managing reservations, coordi- Headquarters: San Francisco, California • USA layouts and seating tools, and special nating tables, and managing customer Year Founded: 2000 notes and information about each res- (guest) relationships. These services Revenue: US $55.8M ervation guest. OpenTable also oper- allow end-user guests to resolve 95% Employees: 304 ates the world’s most popular website of their issues themselves via web self- for making online restaurant reserva- service, and have given restaurants the OpenTable transformed a common, tions – every month over 3 million peo- ability to more efficiently handle peak labor intensive process into distinct ple are seated at one of OpenTable’s periods without adding staff or compro- service offerings that leverage the 11,000 restaurant customers within mising service. But OpenTable tapped power of network effects to create an- its website reservations system. The into an even greater need that has be- nuity revenue streams. company operates internationally with come the foundation of their business operations and restaurant customers model. By giving end-user consumers,40
  • 41. concierges, and administrative profes- hardware and services, as well as a per as interdependent and based on net-sionals the ability to search for, discover, reservation transaction fee from the work effects: growth in the numberreview, and make, change or cancel restaurant for each reservation booked of restaurant customers adds value toreservations in real-time (either online (and completed) through the OpenT- their website, and the greater numberor via mobile applications) they pro- website. Revenues also come of website visitors, the more compel-vide even greater overall value. Beyond from a range of strategic partnerships ling the value for the restaurant. Thestreamlining operations and reducing in which the OpenTable integrates its network has seen such growth thatcosts, they give their restaurant custom- online reservation engine into partners’ many restaurants view the lack of pres-ers the ability to capture business they websites and tools, such as the “City ence within the OpenTable networkwould not otherwise obtain, as well as Smart Concierge,” an information serv- as a liability, which has increased thecollect the personal information, food ice focused on hotel concierges across number of new restaurant subscribers.preferences and other data about those the USA. OpenTable’s partner network includesdining at their very own tables that has technology firms, tourism boards,traditionally been unavailable as part of Value Network event websites, dining and restaurantthe dining relationship. OpenTable’s value network consists guides, restaurant associations, travel of a range of key stakeholders. At the guides and websites, convention andFinancial Model heart of the network are its customers visitors bureaus, and online and printOpenTable’s financial model is an in- – the restaurants. But consumers are magazines. These partners promotenovative mix of B2B service fees and fundamentally just as important for OpenTable’s network to their ownconsumer-driven “transaction fees.” The driving the value of its business mod- consumers as a value-added offering,company receives monthly service fees el. From the start, OpenTable’s B2B as well as use the company’s reserva-from each restaurant for use of their and consumer solutions were viewed tion engine in their operations. 41
  • 42. Forerunner Innovation Strategy #3: routers and switches used to direct ence. Interacting with others during Mobile Web-Based Innovation data, voice, and video traffic. Other a TelePresence™ session, sharing files, products include remote access serv- and collaborating on documents cre- Digitize It ers, IP telephony equipment, optical ates an experience that is “almost like networking components, Internet being there” but without the travel conferencing systems, set-top boxes, cost or time. TelePresence™ lends itself and network service and security sys- to range of uses including corporate tems. Cisco sells its products primarily meetings, demonstrations, press con- URL: to large enterprises and telecommu- ferences, summits, negotiations, inter- Headquarters: San Jose, CA • USA nications service providers, but also views and 1:1 meetings. Year Founded: 1984 markets products designed for small Initially launched as a product in Revenue: US $35,117M businesses and consumers through its a variety of configurations, TelePres- Employees: 66,129 Consumer Business Group. ence™ was adopted first by large cor- porations who invested in dedicated Cisco invented new options for trans- Key Innovation TelePresence™ conference rooms. To forming old ways of working by in- troducing new-to-the-world collabo- Recognizing the need to help globally provide affordable, high quality com- ration solutions that extend its core dispersed teams collaborate more ef- munication for small and medium business into adjacent markets. fectively, accelerate decision making businesses or remote/regional office and scale valuable resources, Cisco workers, Cisco developed the Public developed TelePresence™ as a next TelePresence™. This is a usage-based Business Description generation video communications service, offered through partners such Cisco Systems is the worldwide leader tool. TelePresence is a combination as Marriott International, Taj Hotels, Re- in networking that transforms how of integrated management software, sort and Palaces, and Starwood Hotels people connect, communicate and intercompany connectivity, and a suite & Resorts Worldwide. The partnerships collaborate. Dominating the market of video and collaboration technolo- provide customers with a complete vir- for Internet protocol-based network- gies and physical meeting rooms that tual meeting solutions, including on- ing equipment, the company provides create a powerful in-person experi- demand TelePresence™, rented hourly42
  • 43. or per day, as well as catering services, Travel expense reductions are gen- Value Networkbusiness services such as print/copy/ erally cited as a reason for using TeleP- In addition to a network of hardwarefax, and even a concierge team to ad- resence™, but this is often secondary to and meeting room furniture suppli-dress special needs. the benefits businesses realize in terms ers, Cisco has extended the reach of In response to customers who of saved time and increased productiv- its TelePresence™ solution by making ithave seen an opportunity to radically ity. Such results have sparked the sales accessible and affordable to businesseschange existing business practices, Cis- of TelePresence™ systems worldwide, of all sizes through key partnershipsco announced five new TelePresence™ which jumped 90 percent from 2008 to with leading hotel chains and serviceservices in January 2010: 2009, according to International Data providers. For example, Cisco partner1. Classroom of the Future, to allow stu- Corporation. Tata Communications offers its fully dents and teachers to interact even managed Cisco TelePresence™ service if they are not in the usual, physical Financial Model to Taj and Starwood hotel properties classroom Cisco installs onsite TelePresence™ (among other customers). The service2. Cisco TelePresence Active Collabo- rooms to its corporate clients with includes meeting scheduling, man- ration Room, which allows remote costs ranging from US $35,000 to US agement, and support. In addition group collaboration using addition- $350,000 depending on the size and to hoteliers, travel service companies al tools such as Cisco WebEx™ and scope of the room, not including in- including American Express Business virtual interactive whiteboards. stallation and support fees. Cisco also Travel and Carlson Wagonlit Travel are3. Cisco TelePresence™ Remote Dem- makes Public TelePresence™ available helping their clients locate and reserve onstration Center which provides to businesses through service provider public Cisco TelePresence™ rooms in a way for businesses to showcase partners such as AT&T and Tata Com- hotels and other locations. new products virtually. munications, leading global commu-4. Cisco TelePresence™ Live Desk which nications providers. While Service Pro- provides customers with instant in- viders create their own pricing mod- person concierge service in a Cisco els and service levels, the cost to rent TelePresence room. TelePresence™ rooms is approximately5. Cisco TelePresence™ Streaming Serv- US$299 per room per hour. ice, which provides live webcast- ing or recording services from a Tel- ePresence™ meeting to any type of desktop, mobile device, or social video system. 43
  • 44. Transform taken for granted manual processes, physical products, or traditional Forerunner Examples services into a mobile or web-based service platform and experience Make it Mobile As you review these cases, consider the following questions to inspire your thinking: What products or processes that are delivered face-to-face today can be offered as a mobile service? Consider things that are “constrained” by physical interactions or processes, and that if made mobile would: • Provide greater value if delivered anytime • Provide greater value if delivered anywhere • Involve processes that involve data gathering • Overcome constraints related to obtaining inputs of information or data • Once completed, make it easier to provide or distribute information to others • Overcome constraints of “printing” or hard copy paper Forerunner Innovation Strategy #3: Business Description Key Innovation Mobile Web-Based Innovation t+ Medical offers cost effective disease t+ Medical telemedicine solutions have Make It Mobile management and remote monitoring revolutionized chronic disease man- solutions that improve the manage- agement by providing a simple way for ment, care and compliance of people individuals to self-monitor their condi- living with chronic diseases. The com- tions and get professional healthcare URL: pany focuses on helping people self- assistance as needed, without leaving Headquarters: Oxford • UK manage their chronic conditions using their homes. t+Medical currently offers Year Founded: 2002 technology that virtually everyone al- solutions for people living with asthma, Revenue: Private ready owns – the mobile phone – and high blood pressure, diabetes and Employees: Unavailable connecting them with the support of a COPD (chronic obstructive pulmonary healthcare monitoring team. disease). t+Medical tapped into mobile tech- t+ Medical was founded in the Patients receive instant personal- nology to create a licensed service United Kingdom in 2002 and expanded ized feedback about their condition via platform for delivering consumer to the U.S. in 2007. Their solutions were the integration of a device (such as a healthcare solutions for a wide range developed in conjunction with one of wireless blood glucose monitor), their of prevalent and growing health con- ditions. the world’s leading academic institu- own mobile phone and a secure per- tions, Oxford University. sonalized web page. Software is used44
  • 45. to create graphs and record trends sopatients understand how they are con-trolling their condition. This feedback isalso sent to t+Medical’s nurse monitor-ing team to provide early interventionin the case of complications. A patient’sown healthcare provider can also sub-scribe to the system to provide addi-tional support.Financial Modelt+ Medical uses a subscription-basedmodel to sell its solutions for asthma,high blood pressure, diabetes andCOPD. Once users subscribe, they re-ceive a simple program via text to in-stall on their mobile phone so they canbegin using the service. t+Medical hasdeveloped a licensing agreement withLifeScan, a Johnson & Johnson compa-ny, to develop and distribute productsfor diabetes management.Value Networkt+Medical delivers its solutionthrough tapping into the expertiseand distribution network of a widerange of stakeholders. Oxford Uni-versity, for example, contributed keyintellectual property from their Neu-ral Network and Signal Processing can Heart Association and American In addition, the value networkGroup. Its mobile solution is enabled Telemedicine Association, aware- includes its own customer supportthrough shared device standards ness and demand is generated from center that provides services suchfrom Nokia, Motorola and Sanyo, medical professional groups and as patient recruitment, software andas well as network standards from consumers themselves. t+Medical phone provisioning, compliance mon-Sprint, AT&T, Vodafone and Research also has partnerships with device itoring, training and ongoing end userin Motion. And through promoting providers who integrate their tech- support for patients and healthcareeducation with partners including nology into their own solutions, professionals.the American Diabetes Association, such as Johnson & Johnson’s Lifes-American Lung Association, Ameri- can for diabetes management. 45
  • 46. Forerunner Innovation Strategy #3: events, cinema, transportation or Mobile Web-Based Innovation facilities • Instantly validating coupons from Make It Mobile retail chains, fast food and other stores • Purchasing airline tickets, check- ing in for flights and obtaining URL: boarding passes Headquarters: Atlanta, GA • USA Year Founded: 1989 Advertising and media companies also Revenue: <US $10M use NeoMedia’s barcode technology to Employees: <50 extend the reach of traditional media into the new mobile world. For example, NeoMedia created a new model for any magazine, newspaper, retail display bridging the physical and digital worlds, providing a platform for digi- or billboard with a 2D code can provide tizing various business-to-consumer access to real-time product or service products, services and experiences. information, downloadable content or mobile commerce transactions. IQ Mo- Financial Model bile, for example, used this technology The company generates revenue by Business Description to develop a multi-channel advertising licensing its technology, and from serv- NeoMedia Technologies, Inc. is a leader campaign that enabled mobile con- ice fees related to designing and imple- in mobile barcode scanning solutions. sumers to scan a 2D code for a chance menting mobile marketing campaigns. The company’s technology allows mo- to win a Nokia 6210 Navigation phone. bile devices with cameras to read 1D Prentice Hall, a leading book publisher, Value Network and 2D barcodes and provide ”one click” created interactive textbooks that al- NeoMedia’s value chain includes com- access to mobile content. The company low students and professors to access panies that produce camera-enabled combines this technology with ad- fresh, additional content such as news, mobile phones; companies that create vanced analytics and reporting capabili- case studies, and videos from their mo- 1D and 2D barcodes for advertising and ties to revolutionize the way advertisers bile phones and even “talk” directly with promotional purposes; and any com- market to mobile consumers. the textbook authors via a mobile video pany that seeks to create an interactive linked to the book’s cover. customer experience via mobile devices. Key Innovation NeoMedia’s state-of-the-art barcode Megatrends & Forerunner Attribute Highlights design and barcode reading technol- Riding the Megatrends Living the Forerunner Attributes ogy unleashes the power of mobile The Cloud Relationships phones in a whole new way. Mobile 3 Web Based Value Delivery Collaborating and co-creating phones with cameras become barcode 3 Mobile Value Delivery 3 Experiential interactions scanners that give consumers and 3 Everything as a Service 3 Solutions businesses instant access to the web 3 Experience Design 3 Customer needs and customers’ for a host of applications, including: customers’ needs • Tracking or inventorying products Sensing & Monitoring 3 Value networks and services Collaborative Contributions Profit + • Tracing products through manu- Social Networking & Communication facturing or distribution channels Climate Change & Sustainability • Instantly validating tickets for 3 Globalization with Local Relevance46
  • 47. Transform taken for granted manual processes, physical products, or traditional Forerunner Examples services into a mobile or web-based service platform and experience Platforms as a Service ModelAs you review these cases, consider the following questions to inspire your thinking: What industry standards are missing or lacking that represent platform opportunities? In what ways can certain collections of products and services be aggregated within a unifying business model, organizing framework, or integrated process to deliver greater customer value? Also consider: • Ways to migrate existing products and services into larger standardized platforms that integrate others’ products and services • Opportunities to establish a network of complementary providers that, if aggregated, would provide greater value to customers • Opportunities to gain access to proprietary content, information, or other resources that can serve as the foundation of a new platformForerunner Innovation Strategy #3: Business Description Key InnovationMobile Web-Based Innovation Apple ignited the personal computer While Apple has developed intuitive,Platforms as a Service Model revolution in the 1970s with the Apple sleek-looking products like the iPod II, and reinvented the personal com- and iPhone, its innovative genius is puter in the 1980s with the Macin- related to novel business models, not tosh. Today Apple is an industry leader simply the products themselves. When with award-winning computers, the Apple launched the iTunes store in OS X operating system, iLife and pro- 2003 it successfully executed businessURL: fessional applications. Apple led the model innovation, involving a com-Headquarters: Cupertino, CA • US digital media revolution with its iPod bination of the right software, digitalYear Founded: 1976 portable music and video players and rights-protected music, and an MP3Revenue: US $36,537M iTunes online store. In a similar way, player uniquely configured to use thatEmployees: 36,800 the company is revolutionizing the software and access iTunes music. This mobile phone market with its iPhone new business model, wrapped around Apple established industry-standard platforms that reinforce the value of and the host of applications it sells a novel and visually compelling prod- its products while generating service- through its Apps Store. uct, allowed Apple to create a platform based revenues leveraging an open network of content providers. 47
  • 48. from which to distribute music in an “make it mobile” trend to take tradition- exclusive contract with AT&T drives entirely new way, and now allows mu- al services and make them available these numbers, so AT&T pays Apple an sic artists, themselves, to share and sell through devices like the iPhone. estimated $320 – $420 for each new music via the platform. subscriber. In a similar way, what makes Ap- Financial Model ple’s iPhone so distinctive is that it is Apple has developed ways to fill the Value Network more than a product – it is a platform needs of partners who are increasing Apple doesn’t actually manufacture from which to launch thousands of ap- the value of its ecosystem, while at the anything itself. Its extensive value net- plications or “apps” that are designed same time monetizes each element work includes application and content by software developers outside Apple’s of their value network. For example, providers; software platform, operat- walls. Using a revenue share model, iPhone app developers set the price for ing system and middleware providers; these apps provide an ongoing source their apps and receive 70% of the rev- handset makers; network operators; of revenue without increasing Apple’s enue, while Apple receives the balance. and of course the consumers who cre- R&D expense. Gross revenues from Apple’s share of ate buzz and generate demand for the iPhone apps have created entirely iPhone apps alone (not including the myriad of apps. Apple maintains tight new service innovations for vertical phones themselves) will soon reach $1 control over its value network. For ex- markets such as healthcare, wellness, billion. ample, all apps must go through a strict sports, entertainment, and transporta- When it comes to iPhone service approval process before they are ac- tion. There are over 100,000 apps on and distribution, AT&T is the iPhone’s cepted into the Apps Store, which has the market today, with strong demand only US carrier, and is constantly striv- at times created controversy since the continuing to drive new opportunities. ing to increase the number of users company has rejected apps from com- Likewise, large enterprises and small and ARPUs (average revenue per user). petitors like Google. businesses alike are tapping into the The sale of Apple phones through its48
  • 49. Forerunner Innovation Strategy #3: of over US $85 billion. As of October that processing power and beautifulMobile Web-Based Innovation 2008, Nintendo had sold over 470 mil- graphics are the path to success. We lion hardware units and 2.7 billion soft- disagree. Consumers want great en-Platforms as a Service Model ware units. tertainment experiences and value for money, and we provide both.” The Wii™ Key Innovation is designed as unique social gamingURL: Nintendo reshaped the home enter- experience for the whole family. “YouHeadquarters: Kyoto • Japan tainment and video game landscape don’t just play Wii™, you experience it.”Year Founded: 1947 with the launch of its Wii™ home video Every Wii™ console includes a dis-Revenue: US $18,899M game console in November 2006. In- tinctive feature: a series of on-screenEmployees: 4,306 stead of going head-to-head with com- “channels” that make up the Wii™ Chan- petitors who offered advanced proces- nel Menu, from which the system can Nintendo transformed the consumer sors and complicated games, Nintendo be customized. These channels cre- gaming experience while building created a stripped down product, of- ate a gateway to a huge platform of out a supporting platform for deliver- fered at a lower cost, and targeted to entertainment options. For example, ing access to additional value added services and content of its own and of a different market of regular people when connected to a TV, Wii™ players third party partners. and non-traditional gamers. Its highly can select games to play, get news or intuitive motion-sensor based wire- weather, view and send photos, surf less remote allowed a totally different the internet, and play vintage NintendoBusiness Description gameplay and user activity. Because video games.Nintendo is the market-leading video the Wii™ remote recognizes physical When initially launched, Nintendogame maker, with products such as gestures in 3D space, it created a whole offered 30 different Wii™ games creat-Game Boy, GameCube and the Wii™ new gaming experience for individuals ed both by Nintendo and third partiessystems. When the company was origi- and groups. such as Electronic Arts, Activision andnally founded, it produced handmade The Wii™ has become a raging Atari. Today, hundreds of games areJapanese playing cards but quickly success largely due to the fact that available from a host of game manu-developed into a video game com- Nintendo intimately understood their facturers. As such, the Wii™ representspany. It has become one of the most product in terms of customer value. a rich development platform for gameinfluential companies in the industry Reggie Fils-Aime, President of Ninten- creators as well as manufacturers thatand is Japan’s third most valuable listed do America, said: “Our competitors are create aesthetic and ergonomic acces-company, with a market capitalization stuck in an old paradigm. They think sories for the Wii™ Remote, including 49
  • 50. remote-add-ons shaped like tennis While Nintendo provides a free • Game Marketing Value Chain, in- rackets, baseball bats, light sabers and news and weather channel as part of its cluding distributors, retailers and golf clubs, as well as musical instru- Wii™ Channel Menu, it also sells “credits” marketing agencies. ments, dance pad and exercise pads. that can be used to purchase various • OEM Hardware Value Chain, in- In January 2010, Nintendo and services and games. For example, US cluding the OEM hardware manu- Netflix announced a partnership that $5 buys the ability to add a new chan- facturer and console manufacture will create another Wii Channel that will nel to the Wii menu that provides us- who receives a licensing fee for re- provide a service to bring streaming tel- ers with the ability to surf the internet quired technical information evision shows and movies to the Wii™. using the standard Wii remote. Another • Content Provider Value Chain, in- US $10 adds a new channel that pro- cluding content providers who li- Financial Model vides unlimited access to play Donkey cense copywrited characters, mu- Because the Wii™ console is specifi- Kong, one of Nintendo’s most famous sic and even real personalities cally designed as a lower cost product vintage arcade video games. The Net- (such as sports superstars), as well than competitors’, it is able to sell the flix partnership creates additional as IPTV content. Wii™ for about US$250 compared with revenues through a revenue sharing • Brand Advertising Value Chain, competitors in the range of US$400 – agreement. including brands that advertise US$500. More importantly, Nintendo while the customer is immersed in has maximized their lower cost hard- Value Network the gaming experience ware into two competitive advantages: A highly robust and complex value net- • Connectivity Value Chain, includ- games are cheaper to develop, and work is at the heart of the Wii’s success. ing the service providers who the company makes a profit on every It includes: make available the Internet con- console sold. Although this sounds • Game Development Value Chain, nectivity for the customer’s con- like common sense, it flies in the face including game developers, digit- sole system of the conventional rules in the gam- al rights management (DRM) pro- ing industry. Beyond the console itself, viders, and game publishers. Nintendo generates the bulk of its rev- enues from games and accessories.50
  • 51. SummaryThe Mobile Web Based Innovation Mobile Web Based Innovation Challenge Questionsstrategy drives three business mod- leverages technology to create value 1. What “taken for granted” activitiesels, namely: by transforming taken-for-granted or processes within your industry1. Digitize It Models that create manual processes, physical products, or markets can be “digitized” and new-to-the-world applications or traditional services into mobile or offered as a value-added service? that move taken-for-granted non- web-based service platforms and ex- 2. What products or processes that services into service opportuni- periences. For example, Open Table are delivered face-to-face today ties used technology to transform the can be offered as a mobile service?2. Make it Mobile Models that manual, labor-intensive process of 3. What industry standards are miss- transform physical products or making dining reservations. t+Medical ing or lacking that represent plat- processes into mobile services used cell-phone and other technolo- form opportunities? and experiences gies to allow patients to receive in- 4. In what ways can certain col-3. Platforms as a Service Models stant personalized feedback about lections of products and servic- that create a platform by which their medical condition. And Apple es be aggregated within a unify- a network of other providers and built standard, industry-transforming ing business model, organizing applications are delivered to cus- platforms that allow an open network framework, or integrated process tomers of content providers to “plug in” and to deliver greater customer value? create new revenue streams for them- selves (and for Apple). 51
  • 52. Forerunner Innovation Strategy #4: Solution Based Innovation The business models driven by Solution- (see Table 7). With a larger view, it comes provide illustrations of how a range of Based innovation take the concept of possible to see unaddressed problems diverse companies have created solu- customer value to the next level. Seek- and opportunities that are intercon- tions that address needs in ways that ing to understand customers from a nected but are best addressed through guide them into domains of service that solutions perspective necessitates step- a more holistic portfolio of products and at first may appear off strategy, but that ping back and looking at the broader services that provide greater value. The ultimately become a core component context in which the customer operates following Forerunner case examples of their overall business model. Table 7. Forerunner Innovation Strategy #4: Solution Based Innovation Business Models Case Examples Descriptions Adjacency Complement Models Eureko’s Achmea Health gained insight into the needs of Introduces service offerings in new its customers and defined adjacent services and business markets that complement and rein- relationships to concurrently reinforce and strengthen both force existing products or services its value proposition and core business model. Michelin developed its ViaMichelin service to support end- customer behavior that drives greater product usage and sales, and while concurrently generating B2B revenue. Experience Service Models Harley-Davidson introduced a range of experiential services Delivers value-added end-customer that support the brand, deliver customers to dealers, drive experiences to drive loyalty and rein- product sales and build long-term loyalty. force existing products or services Visa’s value network of merchants, product and service suppliers, and technology providers delivers unsurpassed customer experiences that support its core goal of growing credit card transactions. Consultative Value Models FM Global built engineering competencies to differentiate Delivers services that would other- its insurance offerings through consulting services that add wise be provided by third party greater value and create customer loyalty, while concurrent- consultants to complement offer- ly reducing risk exposure which increases bottom line profit. ings, drive down costs, or create new revenue streams Herman Miller recognized the broader context in which customers acquire furniture and developed full-service workplace design services that represents a trusted ”agnostic” solution that generates new revenues and rein- forces product sales. Profit with Purpose Models iReuse found an untapped market for usable yet unrecycla- Delivers services to generate profit ble items, generating revenues from a unique service model while concurrently appealing to as well as consulting services. “higher purpose” customer needs Vodafone entered into a pilot to explore microfinance in emerging markets and uncovered a viable financial model that delivers value while scaling to the economic needs of the indigenous population.52
  • 53. Expand the value of existing products or services by adding services that meet Forerunner Examples a broader set of customer needs or by introducing complementary service offerings Adjacency Complement ModelsAs you review these cases, consider the following questions to inspire your thinking: What “adjacent” services could be offered that complement and reinforce existing products and/or services? Consider things that: • Are often purchased alongside your existing offering • Are purchased before or after your existing offering • Add value through enhancing the customer experience • Are outside your existing market but help complete the broader “solution” • Help reduce the risk or cost associated with your current offering • Help promote your existing offeringForerunner Innovation Strategy #4: Business Description tions in the Netherlands which requiredSolution-Based Innovation Active in eleven countries, Eureko is greater price transparency. Achmea the holding company for a group of Health’s executives realized a need toAdjacency Complement Models successful insurance brands, including add value to its insurance products so Achmea, the largest insurance com- it wouldn’t have to compete solely on pany in the Netherlands. Achmea pro- price. To reduce the company’s risk (when vides insurance and financial services policy holders become ill), the companyURL: www.eureko.netHeadquarters: Zeist • The Netherlands through several subsidiaries in Benelux. focused on a prevention strategy to keepYear Founded: 1992 The company sells life, health, and dis- their policy holders healthier.Revenue: US $19,306M ability insurance under several brand Their new mission became fo-Employees: 24,810 names. Their products are sold through cused on helping people become company agents, bankers, and brokers, aware of the possibilities they have Eureko’s Achmea Health gained insight as well as through the Internet. for taking care of their own health. To into the needs of its customers and support this mission, Achmea devel- defined adjacent services and business Key Innovation oped an entire distribution channel of relationships to concurrently reinforce In 2006, Achmea Health was faced with health-related information and serv- and strengthen both its value proposi- increasingly stiff competition, com- ices. Policy holders can now easily find tion and core business model. pounded by a new health plan regula- health-related information from their 53
  • 54. for all its stakeholders: customers, distri- bution partners, shareholders and em- ployees. Achmea’s aim is quality rather than price leadership which is achieved through its commitment to being the best, most customer-centric and inno- vative services provider. The company drives revenue from its insurance services while controlling costs by reducing health-related risk. Thus, services have enabled Achmea Health to be more cost-competitive in its major line of business. Value Network Achmea Health extends the value of its services through a host of health care providers and organizations who offer website, company stores, educational allows parents to easily communicate information and education about health programs, and a series of lifestyle work- with their hospitalized children. Rabbit and wellness. It also extends to IT part- shops. The company also offers dis- Care lets parents send a nightly, virtual ners such as IBM who enable Achmea to counted memberships to 23 gyms and message and hug via a digital cuddly deliver differentiated services to address provides regular health checkups and bunny, making them feel that home is the human side of patient care. In addi- health trips to policy holders. Achmea nearby. The Rabbit Care is an initiative tion, Achmea has created partnerships also publishes Achmea Health Maga- of IBM, supported by one of the Ach- with gyms to provide discounted mem- zine, which had an estimated circula- mea brands, Silver Kruis Achmea. berships to those it insures. tion of approximately 1.4 million. Recognizing that health is also Financial Model derived through the caring of loved As a health insurance cooperative, Ach- ones, not just quality medical proce- mea Health is owned by the people dures, Achmea created high-touch that it insures. The company’s mission services such as Rabbit Care, which is to achieve balanced value creation54
  • 55. Forerunner Innovation Strategy #4: Key Innovation and services for travelers in Europe,Solution-Based Innovation Innovation occurred early in Miche- but more importantly it has created lin’s history. Just 12 years after creating an interactive consumer travel expe-Adjacency Complement Models a company to manufacture and sell rience which builds the brand and tires, co-founders Eduoard and Andre drives sales. is now the Michelin recognized an unmet custom- #1 travel site in Europe. In addition to er need: people want to know where to core services like route calculation andURL: stay when they are traveling. To address map display, the site offers online hotelHeadquarters: Clermont-Ferrand • France this market adjacency, they developed booking and digital services that facili-Year Founded: 1889 the now-famous Red Guides to hotels tate travel, such as traffic updates andRevenue: US $23,127M and restaurants. Realizing that custom- tourist information.Employees: 117,565 ers wanted even more information Through the ViaMichelin site, about restaurant quality, the brothers travelers can update their Michelin Michelin developed its ViaMichelin introduced the Michelin star symbols in portable GPS by downloading the con- service to support end-customer be- 1926 which have become an industry tents of their European Green Guides havior that drives greater product us- benchmark against which restaurants and Hotel and Restaurant Guides. GPS age and sales, and while concurrently generating B2B revenue. and chefs are rated. users can also upgrade to a free “advan- In 2001 Michelin leveraged its tage” level which includes value-added assets from the publishing world to services such as map updating andBusiness Description launch ViaMichelin. The wholly-owned interconnectivity with the Viamichelin.Michelin was established in 1889 subsidiary designs, develops and mar- com website.and has grown to become one of the kets digital travel assistance productsworld’s largest tire manufacturers. Tiresare sold to OEMs, replacement cent-ers and also to consumers through aglobal network of dealers/distributorsand auto repair shops. While passen-ger car, truck and related distributionaccount for 86% percent of the com-pany’s revenue, 14% comes from spe-cialty businesses, which include Redtravel guides, road maps and the GreenGuides for tourism. Michelin is also fa-mous for the stars that the Red Guideawards to restaurants for their cook-ing and, of course, for its emblem, theMichelin Man. 55
  • 56. Michelin uses the ViaMichelin in- Financial Model Value Network teractive website to drive product sales. While the ViaMichelin site is free to visi- A host of companies and underlying While visiting the site, the consumer tors, the company generates revenue technologies form the value network can click on an interactive activity to through subscription-based registra- for ViaMichelin. This includes the parent determine which tire best suits their car tion targeted to tourism professionals. company, the underlying ViaMichelin and then click to find the appropriate These companies can place targeted, web technology, authorized ViaMiche- dealer/distributor. Thus Michelin uses local advertising to promote their lin dealers, thousands of hotels and the site to meet the travel planning businesses in the form of value-added restaurants, and dozens of companies needs of its customer’s customer, while web content that complements search who place advertising or provide infor- simultaneously directing that buyer to results. ViaMichelin estimates that mation on the ViaMichelin site. its customer. 100,000 tourism-related searches and almost 2,000 reservations are made each day on ViaMichelin.56
  • 57. Expand the value of existing products or services by adding services that meet Forerunner Examples a broader set of customer needs or by introducing complementary service offerings Experience Service ModelsAs you review these cases, consider the following questions to inspire your thinking: What value added end-customer, end-user or end-consumer experiences can reinforce existing products or services and drive loyalty? Consider things that: • Provide useful information and knowledge • Help within training • Build community • Give “access” and “status” through unique membership services • Give customers differentiation versus their competitionForerunner Innovation Strategy #4: Business Description “freedom” to middle-aged men. Sev-Solution-Based Innovation Harley-Davidson is a major US maker of eral years ago, the company realized it motorcycles and the nation’s #1 seller could have a broader reach and biggerExperience Service Models of heavyweight motorcycles. The com- market if it could grow its motorcycling pany offers 35 models of touring and community. In partnership with the custom Harleys through a worldwide Motorcycle Safety Foundation, Harley network of more than 1,500 dealers. Davidson developed course materials Harley-Davidson sells “attitude” with its for Riders’ Edge, the “Harley-DavidsonURL: Headquarters: Milwaukee, WI • USA brand name products, which include Academy of Motorcycling.” To launchYear Founded: 1903 a line of clothing and accessories (Mo- the program, they made a minimalRevenue: US $5,594M torClothes). Harley-Davidson Financial investment using dealers’ parking lotsEmployees: 10,100 Services offers financing to dealers and and their own fleet of motorcycles. To consumers in the USA and Canada. support their brand image of a com- Harley-Davidson introduced a range munity of bikers, they provided follow- of experiential services that support Key Innovation up community building activities to the brand, deliver customers to deal- Harley Davidson knows it doesn’t sim- maintain the relationships formed in ers, drive product sales and build ply sell motorcycles, but something training. By 2008, over 100,000 people long-term loyalty. more valuable and aspirational: it sells had attended. 57
  • 58. Value Network By organizing riding classes through Harley-Davidson’s 800+ U.S. dealer- ships, Harley-Davidson connects inter- ested buyers with its suppliers, but it does this in a “soft sell” way by provid- ing both training and community with like-minded motorcycle enthusiasts. In this way, Harley-Davidson provides value to its customers (the dealer- ships) as well as to their customers (the riders). To meet the diverse needs of its video/handbook for leaders seeking to expanding motorcycle community, organize group rides. Harley-Davidson expanded its motor- cycling academy to include multiple Financial Model levels of classes (New Rider, Skilled Harley-Davidson generates revenue Rider and Group Riding) delivered from the sale of training materials and throughout the U.S. on a regular basis. classes, offered from $30-$395, but the The company has made it easy for rid- larger opportunity is to drive revenue ers to find classes and sign up via their from new bike sales as a result of ex- website. They provide the option of tending the motorcycle community.58
  • 59. Forerunner Innovation Strategy #4: apply for and obtain these cards from of consumers. For Visa, reinforcing theSolution-Based Innovation these financial institutions often do so brand with consumers results in greater because they are attracted to the Visa use of their cards, which concurrentlyExperience Service Models brand. End consumers drive revenue creates greater demand from financial indirectly, since every purchase on a institutions to issue and promote the Visa card generates transaction fees for Visa offering. the issuing bank, but then ultimately Visa has become a master at focus-URL: for Visa. ing on their customers’ customer – theHeadquarters: Foster City, CA • USA Financial institutions that issue end consumer. A central componentYear Founded: 1976 credit cards have the choice to go of Visa’s strategy involves creating serv-Revenue: US $6,911M with Visa, American Express, Master- ice experiences for consumers that areEmployees: 5,700 Card or other branded providers. But delivered both independently by Visa they often choose Visa because of its and in close partnership with its largest Visa’s value network of merchants, product and service suppliers, and brand – a brand that offers ubiquitous financial institution customers. Visa’s technology providers delivers unsur- acceptance, lends credibility and pro- “Signature” card and related services, passed customer experiences that motes a sense of “lifestyle” in the minds for example, include access to a wide support its core goal of growing credit card transactions.Business DescriptionVisa operates the world’s largest con-sumer payment system that includes acirculation of approximately 1.7 billioncredit and debit cards. Visa licenses itsname to member institutions, whichinclude over 20,000 banks and finan-cial firms, which in turn issue and mar-ket their own Visa products. As part ofmembership, these firms participatein the VisaNet payment system whichprovides authorization, processing, andsettlement services for financial trans-actions. In addition to credit cards, Visaalso provides its customers with theability to issue and provide debit cards,Internet payment systems, value-stor-ing smart cards, and traveler’s checks.Key InnovationVisa’s most direct customers are thefinancial institutions that join Visa’snetwork, issue their cards and gener-ate revenue for Visa through payingtransaction fees. End consumers who 59
  • 60. range of travel, entertainment, fine running and managing small business- Value Network wine & food, and sports-related events es. Small business owners, who often Visa recognizes the power of its inter- and experiences. Many of these involve lack the resources and collaboration dependent ecosystem. For Visa, it is providing selected consumers with of other leaders that managers in large about one key thing: growing trans- exclusive access to shows, wineries, companies enjoy, can now tap into a actions results in growing revenue. To sporting events, or other activities they social network of like-minded business support ubiquitous acceptance, Visa would otherwise be unable to obtain owners. Visa built and is cultivating has put significant focus on developing on their own. Beyond such access, Visa this network as part of its approach for its network of “merchants” to accept also provides discounts on movie tick- building the same credibility and en- their cards. Beyond these merchants, ets, sporting goods, hotel stays, flowers gagement in the small business market Visa’s value network also includes all of and gifts, apparel and shoes, comput- (currently dominated by American Ex- the players necessary for providing a ers and electronics, and various other press) as it has with consumers. comprehensive experience for its card items. In addition, any consumer with holders – airlines, travel agents, hotels, a Signature Visa Card gains access to a Financial Model insurance companies, roadside assist- complementary 24/7 concierge serv- Visa’s core revenues come from trans- ance companies, retailers, booksellers, ice that will take custom requests and action fees paid to them by the finan- ticket agencies, concierge services, solve problems related to reservations, cial institutions that issue their cards. sponsors such as the Olympic commit- vacation planning, finding tickets, and Coop-marketing fees may also apply to tee, golf resorts, and the list goes on. even finding daycare for pets. certain experiential consumer market- Visa also has active programs in mobile As part of its experience strategy ing events conducted in partnership payments and other areas of innova- targeting small businesses, Visa recently with a customer. Other marketing serv- tion which involve leadership and par- partnered with social networking giant ices to support business intelligence ticipation across a variety of industry FaceBook to create The Visa Business using Visa’s breadth of purchase data standards groups and with small and Network, a small business community may also be supported through addi- large technology providers. focused on sharing best practices for tional fees.60
  • 61. Expand the value of existing products or services by adding services that meet Forerunner Examples a broader set of customer needs or by introducing complementary service offerings Consultative Value ModelsAs you review these cases, consider the following questions to inspire your thinking: What value added services that would otherwise be provided by third party consultants could be used to complement existing offerings, drive down costs, or create new revenue streams? Consider things that: • Create deeper relationships by addressing broader issues and needs • Add value through providing additional data, information and knowledge • Add value through providing advice • Provide free services that help significantly reduce the costs related to your existing offering • Provide fee-based consulting services that complement your existing offeringForerunner Innovation Strategy #4: Business Description mutual insurance company with otherSolution-Based Innovation textile mill owners who shared his phi- FM Global is a Fortune 1000 insurance losophy for loss prevention. Over timeConsultative Value Models company with a unique approach to Allen developed partnerships with risk management that sets it apart from other mutual insurance companies and competitors. In addition to commercial “Factory Mutuals” (FM) was created. property/casualty insurance primarily By 1878 the FM companies cre- targeted at other large companies, it ated a dedicated unit of loss controlURL: provides an array of consulting services specialists to handle inspection activi-Headquarters: Johnston, RI • USA to help its customers reduce risk and ties for policy holders. This service grewYear Founded: 1835 avoid property loss, which, of course, into appraisals and adjustments, lossRevenue: US $3,365M helps FM Global control costs and pass analysis and research activities associ-Employees: 5,000 savings along to its customers and im- ated with preventing fire and other prove margins. hazards. All of these services remain FM Global built engineering compe- The company dates back to 1835, integral parts of FM Global’s offerings tencies to differentiate its insurance when Zachariah Allen, a prominent tex- today. offerings through consulting services tile mill owner, made property improve- that add greater value and create cus- ments that would minimize the chance Key Innovation tomer loyalty, while concurrently re- of fire loss. When he approached his To ensure world-class methods to un- ducing risk exposure which increases bottom line profit. insurance company for a discount and derstand and mitigate property haz- was turned down, he formed his own ards, the company recently created 61
  • 62. FM Global Research. This is a special- ized group of scientists, engineers and technicians that sets new standards for loss prevention and helps to develop related products and services. The Re- search Group shares these new tech- nologies with its customers through a nonexclusive, royalty-free licensing ar- rangement. For example, FM Global Research developed the “skipping resistance sprinkler”, a new kind of sprinkler de- signed to put out fires using less water than standard sprinklers. The National Fire Protection Agency estimates that property fires in vacant or idle build- ings cost owners $640 million annually. If FM Global’s technology and consult- Financial Model ing services can reduce this risk by even ments to their property or work prac- 10% they can save $64 million in claims. FM Global employs an unusual busi- tices to reduce physical and financial It is a win-win situation for clients, ven- ness model whereby risk and premi- risks if a loss occurs. dor-partners and FM Global itself. ums are determined by engineering Because FM Global’s value propo- analysis instead of historically-based Value Network sition is based on loss prevention – actuarial calculations. This business FM Global both sells direct to its cus- not simply selling an insurance prod- approach is based on the assumption tomers through its sales force and also uct – it develops long-term relation- that property losses can be prevented has a large network of brokers. Its 1,500 ships with customers versus merely or significantly mitigated. FM Global on-staff engineers and client service conducting transactions. These rela- engineers regularly visit insured loca- team are critical elements of the de- tionships open doors to deliver new tions, at no additional cost, to evaluate livery and relationship management services and capture ever-increasing hazards and recommend improve- model. value over time.62
  • 63. Forerunner Innovation Strategy #4:Solution-Based InnovationConsultative Value ModelsURL: www.hermanmiller.comHeadquarters: Zeeland, MI • USAYear Founded: 1947Revenue: US $1.630MEmployees: 5,229 Herman Miller recognized the broader context in which customers acquire furniture and developed full-service workplace design services that repre- sents a trusted “agnostic” solution that generates new revenues and reinforc- es product sales. Work For” in America, while Fast Com- By functioning as a service hub forBusiness Description pany named Herman Miller among the procuring furniture from other manu-Herman Miller designs commercial fur- innovative “Companies to Watch.” facturers, the Facility Services Groupnishings and provides related services addresses an unmet customer need forthat improve the human experience Key Innovation “one stop shopping.” Most manufactur-wherever people work, heal, learn, and While Herman Miller provides work- ers have mature distribution networkslive. While the company is known for place design services for the furniture comprised primarily of dealers thatits ergonomically designed furniture, it manufactures, it innovates by pro- are not permitted to represent otherlighting, seating, textiles, filing and stor- viding a complete range of workplace manufacturers’ products. This serviceage systems, it is also known for design- support services – including the logis- provides a single point of contact foring workplace environments in a way tics coordination of buying furniture procuring furniture which will mostthat bring people and places together from other manufacturers, even includ- likely include Herman Miller, in additionto improve performance. Core services ing competitors. to other manufacturers.include workplace planning and de- The company’s Facility Services Since the Group is solution-fo-sign to transform corporate facilities Group operates much like an inde- cused, it provides a broad range ofinto a strategic asset. pendent consulting agency. Its focus services that go beyond typical work- A strong corporate culture, en- is to provide holistic solutions that help space planning. These include:gaged employees, and a commitment customers optimize space design and • Consulting – includes standardsto social responsibility have also estab- furniture to meet specific business development, benchmarking, andlished Herman Miller as a recognized goals. Because the Group does not sell ergonomic assessmentsglobal company. In 2009, Herman Mill- furniture, it is able to apply its expertise • Workplace Services – includeser was again cited by Fortune as both regardless of the furniture that a client furniture and equipment stor-the “Most Admired” in its industry and elects to purchase. age, furniture delivery, distribu-among the “100 Best Companies to tion and repair 63
  • 64. • Workplace Management – in- Financial Model Value Network cludes the supervision of moves Herman Miller charges consulting fees Herman Miller’s value network includes and changes, overseeing assets for these workplace services based its own manufacturing and distribution and performing interior design ac- upon the project and resources in- capabilities, along with those of other tivities volved. While the services are offered furniture manufacturers and their deal- • Project Management – includes independently of Herman Miller fur- er networks. To provide a broad array architectural and engineering co- niture sales, they most likely will be of consulting services, Herman Miller ordination, budget development, connected to the purchase of Herman partners with external designers and tracking and control, schedule de- Miller furniture. Thus Herman Miller consultants. velopment and tracking, as well as has created a separate revenue stream the coordination of renovation ac- from consulting services, while at the tivities same time providing a way to keep its • Technical Services – proprietary product in the forefront of customer’s software applications that com- minds as they plan an office move or plement CAD/CAFM industry renovation. standards, and enable us to seam- lessly integrate technology into a client company’s daily activities64
  • 65. Expand the value of existing products or services by adding services that meet Forerunner Examples a broader set of customer needs or by introducing complementary service offerings Profit with Purpose ModelsAs you review these cases, consider the following questions to inspire your thinking: How can you reposition existing services or offer new services to generate profit while concurrently appealing to “higher purpose” customer needs? Consider things that: • Address climate change and sustainability needs of customers and/ or end-consumers • Address health, wellness and quality of life needs of customers and/or end-consumers • Gives customers the ability to provide higher-purpose offerings themselves • Create a unique market approach that drives differentiation and competitive advantage with both customers and end-consumersForerunner Innovation Strategy #4: Business Description Key InnovationSolution-Based Innovation iReuse is a northern California compa- Recycling is nothing new to the busi-Profit with Purpose Models ny that uses a web database to match ness world. Most corporations recycle unwanted, reusable items with non- paper products, metal cans, and plas- profit groups or individual buyers. It tic. iReuse takes recycling to new lev- carved out a niche in handling large in- els, however, by collecting hundreds ventories of unwanted office furniture of items from companies that don’tURL: from big companies such as Autodesk, fit into the standard recycling arena.Headquarters: Sausalito, California • USAYear Founded: 2005 Charles Schwab and PG&E. In addition Typically these items would be pickedRevenue: US <$50M to removal services, the company of- up by a disposal company and thenEmployees: <50 fers sustainability consulting in a wide dropped off at a garbage dump for a range of areas such as Energy & Water, fee. Instead, iReuse collects the items at iReuse found an untapped market for Waste, Procurement, Carbon Emissions, a competitive rate and then takes the usable yet unrecyclable items, gener- Tracking & Reporting and Employee process one step further. They coordi- ating revenues from a unique service Programs for increased sustainability. nate the delivery of salvageable items model as well as consulting services. 65
  • 66. with non-profit partners or individuals to make sure people in need benefit, and to likewise ensure reusable items don’t simply end up in a landfill. The company offers a range of scalable services that fit the needs of large cor- porations as well as small businesses and individuals. In addition, they pro- vide web-enabled tools that easily connect individual or business dona- tors with appropriate recipients from a list of over 2000 non-profits and buyer wish lists. Financial Model iReuse is a for-profit company that charges competitive rates for the re- Value Network moval of unwanted items in homes and businesses, similar to other recy- The iReuse business model is based on cling companies. Their rates include a a network of non-profit organizations, fee to support the distribution costs small and medium sized businesses, associated with matching unwanted large corporations and individuals – all items to the organization or individual of whom can create wish lists of items in need. The company also generates they need, and/or contact the com- revenue from its sustainability consult- pany via phone or the web to donate ing services. items they don’t need.66
  • 67. Forerunner Innovation Strategy #4: phone to reduce the cost of loan dis- during this initial period. The M-PESASolution-Based Innovation bursal and recovery. Instead, customers mobile money transfer service is now were found using it for person-to-per- well established in Kenya and is beingProfit with Purpose Models son transfers, so Vodafone developed used by customers for a wide range of a payment service called M-PESA to money transfer transactions. For exam- formally facilitate these transfers. The ple, it provides people without bank service allows customers to borrow, accounts a cost effective way to send transfer and make payments using a money to their families and is a secureURL: mobile phone, transforming financial method for people to store moneyHeadquarters: Newberry, West Berkshire • services by making transactions cheap- when traveling on public transport. It England er, faster and more secure. Through M- is also becoming an accepted paymentYear Founded: 1984 PESA customers can deposit cash at a method for small traders such as gro-Revenue: US $58,281MEmployees: 79,097 local agent (an affiliated mobile phone cers and taxi drivers. Vodafone is now dealer, gas station, supermarket or oth- expanding the service internationally. Vodafone entered into a pilot to ex- er shop), send and receive money from The Consultative Group to Assist plore microfinance in emerging mar- other mobile phone users by SMS, and the Poor (CGAP) estimates that more kets and uncovered a viable financial withdraw cash at any agent. M-PESA than five billion of the world’s people model that delivers value while scal- allows any shop to potentially act as a live without a bank account, but more ing to the economic needs of the in- “bank” by eliminating physical barriers importantly for Vodafone, two billion of digenous population. to cash transfer. those individuals have mobile phones. Vodafone has had incredible suc- cess in Kenya through a jointly-owned Financial ModelBusiness Description subsidiary, Safaricom. Three months The overall model for payment is a li-The Vodafone Group is one of the after launch, M-PESA had 175,000 cus- censing agreement based on M-PESAworld’s top wireless phone service tomers and was signing up 2,500 new transactions. Vodafone developed acarriers with approximately 300 mil- customers a day. Over US $7.5 mil- license with Vodacom which pays Vo-lion customers in more than 20 coun- lion was transferred over the service dafone for each registered user of thetries. While the company does most ofits business in Europe, it increasinglyserves callers in Asia, Africa, the Mid-dle East, and the Pacific region throughsubsidiaries and joint ventures. Voda-fone also provides data, broadbandInternet, and fixed-line phone services.Key InnovationIn 2007, Vodafone and the UK Depart-ment for International Developmentjointly funded a project to develop amobile-based microfinance solution,and partnered with Faulu Kenya, a lo-cal microfinance institution. The resultsof the six month pilot were surprising.The original idea was to use the mobile 67
  • 68. M-PESA service. Vodafone makes mon- ey based on registered users that are Summary active; and they are also paid on every transaction. In Vodafone’s license with The Solution Based Innovation strat- the “Academy of Motorcycling” to Safaricom, the company is paid based egy drives four business models, expand its customer base of riders on how much money M-Pesa gener- namely: and to create new ways to engage ates, not by the number of users or 1. Adjacency Complement Mod- and energize its current members. transactions. Local supermarkets, gas els that introduce service offer- Recognizing that customers have stations and other shops that serve as ings in new markets that comple- multiple needs when buying furni- agents also receive a small commission ment and reinforce existing prod- ture, Herman Miller set up a Facility on the transaction. ucts or services Services Group to provide a range 2. Experience Service Models that of workplace support services, in- Value Network deliver value-added end-custom- cluding the logistics coordination of The M-banking value network requires er experiences to drive loyalty buying furniture from other manu- the interaction of an eclectic mix of and reinforce existing products or facturers – even competitors. The customers, local merchants, local mo- services common theme across all of these bile network operators, local micro- 3. Consultative Value Models that cases: imaginative “solutions think- finance agencies, and several multi-bil- deliver services that would oth- ing” pushes boundaries to deliver lion dollar telecommunication giants, erwise be provided by third par- value that meets a broader set of as well as a large government agency ty consultants to complement of- customer needs. that helped initiate the pilot. ferings, drive down costs, or cre- Customers and merchants are key ate new revenue streams Challenge Questions drivers of this value chain because rev- 4. Profit with Purpose Models that enue is only generated if the M-PESA deliver services to generate prof- 1. What “adjacent” services could service is used. Some M-PESA telecom it while concurrently appealing to you offer that complement and agents are hiring promoters to walk “higher purpose” customer needs reinforce your existing products around the streets, signing up users and/or services? and directing them to an agent loca- Inherent to Solution Based Innova- 2. What value added end-customer, tion where they can deposit money to tion is the essential need to under- end-user or end-consumer expe- send. stand customers’ needs and to adopt riences can reinforce your existing a “solutions” perspective. To do this products or services and drive loy- we need to step back, consider the alty? customer’s “end game” (what they are 3. What value added services that trying to achieve), how we can better would otherwise be provided by engage them, or how we can solve third party consultants could be their broader and most fundamental used to complement existing of- challenges and needs. ferings, drive down costs, or cre- Michelin, for example, moved ate new revenue streams? beyond a manufacturing mindset 4. How can you reposition your ex- that “we make tires” by recognizing isting services or offer new serv- that travelers want to know where ices to generate profit while con- to stay and eat, and that they also currently appealing to “higher want great, trouble-free travel expe- purpose” customer needs? riences. Harley-Davidson developed68
  • 69. Harnessing the Future overload we all feel, or when they add • An increasing number of services heightened value through aggregating will add value by making meaningWhat the future holds – the business and interpreting data which leads to out of complex data – data thatmodels that will prevail, which com- better decision-making. are either intentionally collectedpanies will emerge as the leaders, and Based on our research, we firmly through sensors for this purposewhat will be the next big opportunity – believe that the Service Innovation or that are captured within the ex-is anyone’s guess. Certainly, there is no Megatrends will continue to shape our isting course of doing business“one right answer”, no easily identifiable world, that the Forerunner Attributes • Social networking, collaboration“silver bullet”. What we can say with are here to stay, and that those compa- and user-generated content willcertainty, however, is that the answers nies that keep a watchful eye on both continue to play roles in serviceto these questions will be created by will be successful in identifying new definition and delivery itselfthose willing to imaginatively push the opportunities. We also believe that theboundaries of today’s conventions by future is dynamic; some trends and at- With respect to the business modelsexperimenting with new ideas and ap- tributes may become more important that we have shared, one importantproaches. than others, and new trends and at- question is whether any single model As we think about the future, let’s tributes may emerge as equally impor- stands out as more powerful or promis-first think back to the late 1990’s when tant drivers of the future. ing than any of the others? The answerthe term “e-business” was all the rage. In addition, some trends and at- is no. Arguably, each one could be aIt was everywhere – most companies tributes are more relevant to some game changer or game creator in itshad “e-business” initiatives, consult- types of companies than to others (e.g., own right, as we have seen in many ofing firms were touting it, and the term mature manufacturing companies, vs. the case examples. However, if pressedwas found across every business pub- service companies vs. start-ups). Nev- to single out the biggest opportunitylication and industry imaginable. And ertheless, all are important to consider (and likely the most challenging towhere is it today? No, not gone. It is em- when exploring opportunities for inno- create), we would select the Platformbedded into our everyday operations vation, as the power of this thinking lies as a Service model. This tremendouslyas an assumed aspect of doing busi- at the intersections – unique combina- powerful model is here to stay, andness. The same will ultimately be true tions of trends, insights and attributes while some companies like Apple haveof many of our megatrends. that reveal differentiating opportunities led the way, others like Nintendo are Perhaps the most critical meg- and suggest new ways of creating value. just now starting to tap into the poweratrend – though also perhaps the least of the platform that they have seem-interesting since it sits in the back- Here’s our view: ingly “backed into” serendipitously. Stillground as enabling infrastructure – is • The Cloud will become ubiquitous others, like HP’s Magcloud – which isThe Cloud. Although The Cloud is a and eventually fade into the back- both an on-demand service modelkey enabler of the future of service ground as a core enabler of our and an aspiring platform – have yetbusiness innovation, the competitive entire global service economy to establish themselves as a true in-landscape is already fairly crowded and • Similarly, social responsibility will dustry standard. Although Platform asmany of the infrastructure players are become expected, since these a Service is complex, and is one of thefinding their places. Most companies, business models and practice will most challenging business models toultimately, will find opportunities that become an assumed part of how achieve, one of the critical questionstap into The Cloud and deliver cloud we must work and live, and how service innovators must ask themselvesservices using the web and mobile organizations must do business is whether an untapped platform-typedevices. Some of the more interest- • Mobile and web-based value de- opportunity exists within their owning opportunities will be found when livery models will become pre- industries and if so, how to create andthese service companies help simplify requisites necessary for any serv- begin to capitalize on the model.the increasingly pervasive information ice business 69
  • 70. The question that you are hopeful- their starting point assumes you are future will continually look into the fu- ly asking by now is this – which mod- moving from a product to a service ture themselves. They will identify new els apply to me, and of these which focus. If you’re a start-up without an es- opportunities but they will also adopt a should I actively explore? Our answer: tablished product, service, or customer flexible mindset that affords them the it depends. It depends on your starting base, then about half of the business ability to organize and operate in ways point, whether you’re already a services models will most likely be relevant for that tap into knowledge and networks or a product company, and if neither, you. that create intangible sources of com- whether you’re a start-up without a In conclusion, we want to re-em- petitive advantage. These Forerunners legacy to build upon (or to overcome). phasize that the future of service busi- will pave the way to new approaches If you’re currently a product com- ness innovation will be characterized for creating and capturing value – val- pany, or a product and service compa- by the creative interpretation and sub- ue that begins with customers and ex- ny, you can consider all of the business sequent combinations of megatrends, tends to customers’ customers, broader models. If you’re already a pure services business models and the competen- value networks and then to the com- company, then some of the business cies and attributes that must bring munity, environment and society. models may not be as applicable, since them to life. The global winners in the70
  • 71. Reference ChartsTable 8. Innovation Strategies, Business Models & Cases by Megatrends & Forerunner Attributes Business Megatrends Forerunner Attributes Model Relevance Social Networking & Communication Globalization with Local Relevance Customer needs and customers’ Climate Change & Sustainability Manufacturing & Product Firms Collaborating and co-creating Collaborative Contributions Web Based Value Delivery Experiential interactions Everything as a Service Sensing & Monitoring Mobile Value Delivery Experience Design customers’ needs Value networks Relationships Service Firms The Cloud Start-Ups Solutions Profit + Time-Based Cemex 3 3 3 3 3 3 3 3 Value Models Rolls-Royce 3 3 3 3 3 3 Attribute-Based Innovation On Demand Hewlett-Packard 3 3 3 3 3 3 3 3 3 3 3 3 3 3 Service Models Zipcar 3 3 3 3 3 3 3 3 Product SolarCity 3 3 3 3 3 3 3 3 3 3 3 Transformation IFH Holdings / Models Expresso Fitness 3 3 3 3 3 3 3 3 3 3 3 Data Aggregation Intuit 3 3 3 3 3 3 3 3 3 3 Knowledge- Innovation Models Gardner Denver 3 3 3 3 3 3 3 Based User-Generated Honda 3 3 3 3 3 3 3 3 3 3 3 Models iStockPhoto 3 3 3 3 3 3 3 3 3 3 3 3 Digitize It Open Table 3 3 3 3 3 3 3 3 3 3 3 3 Mobile Web-Based Models Cisco Systems 3 3 3 3 3 3 3 3 3 3 Innovation Make It Mobile t+Medical 3 3 3 3 3 3 3 3 3 3 Models NeoMedia 3 3 3 3 3 3 3 3 3 3 3 Platforms as Apple 3 3 3 3 3 3 3 3 3 3 3 3 3 3 a Service Model Nintendo 3 3 3 3 3 3 3 3 3 3 3 Adjacency Eureko / 3 3 3 3 3 3 3 3 3 3 3 Complement Achmea Health Solution-Based Innovation Models Michelin / 3 3 3 3 3 3 3 3 3 3 3 ViaMichelin Experience Harley Davidson 3 3 3 3 3 3 3 3 3 3 Service Models Visa 3 3 3 3 3 3 3 3 3 3 3 3 3 Consulatative FM Global 3 3 3 3 3 3 3 3 Value Models Herman Miller 3 3 3 3 3 3 3 3 3 Profit with iReuse 3 3 3 3 3 3 3 3 3 3 3 Purpose Models Vodafone 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 71
  • 72. Table 9. Case Examples by Primary and Secondary Business Models Knowledge- Attribute-Based Mobile Web-Based Solution-Based Based Innovation Innovation Innovation Innovation Adjacency Complement Product Transformation Platforms as a Service On Demand Service Consulatative Value Profit with Purpose Experience Service Data Aggregation Time-Based Value Digitize It Models User-Generated Make It Mobile Models Models Models Models Models Models Models Models Models Models Model Cemex                           Rolls-Royce                           Hewlett-Packard                           Zipcar                           SolarCity                           IFH Holdings / Expresso Fitness                           Intuit                           Gardner Denver                           Honda                           iStockPhoto                           Open Table                           Cisco Systems                           t+Medical                           NeoMedia                           Apple                           Nintendo                           Eureko / Achmea Health                           Michelin / ViaMichelin                           Harley Davidson                           Visa                           FM Global                           Herman Miller                           iReuse                           Vodafone                             Primary Business Model   Secondary Business Model72
  • 73. Tekes Reviews in English274/2010 Business Dynamics and Scenarios of Change. Petri Ahokangas, Miikka Blomster, Lauri Haapanen, Matti Leppäniemi, Vesa Puhakka, Veikko Seppänen, Juhani Warsta. 66 p.272/2010 The Future of Service Business Innovation. 72 p.267/2010 Silicon Valley Journey – Experiences of Finnish IT Startups from Dot-Com Boom to 2010. Raija Rapo & Marita Seulamo-Vargas. 176 p.264/2009 BioRefine Programme 2007–2012. Yearbook 2009.263/2009 Drive for Future Software Leverage – The Role, Importance, and Future Challenges of Software Competences in Finland. Mikael von Hertzen, Jyrki Laine, Sami Kangasharju, Juhani Timonen and Maarit Santala. 93 p.259/2009 Technology Transfer of Research Results Protected by Intellectual Property: Finland and China. Rainer Oesch. 28 p.254/2009 Evaluation of Bioprocessing Expertise in Finland. Colja Laane. 22 p.242/2009 Foresight for Our Future Society – Cooperative project between NISTEP (Japan) and Tekes (Finland). Eija Ahola and Mikko Syrjänen. 59 p.241/2008 FinNano Programme – Intermediate Evaluation. Pekka Koponen, Juho-Kusti Kajander and Matti Kuusisto. 20 p.239/2008 BioRefine Programme 2007–2012. Yearbook 2008. Eija Alakangas & Tuula Mäkinen, eds. 130 p.236/2008 Major challenges for the governance of national research and innovation policies in small European countries. Mari Hjelt, Pim den Hertog, Robbin te Velde, Mikko Syrjänen and Paavo- Petri Ahonen. 65 p.232/2008 Future of Enterprise Mobile Devices – From Tornado Age through Value Mess onwards to Mobile Things That Think. J.Kotovirta and M.Nurmela. 19 p.231/2008 Mobile Enterprise Applications and Business Models. 24 p.228/2008 MASI Technology Programme 2005–2009. Yearbook 2008.227/2008 Tekes-Japan foresight – A cooperative project between NISTEP (Japan) and Tekes (Finland). Mikko Syrjänen and Alina Pathan (Eds.)224/2008 Nanosafety in Finland – a summary report. Tuomas Raivio, Piia Pessala, Mari Hjelt, Pirita Mikkanen, Hanna Kahelin.219/2007 VICTA – Virtual ICT Accelerator. Final Report. 25 p.214/2007 Universities, industrial innovation and regional economic development. A report of local innovation systems. Editors: Richard K. Lester and Markku Sotarauta. 231 p.213/2007 Trends and Opportunities in Packaging R&D in the US. Niels Hauffe, NWV Market Discovery, Inc. 54 p.212/2007 Consumer Packaging in Poland, Czech Republic and in Moscow Area. 50 p.207/2007 MASI Technology Programme 2005–2009. Yearbook 2007. Eija Alakangas & Pekka Taskinen (eds.)Subscriptions: 73
  • 74. Further informationSoren Kaplan, Ph.D.Managing PrincipalInnovationPoint LLCSan Francisco, California USAskaplan@innovation-point.comMirja Kaarlelamirja.kaarlela@tekes.fiTekes – Finnish Funding Agency forTechnology and InnovationTel. +358 10 191 480Fax +358 9 694 9196Kyllikinportti 2, P.O. Box 69FIN-00101 Helsinki, FinlandE-mail: tekes@tekes.fiwww.tekes.fiAugust 2010ISSN 1797-7339ISBN 978-952-457-504-1