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Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
Business Model Innovation
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Business Model Innovation

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Innovative business models reshape industries and drive tremendous growth. The framework outlined in this presentation is based on the HBR article “Reinventing Your Business Model,” co-authored by …

Innovative business models reshape industries and drive tremendous growth. The framework outlined in this presentation is based on the HBR article “Reinventing Your Business Model,” co-authored by Christensen. It includes instructional slides, case examples, and template slides. Topics include Customer Value Proposition, Profit Formula, Key Resources and Processes.

You can view and download the full presentation here:
http://pptlab.com/ppt/HBR-Reinventing-Your-Business-Model-17

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  • 1. Crowdsourced Business Presentation Design ServiceBusiness Model InnovationReinventing Your Business ModelInnovative business models reshape industries and drive tremendous growth. Theframework outlined in this presentation is based on the HBR article “ReinventingYour Business Model,” co-authored by Christensen. It includes instructional slides,case examples, and template slides. Topics include Customer Value Proposition,Profit Formula, Key Resources and Processes. November 30, 2012ORIGINAL PROJECT DETAILShttp://pptlab.com/ppt/HBR-Reinventing-Your-Business-Model-17
  • 2. PPT Lab (www.pptlab.com) is the only crowdsourced presentation design service. Get consulting-quality presentations at a fraction of the cost!www.PPTLab.comsupport@pptlab.com Each month, we will create well over 50 slides of for our members. As a member, you will drive what business slides we create by submitting your own presentation projects to our team. All presentations will be created by a team of management consultants and follow the Consulting Presentation Framework.PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 2
  • 3. Contents  Overview 4  Business Model Innovation Approach 12  Business Model Elements 18  Case Examples 22  Templates 25PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 3
  • 4. Contents  Overview  Business Model Innovation Approach  Business Model Elements  Case Examples  TemplatesPPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 4
  • 5. Business model innovation requires a strong customer value proposition, viable profit formula, and access to key resources and processes… Executive Summary (1 of 2) Innovative business models can reshape industries and drive tremendous growth. However, many organization find business model innovation difficult. The framework outlined in this presentation is based on the HBR article “Reinventing Your Business Model,” authored by Mark Johnson, Clayton Christensen, and Henning Kagermann. A successful business model has 3 key components: 1• Customer Value Proposition. The model helps customers perform a specific “job,” which alternative offerings don’t effectively address. 2• Profit Formula. The model generates value for your organization through such factors as revenue model, cost structure, margins, and inventory turnover. 3• Key Resources and Processes. Your organization has the people, technology, products, equipment, facilities, and brand required to deliver the defined value proposition to the target customers. It also must have the processes to leverage these resources. 1 2 3 Customer Value Proposition + Profit Formula + Key Resources and Processes = Successful Business ModelSource: Reinventing Your Business Model, Johnson, Christensen, Kagermann (2008)PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 5
  • 6. … and can transform industries, catapulting a company’s value Executive Summary (2 of 2) Business model innovations redistributed billions of dollars worth of value: • Retailer discounts like Wal-Mart and Target entered the market with pioneering business models— they now account for over 75% of the total valuation of the retail sector • Low-cost US airlines now account for 55 of the market value of all carriers • In 2003, Apple introduced the iPod with the iTunes store and became a $10 billion product in just 3 years (accounting for almost 50% of Apple’s revenue)—Apple’s market cap grew uncannily from around $1 billion in early 2003 to over $150 billion by late 2007 Eleven of the 26 companies born in the last 25 years that grew into a Fortune 500 companies in the past 10 years achieved this through business model innovation. Note all market statistics taken from the article published in 2008.Source: Reinventing Your Business Model, Johnson, Christensen, Kagermann (2008)PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 6
  • 7. Even though there is very strong awareness of the need for business model innovation, it is a very rare occurrence Business Model Innovation – Awareness and Failure There is strong awareness of the need … but stories of business model for business model innovation … innovation from well-established companies like Apple, are very rare! Why is this? • A 2005 survey by the Economist Intelligence Unit • An American Management Association study revealed over 50% of executives believe business found that only 10% of innovation investments at model innovation will become even more important global companies are focused on developing new for success than product or service innovation business models • A 2008 IBM survey of corporate CEOs revealed • Two key problems drive in lack of model the same innovation: • Almost all CEO respondents reported the need • Lack of definition. Little formal study has to adapt their business models been into the dynamics and processes of • More than 68% said that extensive changes business model development were needed • Lack of understanding. Few organizations understand their existing business model well enough—the premise behind its development, its natural interdependencies, and its strengths and limitationsSource: Reinventing Your Business Model, Johnson, Christensen, Kagermann (2008)PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 7
  • 8. Before we innovate the model, first, we should consider if we need to alter our model due to market changes Existing Business Model – Business Model Assessment Q: Do we need to consider altering our business model? A: Follow these steps… 1• Articulate what makes your existing model successful. For instance, what customer problem does it solve? How does it make money for our business? 2• Watch for signals that the current model needs changing, such as new entrants on the horizon. 3• Decide whether reinventing the model is worth the effort. The answer is “yes” only if the new business model changes the industry or market.Source: Reinventing Your Business Model, Johnson, Christensen, Kagermann (2008)PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 8
  • 9. These are 5 circumstances that often require business model change Business Model Innovation – Five Circumstances for Model Innovation An opportunity to… A need to… 1 2 3 4 5 The opportunity to The opportunity to The opportunity to bring The need to fend off The need to respond to address through capitalize on a new a job-to-be-done focus low-end disrupters a shifting basis of disruptive innovation technology by wrapping where one currently competition—it is the needs of large a new business around does not yet exist—this inevitable that what groups of potential it or the opportunity to is common in industries defines an acceptable customers who are leverage a tested where companies focus solution in a market shut out of the market technology by on products or now will change over entirely because introducing it to a new customers segments, time, leading core existing solutions are market which lead them to market segments to too expensive or refine existing products commoditize complicated for them more and more EXAMPLES • This includes the • Brand new technology • FedEx entered the • Mini-mills were • Hilti changed its opportunity to with new business package delivery threatening new business model in part democratize products model—what Apple did market not by entrants to integrated due to the lower global in emerging markets, with MP3 players competing in price or steel mills by making manufacturing costs— such as Tata Motors’s • Leveraging existing marketing—it focused steel at much lower as a result, low-end Nano car model technologies—offering on fulfilling an unmet costs entrants began military technologies customer need of infringing on the high- commercially better speed and end power tools market reliabilitySource: Reinventing Your Business Model, Johnson, Christensen, Kagermann (2008)PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 9
  • 10. Sometimes, business model innovation isn’t needed to leverage a game- changing opportunity in the market Existing Business Model – Old Business Model Assessment Q: When can we just use the old model? A: When you can fulfill the new customer value proposition… 1• With your current profit formula 2• Using most, if not all, of your current key resources and processes 3• Using the same set of core metrics, rules, and norms you now use to run your business Examples include when P&G introduced Swiffer and Febreze products leveraging its existing business model Companies should not undertake business model innovation lightly.Source: Reinventing Your Business Model, Johnson, Christensen, Kagermann (2008)PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 10
  • 11. We should pursue a business model reinvention only if we are confident the opportunity is large enough to warrant the effort Existing Business Model – Business Model Effort Assessment Q: Will the business model innovation yield acceptable results? A: Probably “yes” if you can answer “yes” to the following: 1• Can you nail the job with a focused, compelling customer value proposition? 2• Can you devise a model in which all the elements of customer value proposition, profit formula, key resources, and key processes work together to get the job done in the most efficient way possible? 3• Can you create a new business development process unrestrained by the negative influences of the core business? 4• Will the new business model disrupt competitors?Source: Reinventing Your Business Model, Johnson, Christensen, Kagermann (2008)PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 11
  • 12. Contents  Overview  Business Model Innovation Approach  Business Model Elements  Case Examples  TemplatesPPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 12
  • 13. The approach to business model innovation follows 3 steps Business Model Innovation Approach 1 2 3 FOCUS ON THE CONSTRUCT A COMPARE NEW MODEL OPPORTUNITY BLUEPRINT WITH EXISTING • Success starts not by thinking about • Construct a blueprint laying out how • Compare the new business model with business models—it starts with thinking your company will fulfill that need at a your existing one to see how much about the opportunity to satisfy a real profit you’d have to change it to capture the customer who needs a job done • This plan has 4 elements: opportunity • Once you do this, you will know if you 1. Customer Value Proposition can use your organization or need to build out a separate new business unit 2. Profit Formula • Remember, every successful company 3. Key Resources is already fulfilling a real customer need 4. Key Processes with an effective business model— whether that model is explicitly understood or not New business models often look unattractive to internal and external stakeholders at the outset—to see past the borders, companies need a new roadmap.Source: Reinventing Your Business Model, Johnson, Christensen, Kagermann (2008)PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 13
  • 14. The blueprint of a business model consists of 4 elements—Customer Value Proposition, Profit Formula, Key Resources, and Key Processes … Business Model Elements (1 of 2) 1 2 3 FOCUS ON THE CONSTRUCT A COMPARE NEW MODEL OPPORTUNITY BLUEPRINT WITH EXISTING 1 2 Customer Value Profit Formula Proposition The Customer Value proposition and Profit Formula define value for the customer and the company The Key Resources and Key Processes describe how that value will be delivered to both the customer and the company 3 4 Key Resources Key ProcessesSource: Reinventing Your Business Model, Johnson, Christensen, Kagermann (2008)PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 14
  • 15. … the Profit Formula along with Key Resources and Processes define how the Customer Value Proposition can be profitably fulfilled Business Model Elements (2 of 2) 1 2 3 FOCUS ON THE CONSTRUCT A COMPARE NEW MODEL OPPORTUNITY BLUEPRINT WITH EXISTING 1 • Target customer Customer Value • Job to be done to solve an important Proposition problem or fulfill an important need • Offering that satisfies the problem or fulfills the need 2 • Revenue Model. How much money can be made Profit Formula • Cost Structure. How costs are allocated • Margin model. How much each sale should net to achieve desired profit levels • People 3 • Resource Velocity. How quickly resources need to be used to support target volumes • Technology Key Resources • Equipment • Information 4 • Processes • Rules and Metrics • Channels Key Processes • Norms. E.g. opportunity size needed • Partnerships, Alliances for investment, approach to customers • Brand and channelsSource: Reinventing Your Business Model, Johnson, Christensen, Kagermann (2008)PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 15
  • 16. Companies adapting a new business model should be patient for growth Business Model Innovation – Adaption and Revision • The secret to adapting a successful business model is patience • Successful new businesses typically revise their business models four times on the road to profitability • While a thorough, well-considered business model innovation process can often shorten this cycle, successful incumbents must tolerate initial failure and grasp the need to course correct along the way • Companies have to focus on learning and adjusting as much as on strategy execution • Companies with new business model should be patient for growth (to allow the market opportunity to unfold)—but impatient for profit (as an early validation that the model works) • Established companies’ attempts at transformational growth typically arise from product and technology innovations—their efforts are often characterized by prolonged development cycles and fitful attempts to find a market A profitable business model is the best early indication of a viable model.Source: Reinventing Your Business Model, Johnson, Christensen, Kagermann (2008)PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 16
  • 17. There are invisible, institutional barriers that thwart adoption of a new business model Business Model Innovation – Institutional Barriers In any organization, the fundamental understanding of the core business model often fades into institutional memory —but it lives on within the organization’s rules, norms and metrics. These are the immediate barriers against any new model taking root in an existing company. Examples of Institutionalized Rules, Norms, and Metrics FINANCIAL OPERATIONAL OTHER • Gross margins • End-product quality • Pricing • Opportunity size • Supplier quality • Performance demands • Unit pricing • Owned versus outsourced • Product-development life cycles • Unit margin manufacturing • Basis for individuals’ rewards and • Breakeven period • Customer service incentives • Net present value calculations • Channels • Brand parameters • Fixed cost investments • Lead times • Credit items • Throughput Because of these institutionalized rules, norms, and metrics, companies oftentimes launch a separate brand or business unit for the business model.Source: Reinventing Your Business Model, Johnson, Christensen, Kagermann (2008)PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 17
  • 18. Contents  Overview  Business Model Innovation Approach  Business Model Elements  Case Examples  TemplatesPPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 18
  • 19. 1 2 The Customer Value Proposition addresses how you Customer Value Profit Formula Proposition will help the customer complete an important job 3 4 Key Resources Key Processes Customer Value Proposition OVERVIEW DETAILS  A successful company has found a way to • To invent or re-invent a business model, you must first identify a clear customer help customers get an important “job” done value proposition —where job is a fundamental problem in a • The most important attribute of a customer value proposition is precision—how given situation that requires a solution perfectly it addresses the customer to be done and nothing else  The more important the job is to the customer, the lower the level of customer • This precision is often difficult to achieve satisfaction with current options for getting • Organizations trying to create the new often neglect to focus on one single job the job done, and the better your solution is —they dilute efforts by attempting too many things than existing alternatives (and lower the price), the greater the customer value • One way to generate a precise customer value proposition is to think about the 4 proposition (CVP) common barriers keeping people from getting a particular job done:  Opportunities for creating CVP are greatest • Insufficient wealth when alternative products have not been designed with the real job in mind and you • Insufficient access can design an offering that gets that job • Insufficient skill (e.g. QuickBooks broke the skill barrier for small business done perfectly owners without accounting knowledge) • Insufficient time (e.g. MinuteClinic broke the time barrier for patients with minor health issues) It is impossible to invent or reinvent a business model without first identifying a clear customer value proposition.Source: Reinventing Your Business Model, Johnson, Christensen, Kagermann (2008)PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 19
  • 20. 1 2 The Profit Formula defines how the company creates Customer Value Profit Formula Proposition value for itself and the customer 3 4 Key Resources Key Processes Profit Formula OVERVIEW DETAILS  The profit formula is the blueprint that • For a business model to be viable, it must be able to make the company money defines how the company creates value for • Many high-tech startups have figured out the customer value proposition, but not itself while providing value to the customer the profit formula and thus do not have a viable business model  The profit formula consists of: • They operate under the misguided notion that if they attract a large enough – Revenue model: price x volume user base through the value proposition, the profit formula will naturally follow – Cost structure: direct costs, indirect • Examples: costs, economies of scale • For Tata Motors to launch its low budget Nano model (with a target price point – Margin model: given the expected of only $2,500), the company had significantly drop gross margins and volume and cost structure, the contribution needed for each sale to drastically reduce many elements in the cost structure achieve desired profits • For power tool manufacturer Hilti to shift into a contract management program – Resource velocity: how fast we need to and adopt a lease/subscription model, it had to change all major components turn over inventory, fixed assets, and of the profit formula: revenue stream (pricing, payment plans, how to think other assets to support our expected about volume), cost structure (additional sales development and contract volume and achieve anticipated profits management costs), and supporting margins and transaction velocity People often mistakenly interchange “profit formula” and “business model”—but, how you make profit is only one piece of the model.Source: Reinventing Your Business Model, Johnson, Christensen, Kagermann (2008)PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 20
  • 21. 1 2 A company must now consider the Key Resources and Customer Value Profit Formula Proposition Processes to deliver that value in its proposition 3 4 Key Resources Key Processes Key Resources and Key Processes OVERVIEW DETAILS  Key resources are assets, such as people, • The key resources and key processes relate strongly to how defined value technology, products, facilities, equipment, proposition is delivered channels, and brand required to deliver the • E.g. for a professional services firm, the key resources are its people and key value proposition to the targeted customers processes are people-related (training and development, recruiting)  The focus is on the key elements that create value for the customer and the • E.g. for a packaged goods company, key resources include strong brands and company strategic channel retailers ; and key processes include associated brand- building and channel-management processes  Key processes of successful companies are characterized by operational and • Many times, it is not the individual resources and processes that make the managerial processes that allow them to difference, but their relationships with one another deliver value in a way that be successfully repeated and scaled • Companies will almost always need to integrate their key resources and processes in a unique way to get a job done perfectly for a set of target customers—when  These include recurrent processes like they do, they almost always create sustainable competitive advantage training, development, manufacturing, planning, sales, and service • Focusing first one the value proposition and profit formula makes clear how these  Key processes also include the resources and processes need to interrelate organization’s rules, metrics, and norms • Rules, norms, and metrics are typically the last element to emerge in a developing business model—business models need to have the flexibility to change in their early years These key resources and key processes portray how value will be delivered to both the customers and company.Source: Reinventing Your Business Model, Johnson, Christensen, Kagermann (2008)PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 21
  • 22. Contents  Overview  Business Model Innovation Approach  Business Model Elements  Case Examples  TemplatesPPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 22
  • 23. Hilti innovated its business model by moving from a products company into a service-oriented one Case Example: Hilti Hilti capitalized on a significant opportunity to increase profitability by turning products into a service. Rather than selling tools at increasingly lower prices, it began selling a “just-the-tool-you-need-when-you-need-it, no-repair-or- storage-hassles” service. This non-trivial change in customer value proposition required a shift in all parts of its business model. TRADITIONAL POWER TOOL COMPANY HILTI’S TOOL FLEET MANAGEMENT SERVICES Leasing a comprehensive fleet of tools Customer Sales of industrial and professional to increase contractors’ on-site Value Proposition power tools and accessories productivity Higher margins; asset heavy; monthly Profit Low margins, high inventory turnover payments for tool maintenance, repair, Formula and replacement Distribution channel, low-cost Strong direct-sales approach, contract Key Resources and manufacturing plants in developing management, IT systems for inventory Key Processes countries, R&D management and repair, warehousingSource: Reinventing Your Business Model, Johnson, Christensen, Kagermann (2008)PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 23
  • 24. Dow Corning innovated its business model by creating a distinct business unit targeting low-end customers through a completely different channel Case Example: Dow Corning Down Corning, a traditionally high-margin business, found new opportunities in low-margin offerings by setting up a separate business unit that operates in an entirely different way. By fundamentally differentiating its low-end and high-end offerings, the company avoided cannibalizing its traditional business even as it found new profits at the low end. ESTABLISHED BUSINESS NEW BUSINESS UNIT Customer Customized solutions, negotiated No frills, bulk prices, sold through the Value Proposition contracts internet Spot-market pricing, low overhead to Profit High-margin, high-overhead retail prices accommodate lower margins, high Formula pay for value-added services throughput Key Resources and IT system, lowest-cost processes, R&D, sales, and service orientation Key Processes maximum automationSource: Reinventing Your Business Model, Johnson, Christensen, Kagermann (2008)PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 24
  • 25. Contents  Overview  Business Model Innovation Approach  Business Model Elements  Case Examples  TemplatesPPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 25
  • 26. Insert headlineBusiness Model Blueprint Template Company situational overview. ESTABLISHED BUSINESS MODEL NEW BUSINESS MODEL Customer Value Proposition Profit Formula Key Resources and Key ProcessesPPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 26
  • 27. Insert headlineBusiness Model Blueprint Template (Alternate) ESTABLISHED BUSINESS MODEL NEW BUSINESS MODEL Customer Value Proposition Profit Formula Key Resources Key ProcessesPPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 27
  • 28. Insert headlineFive Circumstances for Model Innovation An opportunity to… A need to… 1 2 3 4 5 The opportunity to The opportunity to The opportunity to bring The need to fend off The need to respond to address through capitalize on a new a job-to-be-done focus low-end disrupters a shifting basis of disruptive innovation technology by wrapping where one currently competition—it is the needs of large a new business around does not yet exist—this inevitable that what groups of potential it or the opportunity to is common in industries defines an acceptable customers who are leverage a tested where companies focus solution in a market shut out of the market technology by on products or now will change over entirely because introducing it to a new customers segments, time, leading core existing solutions are market which lead them to market segments to too expensive or refine existing products commoditize complicated for them more and more HIGH MEDIUM N/A N/A HIGHPPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 28
  • 29. Insert headlineBusiness Model Elements Template Customer Value Proposition • Insert filler text • Insert filler text • Insert filler text • Insert filler text Profit Formula Key Resources • Insert filler text Key Processes • Insert filler text • Insert filler text • Insert filler textPPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 29
  • 30. PPT Lab (www.pptlab.com) is the only crowdsourced presentation design service. Get consulting-quality presentations at a fraction of the cost!www.PPTLab.comsupport@pptlab.com Each month, we will create well over 50 slides of for our members. As a member, you will drive what business slides we create by submitting your own presentation projects to our team. All presentations will be created by a team of management consultants and follow the Consulting Presentation Framework.PPT Lab (www.PPTLab.com) – Crowdsourced Business Presentation Design Service 30

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