Business model innovation

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  • 1. Business Model Innovation
  • 2. What is Business Model : A company’s business model is management’s story line for how the strategy will be a moneymaker. The story line sets forth the key components of the enterprise’s business approach, indicates how revenues will be generated, and make a case for why the strategy can deliver value to customers in a profitable manner. A company’s business model thus explains why its business approach and strategy will generate ample revenues to cover costs and capture a profit.
  • 3. Business Model Innovation (BMI) refers to the creation, or reinvention of a business itself. A business model innovation results in an entirely different type of company that competes not only on the value proposition of its offerings, but aligns its profit formula, resources and processes to enhance that value proposition, capture new market segments and alienate competitors.
  • 4. By the late 1990’s , Apple’s initial pathway to growth was running out of steam. The company’s proprietary approach to designing both hardware and software limited it to being a niche player and hampered its ability to compete on price. In 2001, Apple began introducing a series of successful new products and services – the IPOD, the ITunes online music service, and the I Phone- that propelled the company to the top of its industry. This was followed with the I Pad. But the shift wasn’t only a matter of product innovation. Apple’s success resulted from its ability to define a workable business model for downloading music - something that had eluded the music industry for years.
  • 5. Clayton Christensen , a Professor at the Harvard Business School , cites the need for business model innovation as one of the core elements of a successful market disruption. A simplifying technology is needed to spark the disruption , a new business model is then needed to maximize the recall of the technology and a comprehensive value network must finally evolve to support it.
  • 6. Target segment Product or service offering Revenue model Value Proposition Business Model Value Chain Cost Model Operating Model Organiz ation
  • 7. As Apple has demonstrated, innovation in a business model is more than mere product, service, or technological innovation. Innovation becomes BMI when two or more elements of a business model are reinvented to deliver value in a new way. Because it involves a multidimensional or orchestrated set of activities, BMI is both challenging to execute and difficult to imitate
  • 8. A business model, from their point of view, consists of four interlocking elements that taken together create and deliver value. According to their construct, Innovation can occur in one or more of these areas simultaneously. Customer Value proposition : Profit formula- Revenue model ( price X volume) Key resources Key Processes ( Source- HBR Dec 2008 )
  • 9. What necessitates a business model change : 1. The opportunity to address the needs of large groups of potential customers who are shut out of a market entirely because existing solutions are too expensive or complicated for them ( e.g. Tata Nano) 2. The opportunity to leverage a brand-new technology, wrapping the right business model around it or the opportunity to leverage a tested technology in a whole new market. ( South West Airlines leveraging the usage of internet ) 3. The opportunity to bring a job-to –be- done focus to a market -driven industry. Such industries tend to make offerings into commodities. But a job focus allows a company to redefine the industry profit formula. E.g. L'Oreal , Unilever has brought the concept of a hair care, skin care therapy centre to focus on its offerings.
  • 10. 4. The need to fend off low-end disruptors. e.g. If Tata’s one lakh car Nano is successful it will threaten other automobile makers. 5. The need to respond to a shifting basis of competition. Inevitably, what defines an acceptable solution in a market will change over time , leading core market segments to commoditize. E.g. GE selling off its consumer electronics business.
  • 11. Examples of BMI where the business model is the core value proposition. Tata- Nano 1 lakh car Apple-iTunes + IPod Wal-Mart Discount retailing Fed-Ex- Guaranteed overnight delivery Southwest- Low cost regional air travel .
  • 12. As CEOs navigate in today's rapidly changing global business environment, their ability to introduce business model innovations is proving to be a critical success factor. The IBM 2006 Global CEO Study indicated that business model innovation had a much stronger correlation with operating margin growth than other types of innovation. Based on IBM’s experience and research, they identified three main types of business model innovation, which can be used alone or in combination: innovations in industry models, innovation in revenue models innovations in enterprise models
  • 13. Anticipating massive change across diverse industries, top-performing CEOs are focusing on business model innovation as a path to competitive strength. To accomplish this, business leaders can use three main types of business model innovation: innovation in industry models, revenue models or enterprise models. These approaches can be used alone or in combination. Because of its prevalence as a successful innovation strategy, enterprise model innovation, emphasizing collaboration and partnerships, should be a key consideration for executives as they respond to change.