Business Model InnovationWhen the Game Gets Tough, Change the GameBy:Belinda Anne Tamayo
Agenda• Quick Review of Business Model• Define Business Model Innovation (BMI)• Evolution of BMI• Relevance of BMI Today• Challenges of BMI• Examples of Companies who applied BMI
What is a Business Model?• Consists of two essential elements: 1. The Value Proposition Answers the question, What are we offering to whom? Reflects explicit choices along the following 3 dimensions: Target Segments: Which customers do we choose to serve? Which of their needs do we seek to address? Product or Service Offering: What are we offering the customers to satisfy their needs? Revenue Model: How are we compensated for our offering?
What is a Business Model? 2. The Operating Model Answers the question, How do we profitably deliver the offering? Captures the business’ choices in the following 3 critical areas: Value Chain: How are we configured to deliver on customer demand? What do we do in-house? What do we outsource? Cost Model: How do we configure our assets and costs to deliver on our value proposition profitably? Organization: How do we deploy and develop our people to sustain and enhance our competitive advantage?
What is Business Model Innovation?• Refers to the creation, or reinvention of a business itself• Innovation becomes Business Model Innovation when two or more elements of a business model are reinvented to deliver value in a new way• BMI results in a company that not only competes on the value proposition of its offerings, but aligns its profit formula, resources, and processes to enhance that value proposition
Evolution and key principles of BMI• Adrian Slywotzky (consultant and author) ▫ Highlighted the importance of adjusting the Business-Design in order to drive/adjust value migration within an industry• Clayton Christensen (Harvard Professor, Author: The Innovator’s Prescription) ▫ Cited the need for business model innovation as one of the core elements of a successful market disruption• Mark W. Johnson (Innosight), Clayton Christensen, and Henning Kagermann of SAP ▫ They explored the BMI concept in detail in their McKinsey Award winning feature article Reinventing Your Business Model (December 2008)
Why is Business Model InnovationRelevant today?1. BMI can provide companies a way to break out of intense competition, under which product or process innovations are easily imitated, competitors’ strategies have converged, and sustained advantage is elusive2. It can help address disruptions that demand new competitive approaches3. IT can help address downturn – specific opportunities, enabling companies, for example, to lower prices or reduce the risks and costs of ownership for customers4. It can deliver superior returns compared to just doing product or process innovation
What Can Go Wrong in BMI?• Portfolio Boat ▫ Can happen when a company has become bogged down in too many uncoordinated, bottom-up innovations ▫ Result: bloated, unbalanced, and overlapping portfolio of experiments, none of which has enough resources or support to win the favor of senior management• Failure to Scale Up ▫ If a project fails to retain the initial excitement, there will be lack of attention and resources to keep it from being scaled up successfully ▫ Maybe due to not being able to establish the right criteria or validations were not done collected and analyzed correctly• Pet Ideas ▫ Every industry has zombies – projects that don’t go anywhere but refuse to die – some managers refuse to give up their pet ideas ▫ They need to put away those pet ideas to give way for better ones
What Can Go Wrong in BMI?• Fixation on Ideation ▫ Some organizations are able to churn out ideas endlessly but rarely move on to piloting and scaling them up• Internal Focus ▫ A company may sometimes focus too much on the internal needs of the organization and fail to address the evolving needs of customers ▫ BMI that takes an inside-out approach frequently results in too little change too late and fails to capture the opportunity• Historical Bias ▫ Organization must resist the temptation to overvalue past models and undervalue forward-looking, disruptive ideas ▫ Organization would need a courageous and visible leader to overcome this natural tendency
A Few Important Things when Strivingfor BMI:• Uncovering Opportunities ▫ Diagnose first the current model to understand its limitations ▫ Once a company understands it current choices, it is better positioned to brainstorm new opportunities• Implementing the New Model ▫ Scaling up is the most critical step for BMI ▫ Winners of BMI aren’t necessarily the originators of new models, rather they are the first ones to successfully roll out ideas• Building the Platform and Skills ▫ Most new business models are disruptive and can incur significant internal resistance ▫ BMI requires a distinct set of processes and capabilities to overcome an organization’s short-term focus and also sustain a BMI advantage on a continuous basis
Examples• Apple ▫ Was the first computer company to include music distribution as an activity, linking it to the development of the iPod hardware and software ▫ Not only did they grow by simply brining innovative hardware, Apple transformed its business model to encompass an ongoing relationship with its customers
Examples• Jetstar ▫ Qantas ultra-low cost airline to compete with Virgin Blue ▫ Initiated international service in 2006, making it the world’s first low-cost, long haul airline ▫ Pioneered revolutionary pricing by offering traditionally bundled services, enabling customers to customize the onboard experience with different options for food, comfort, and entertainment
Examples• Ikea’s Mega Mall Division ▫ Noticed that whenever it opened a store in Russia, the value of nearby real estate increased dramatically ▫ Decided to explore two business models simultaneously: sell through stores and capture the appreciation in real estate ▫ Created a new division called Mega Mall, makes more profit on developing and running malls in Russia
References:• Business Model Innovation, Wikipedia• Business Model Innovation, When the Game Gets Tough, Change the Game, December 2009 (Zhenya Lindgardt, Martin Reeves, George Stalk, and Michael Deimler: The Boston Consulting Group)• Creating Value Through Business Model Innovation (Raphael Amit and Christoph Zott)