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Business Model Innovation by dr. Patrick Stähler

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Lecture at European Innovation Academy 2012 Summer

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Business Model Innovation by dr. Patrick Stähler

  1. 1. European Innovation Academy 2012 TallinnDr. Patrick Stähler, fluidminds Why should your business exist? so- The philo phic al ques- ll tion for a es buisness That’s me: I love to do ski mountaineering!
  2. 2. You need a lot of totraining and luck ishave days like th
  3. 3. Outside the box thinking We need new boxes for fresh ideas. We see only what we are able to see. What are the new boxes? Would you invest in this firm? „The firm dominates the global market with a market share of 40% and has outperformed technology giants like Siemens or Motorola. No other firm brings out more new products (around 80 p.a.) to the market. Among youngsters, it the most admired brand in its field. ”
  4. 4. This was in 2007 th most inno e vative fir earth. T m oday, Nok on in serious ia is troubles.Dr. Patrick Stähler |11! Apple kille d Nokia n with a ne ot w device with a pla but tform eg business . model 1 device!
  5. 5. „Which innovation expanded the global addressable market for mobile communication the most?*“!*After the invention of mobile telephony itself! Which innovation made this possible?!Dr. Patrick Stähler |14!
  6. 6. A smal l chang opened e in bill new ma ing Africa, rkets in Asia, L Americ at a, Yout in hs, etc ..! Prepaid! 1!Everybody wants to be innovative, butwhat is innovation?!We need new boxes forinnovation!
  7. 7. Technological Innovation! Process Innovation!
  8. 8. Process Innovation!Product & ServiceInnovation!
  9. 9. Business ModelInnovation!
  10. 10. 2! Beyond product innovation! Innovation comes in different forms ! process, service, business models innovation!Dr. Patrick Stähler |24!
  11. 11. 1 device!Innovation is all about beingdifferent!
  12. 12. But if everybody is doing thesame, you have to findsomething else!Optimal is when differentbusiness models exists and allhave devoted customers!
  13. 13. 3! Innovation is not only about new things! Innovation is about differentiation !The importance Transistor was invented at theof business end of the 1940s!model thinking!
  14. 14. But SONY made in 1955 a successful product out of the transistor and developed a successful business model out of it for the next 50 years.!Do you know this man?!Hans Rausing = Inventor of theTetra Pack Systems! Dr. Patrick Stähler | 32!
  15. 15. He could have sold his packaging machines, " but…!But he sold packaged services! Tetra Pack is not a product innovation but an implementatio n of an innovative business model!
  16. 16. Technology or a new produt does not create value.It is the business model product/technology X! value creates enables business model defines business strategy 4! Beyond product innovation! Your business model is decisive for value creation! not a new technology, not a product!
  17. 17. To develop a business model, is " To Do the " right things " And Not to do things right!„What is a ! ! !business model? “!
  18. 18. Are you aware o f your DN A?!The business model is theDNA of your business!The business model givesmeaning to your employeesand customers!
  19. 19. 4 key questions for a successful business: What excites How do we How do we Who is on our our create value earn money? team? customers for our What values customers? do we pursue? Value Proposition Value Architecture Revenue Model Team & Values The job of the entre pre- neur„ What industry are ! we in? Who are our competitors?! “ !
  20. 20. „ In which industry ! are we in?! “! „That was the job ! the customer wanted to do.!“ !Dr. Patrick Stähler |44!
  21. 21. What excites your customer? Customer Value Value •  Who is your •  What value do we Proposition customer? create for our •  What job do we customers? What solve for them? value do we create for our partners?
  22. 22. “!To put a computer on every desk and in every home”!
  23. 23. “!To organize the world’s information and make it universally accessible”!
  24. 24. How do we create the value? Offer Distribution & Value Chain Value •  What is our offer? Communication •  What activiites do architecture Channels we have to do to •  How do we reach produce our offer? our customers? •  How does our •  How do we value chain look communicate with like? our customers? Core Capabilities Partner •  What are the core •  What partners do capabilities we we need? need?How do we earn money? Cost Structure Revenue Sources Revenue •  Cost structure is •  With what do we Model defined by your earn money? value architecture.
  25. 25. Who is on our team? What values do we live? Team Values Team & •  Who is in our •  What values do we Values team? life in our team? •  What •  How do we competencies do interact with each we have in our other and with team? customers?
  26. 26. Questions for successful Business Model Innovation Value Architecture Value Proposition Offer Distribution & Communication Customers What is our offer? Channels Who are our customers? How do we reach our customers? What job do we solve for our How do we communicate with customers? our customers? Value Chain Customer Benefit What are our value creating steps? What benefit do we create for our What is our value chain? customers? What benefit do we create for our partners? Core Capabilities Partner What are the core capabilities Which partners do we need? we need?Revenue Model Cost Structure Revenue Sources Cost structure is defined by the With what do we earn money? value architecture.Team & Values Team Values Who is on our team? What values do we pursue? What competencies do we have How do we interact with each other on the team? and the customers? Questions for successful Business Model Innovation Value Architecture Value Proposition Offer Distribution & Communication Customers What is our offer? Channels Who are our customers? How do we reach our customers? What job do we solve for our How do we communicate with customers? our customers? Value Chain Customer Benefit What are our value creating steps? What benefit do we create for our What is our value chain? customers? What benefit do we create for our partners? Core Capabilities Partner What are the core capabilities Which partners do we need? we need?Revenue Model Cost Structure Revenue Sources Cost structure is defined by the With what do we earn money? value architecture.Team & Values Team Values Who is on our team? What values do we pursue? What competencies do we have How do we interact with each other on the team? and the customers?
  27. 27. The Case!At the beginning of the 1990s the world in the power tool industry was inperfect order! !  Established brands in a growing, European market! !  Competition was well defined and Bosch was the uncontested market leader!
  28. 28. Die Ausgangsituation!And then the Chinese came along…..! !  Over 200 new competitors in a short period of time!…and the market stagnated at the same time. !
  29. 29. Dire consequences: "A steep decline in the average price per sold tool and….! 5,9! Sales(Mio. units)! 3,8! 307! Sales (Mio. Euro)! 329! 88! Ø – price in Euro! 78! 69! 65! 64! 67! 62! 58! 56! 52! 93! 94! 95! 96! 97! 98! 99! 00! 01! 02! Source: GfK!Do-it-yourself chains in Germany: 1993 until 2002!… and declining market share for the established brands and exponentialgrowth for the no-names and trade brands! Market Share Powertools" (Germany)! 100% 6! 27! 29! 33! No Names & Trade Brands Established Brands 95! 73 71! 67 0% 1991 2000 2001 2002 Source: GfK, Do-it-yourself shops! !  Strong increase of market share for no-names and trade brands! !  Bosch Power Tools DIY 2002 with a market share of 33% but loss making!
  30. 30. Simple task from your board:!!  Defend market leadership!!  Improve profitability! Your Head! THE working tool "
  31. 31. Which directions should we take?!Dr. Patrick Stähler. Leuphana University Lüneburg! 65!How about this crazy idea?! “ How about making a power tool which is much weaker than the last generation but we make it also very handy and nicely designed. For that we charge a premium and market it to people who are not really into DIY. ”! ! “ Great idea, isn’t it? ”!
  32. 32. The solution: Tools for the IKEA Generation!Here is the solution for Bosch: the IXO, the first power tool for the IKEAgeneration! !  Bosch introduces the IXO to the market ! !  Instead of following the traditional mantra of “better, stronger, faster” Bosch used a new battery technology to make tools smaller and more user friendly! !  Instead of going for the traditional market of MMS (men, muscles and sweat) the IXO addresses the soft DIYs that assembles its IKEA furniture but not more! !  Thereby, it addresses a new, previously unserved market of non-customers! !  The IXO is a typical value innovation that opened up new, uncontested markets!
  33. 33. Shift from technology to user orientation ! … prior 2002! since 2002 …! Technologie" !  ! !  User and usage " orientation! orientation! Building and " !  ! !  Building/repair, planning " repairing! and home decoration! !reliable, very powerful and " !  ! !  reliable, easy to use " ! long-living products! products and services! unemotional " !  ! !  inspiring people! technology orientation!The traditional market:"MMS or Men, Muscles and Sweat!
  34. 34. New market:! Addressing previously non- customers like soft DIYlers and particularly woman! Dr. Patrick Stähler | 71!Changed consumer behavior!The first power tool for the kitchendrawer!
  35. 35. Bosch IXO is the world record holder in units sales! 10 Mi o times so . " ld!2004! 2005! 2006! 2007! 2008! 2009! 2010! !  IXO was first power tool with Li-Ionen technology! !  IXO is the best selling power tool in the world! Growing market share and highly profitable! Market share in power tools " (DIY Shops Germany)! ! 27 29 33 35 34 38 38 No Name / Trade Brands 40 38 29 34 31 26 25 Other Brands Bosch 33 33 33 34 37 36 37 00 01 02 03 04 05 06 Source: GfK!
  36. 36. The strategy canvas of Bosch IXO: A clear profile of the value innovation! 6 Traditional brands No-Name Bosch 5 4 3 2 1 0 -1 Bosch used the new battery technology for a disruptive value innovation! Sustaining innovation = Serving today’sAdvantages of Li-Ion! customers!!  can be formed into a variety of shapes and !  Extend performance in direction of what sizes so as to efficiently fill available space today’s customers like! in the devices! !  Use the Li-Ion technology for stronger and!  lighter than other—often much lighter.! more heavy duty tools!!  do not suffer from the memory effect!!  low self-discharge rate of approximately 5% per month, compared with over 30% Disruptive innovation = Finding new per month in nickel metal hydride batteries customers with different needs! (Source Wikipedia)! !  Use for a new market segments that values different performance parameters like usability, handiness than traditional customers! !  Performance of tool will be worse in parameters current customers value!
  37. 37. Your Head! THE working tool "Sustaining innovations are difficult to 5!master, but !Disruptive innovation cankill your business model!
  38. 38. Your Head! Also the biggest impediment to changeEuropean Innovation Academy 2012 TallinnDr. Patrick Stähler, fluidminds Business Model Innovation: Killing your competitor softly
  39. 39. If you are in a market forgiants...! .. and you play with their rules you will get nowhere…!
  40. 40. „…but if you can create your own rules of engagement than you can compete even in a market for giants. “! Would yo ud this? Wha are to say t would b the answ e er of you boss? r“Well, I know we are in acommodity market where theprice is key, but I believe we cansell the good for 10x as muchas before.”!
  41. 41. The magicformular for Customer! utility!great firms! customer! +! value! price! company ! +! profit! costs!
  42. 42. Business model innovation!1.  Value Innovation " We offer a better value proposition for an existing or new problem!2.  Architectural innovation " We reconfigure the value chain so that a better value proposition emerges!3.  Revenue model innovation " We change the revenue mix and thereby creating a better value proposition!4.  Cultural Innovation" Change the culture to create more value, e.g. Zappos with the best customer service ! Fight eye diseases in India with mass production processes for low costs" the basic idea behind Aravind Eye Hospitals! !  The network of not-for-profit hospitals and vision centers performs 300,000 eye surgeries each year -- 70% for free -- using broadband connections to on-call doctors in city hospitals for instant diagnosis. ! !  Camps in rural areas screen thousands of patients weekly. "We are going from village to village to provide eye care to the unreached," says Aravinds chairman, Dr. P. Namperumalsamy. ! !  Aravind won the 2008 Gates Award for Global Health.!
  43. 43. Business Model: Value Architecture Value Proposition Offer Distribution & Communication Customers Channels !  eye surgery !  paramedics scanning !  middle class Indians rual villages !  poor Indians Value Chain Customer Benefit!  highly standardized surgeries!  high division of labor !  good quality eye surgery !  affordable eye surgery even Core Capabilities Partner for the poor !  Doing good for middle class !  process know-how indiansRevenue Model Cost Structure Revenue Sources!  low cost production system !  cross- subsidies between middle class patients and the poorTeam & Values Team Values Case IKEA! Value Architecture! !  Customers have to transport and assemble the furniture by themselves, thereby saving IKEA to expensive steps in their value creating process! Value Proposition! !  At the same time a new value proposition is created: Instant satisfaction without waiting for the later delivery of the furniture! Revenue Model! !  Due to the high volume, furniture can be produced in an industrial fashion that leads to even lower production costs! !  Therefore, the furniture can be sold for a much lower price!
  44. 44. Geberit – a product innovator?! From plumber supply to under-the-wall systems for baths! Business Model: Value Architecture Value Proposition Offer Distribution & Communication Customers Channels •  Plumbers are as well •  Homeowners, customers as the •  Plumbers Value Chain Customer Benefit distribution channel •  Plumbers are also reached •  Faster and more via trainings convenient renovation of Core Capabilities Partner baths •  Partner management •  Plumbers have all •  Plumbers •  Training of components from one Geberit’s innovation: source. High margin plumbers From plumbers’ supplier to baths Revenue Model renovator Cost Structure Revenue Sources•  Higher costs due to more expenses •  Higher revenues since plumbers know e.g. trainings only „Geberit“ Team & Values Team Values •  Longterm thinking •  relationship building
  45. 45. A deliberate change of a business model is a great strategy!Starting points of businessmodel innovation! Business Model: !  All components of a business Value Architecture Value Proposition model are starting points for innovation! Offer Distribution & Communication Customers Channels Value Chain Customer Benefit !  Value Innovation! !  Architectural Innovation! Core Capabilities Partner Revenue Model Cost Structure Revenue Sources !  Revenue Model Innovation! Team & Values !  Cultural Innovation! Team Values !  At the end, all business model innovation must create more value to the customers! European Innovation Academy 2012 Tallinn Dr. Patrick Stähler, fluidminds Entrepreneurial Design
  46. 46. Creating Business model innovations is a creative andanalytical process at the same time. There is a reasonwhy god gave us two brain hemispheres !
  47. 47. 1 2 3 Customer Insight Understand Ideate -  Observe your customers -  understand the current Develop as many ideas as What job is not yet or solutions and their possible in the area of badly solved? strength & weakness -  customers/ value -  How does the Customer -  understand how the proposition Experience Cycle look potential customer -  value architecture like? thinks and decides -  revenue model -  On what customer insights -  understand the market & is your idea based? market mechanism -  validate customer insight4 5 6 Design Decide & Prototype Build & Learn -  decide for three or four -  decide for the best -  execute business model options model to go for -  learn continuously from -  design the business -  build prototype customer feedback and models for the options -  test prototype with control KPIs -  check the customers -  adjust and refine interdependencies in the -  write business case continuously the business models -  decide again or work on business model -  work on the uniqueness different option (positioning) -  optimize the building blocks Where do we get a Value Innovation from? Let‘s find new customer insights as a Business starting point! model innovation New value proposition Customers’ insight
  48. 48. 1 Customer Insight -  Observe your customers What job is not yet or badly solved? -  How does the Customer Experience Cycle look like? -  On what customer insights is your idea based? -  validate customer insight The best way is toValue Proposition start with the job we solve for our Customers customers? Who are our customers? What job do we solve for our customers?
  49. 49. How can we find systematically new customer insights?! Buyer Utility Map! Delivery/ Comple- Buy Usage Service Disposal Assembly ments!  Understand how the customers are buying, !  How can we improve the buyer‘s utility cycle?! using and disposing the product! !  Can we do more for the customer?!!  Understand the whole lifecycle of customers‘ !  Can we leave something to the customer?! utility! Source: cp. Kim, W.C., Mauborgne, R., Knowing a Winning Business Idea when you see one, HBR Sep-Oct. 2000! Where can I start in the buyer utility map? – " value The Dyson Vacuum Cleaner! Dyson = ! innovationStarting" Buy! Delivery! Use! Complements! Service! Disposal!Points!Customer!Productivity!Simplicity!Usability! ++!Risk!Image & !fun!Enviromental !friendlyness!
  50. 50. Dyson vacuum cleaner – inspired by technology" The vacuum cleaner for men! Dyson = ! Value n! Innovatio Customer Insights! !  Bags and filters get clogged and restrict airflow. Loss of suction! !  Vacuum cleaners are marketed as household aids. Are there different segments?" ! Value Proposition for customers! !  Dyson vacuum cleaners have NO bags and do NOT get clogged due Cyclone technology. Therefore, NO loss of suction. ! !  Dyson positions itself as technical, highly engineered products that address men. ! Revenue Model! !  Dyson demands premium prices for its vacuum cleaners.! Blacksocks – we save the world from socks problems! Putting"Starting" Buy! Delivery! Use! Washing! Disposal! in pairs!Points!Customer!Productivity!Simplicity!Usability!Risk!Image & !fun!Enviromental !friendlyness!
  51. 51. Blacksocks – We solve the world from its socks problems! ks = Blacksoc odel revenue m ! Socks subscription! innovation (2001-2008)! Customer Insights! 40000 !  Buying socks is no fun!40000 !  Putting socks in pairs even less fun! 20% market share! !  Good socks are a sign of „Being well dressed“" in Switzerland*! !30000 Value Proposition! !  Blacksocks subscription solves all 25000 problems! !  Always enough new socks ! !  No pairing needed since all socks are20000 identical! 12000 Revenue Model! 10000 !  Upfront payment !10000 !  Easy planning and negative working capital! 0 2001 2002 2005 2008 * premium segment starting at 9CHF! 2 Understand -  understand the current solutions and their strength & weakness -  understand how the potential customer thinks and decides -  understand the market & market mechanism
  52. 52. 3 Ideate Develop as many ideas as possible in the area of -  customers/ value proposition -  value architecture -  revenue model Business Model: Value Architecture Use the canvas to Value Proposition develop your Offer Distribution & Communication Customers business model! Channels Value Chain Customer Benefit Core Capabilities PartnerRevenue Model Cost Structure Revenue SourcesTeam & Values Team Values
  53. 53. 4 Design -  decide for three or four options -  design the business models for the options -  check the Geschäftsmodell: Wertschöpfungsarchitektur Value Proposition interdependencies in the Angebot Vertrieb & Kommunikation Kunden business models Produktion Nutzen -  work on the uniqueness Kernfähigkeiten Partner (positioning) -  optimize the building Ertragsmodell Kostenstruktur Ertragsquellen blocks Team & Werte Team Werte Created with the friendly support of Wolfsburg AG | Designed by Gottschalk+Ash Int’l5 Decide & Prototype -  decide for the best model to go for -  build prototype -  test prototype with customers -  write business case -  decide again or work on different option
  54. 54. 6 Build & Learn -  execute business model -  learn continuously from customer feedback and control KPIs -  adjust and refine continuously the business model1 2 3 Customer Insight Understand Ideate -  Observe your customers -  understand the current Develop as many ideas as What job is not yet or solutions and their possible in the area of badly solved? strength & weakness -  customers/ value -  How does the Customer -  understand how the proposition Experience Cycle look potential customer -  value architecture like? thinks and decides -  revenue model -  On what customer insights -  understand the market & is your idea based? market mechanism -  validate customer insight4 5 6 Design Decide & Prototype Build & Learn -  decide for three or four -  decide for the best -  execute business model options model to go for -  learn continuously from -  design the business -  build prototype customer feedback and models for the options -  test prototype with control KPIs -  check the customers -  adjust and refine interdependencies in the -  write business case continuously the business models -  decide again or work on business model -  work on the uniqueness different option (positioning) -  optimize the building blocks
  55. 55. Checklist for writing your business model! !  Be specific! !  Keep it simple! !  Self-explanatory! !  Focus on the relevant points! !  Do not reinvent the world!Checklist for positioning your business model! !  differentiated! !  customer-centric! !  specific! !  better narrow than broad! !  relevant! !  based-on core capabilities!
  56. 56. 3rd part! The Art of Pitching!European Innovation Academy 2012 TallinnDr. Patrick Stähler, fluidminds I pitch, therefore I am Source: Great ideas for starting something (by Guy Kawasaki)!
  57. 57. Know your audience for the pitch! Pitch to Sales pitch to Investor‘s pitch! partners! customers! What do you do?!What is a good pitch forinvestors? (short version)! Problem you solve! Your solution & benefit for customer! Your business model (the essentials)! Underlying magic (uniqueness)! Key financials! Current Status, timeline! Source: Great ideas for starting something (by Guy Kawasaki)!
  58. 58. 10! Customers are slow to change behavior! Customers need time to understand and learn about the innovation!What is a good strategy?! trend! differenti focus! ation! build on strengths!
  59. 59. It’s about finding the righttrend to surf! !It is about differentiation!
  60. 60. „Business model innovation is ! !about being!!DIFFERENT!“!NO, REALLY ! DIFFERENT!
  61. 61. Dr. Patrick Stähler | 125! DOING! not learning to do,! is the essence of !entrepreneurship! Guy Kawasaki, The Art of the Start 2004, p. xi!
  62. 62. „Scary to be this nail. Where will the hammer hit next time?“!
  63. 63. More Information onhttp://blog.business-model-innovation.comDr. oec. Patrick Stähler!fluidminds GmbH!Seefeldstrasse 5a!CH-8008 Zürich!Patrick.Staehler@fluidminds.ch!www.fluidminds.ch!blog.business-model-innovation.com!

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