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Be Like the Internet:
Collaborative, Disruptive, Networked




Scott Hirsch, Management Innovation Group (scott@mig5.com)
Web2.0 Expo - November 5, 2007


Scott Hirsch, MIG         scott@mig5.com
MIG is a strategy consultancy …
here are some companies we’ve helped:




   Scott Hirsch, MIG         scott@mig5.com
Scott Hirsch, MIG   scott@mig5.com
Scott Hirsch, MIG   scott@mig5.com
Web2.0 Changes the Way You
Think About Your Company

   By changing the way you think about your …
   • development process
   • products/services
   • strategy
   • business model
   • management decisions
   • personal skills and leadership style


   “We need to stop confusing web2.0 with AJAX,
    yellow fades, and social networks … it’s a whole
    new way of thinking about business.”
                                          --SixApart

Scott Hirsch, MIG        scott@mig5.com
Web2.0 Innovators Are Always Re-framing

The advertising model is something that we've looked at. Can I see
an immediate application for the Wii, no. However, one of the
things that we are smart enough to say is quot;never say never.quot; But it
is clear that the Mii consumers love to create their Miis. They would
like more and more options to decorate their Miis.

We're going to address part of that with a channel called quot;Check
Me Out,quot; where you'll be able to post your Miis and create Miis of
historical or popular figures and compare and vote on them. This is
a recognition of a deep-seated need by consumers to drive a lot of
personalization with these Mii characters and we're looking to help
bring that to life in a way that makes sense.
                                          Reggie Fils-Aime
                                          COO, Nintendo


                     What word defines the Wii?
 Scott Hirsch, MIG               scott@mig5.com
Web2.0 Innovators Are Always Re-framing
A conversation in early 2002




                                      - from The Search by John Battelle




Scott Hirsch, MIG    scott@mig5.com
How?

                                                   By organizing the worldʼs
                                                   information and making it
                                                     accessible and useful




                                     Or?

           By providing advertisers with the opportunity to deliver
             measurable, cost-effective online advertising that is
           relevant to the information displayed on any given page
Scott Hirsch, MIG                 scott@mig5.com
Find the Frame




                                            Product                  Culture
         Products                       Process



                                                Process
                                 > Rapid prototyping
 > For consumers - search that                                 > Fast execution
                                 > Willingness to change the
 works and snazzy new apps                                     Open innovation - one day
                                 paradigm
 > For advertisers - access to                                 per week for research
                                 > Commitment to serving
 motivated customers                                           Darwinian prioritization
                                 advertisers and consumers
 > For content owners - free                                   > “Do no evil”
 money




Scott Hirsch, MIG                     scott@mig5.com
What Weʼre Going to Do

9:30 - 9:45         Introduction and Start-Ups
9:45 - 10:15        Learn About Each Other
10:15 - 10:45       Bottom-Up Innovation
10:45 - 11:00       Break
11:00 - 11:45       Web2.0 Strategy and Business Models
11:45 - 12:00       Leadership in a Web2.0 World
12:00 - 12:15       Learning from Failure Experiences
12:15 - 12:30       Putting It Into Practice




Scott Hirsch, MIG       scott@mig5.com
The Demise of the Internally Focused System:

    Silicon Valley Before 2000
    • If I discover it, I will find a market for it.
    • If I launch it first, I will own it.
    • I can build the most important technology pieces
      myself.
    • If I fail, I will move on to something else.
    • If I am successful, the best people will want to work for
      me.

    Web2.0 Shifts
    • Good Ideas are widely distributed today … there is no
      monopoly on useful knowledge.
    • Innovation doesn’t happen within a single firm anymore.
    • Failure is an opportunity to learn and change.
    • Not all the smart people in the world work for us.
 Scott Hirsch, MIG            scott@mig5.com
Trends and Discontinuities in Silicon Valley -
How Web2.0 Changed the Way We Think

  About Strategy                               About Business

  Customers as Partners                        New Revenue Streams
  • Customers lead the                         • Google Adsense makes
    conversation                                 business out of hobby
  • Customers as developers                    • Open platforms broaden
    on open platforms                            potential audiences


   Emergent Business Models                    Greatly Reduced Costs
   • Value first … business                    • Global talent pools
     model second                              • (Almost) anyone can start
   • Experimentation over set                    a company
     strategies                                • VCs become less
   • Openness is king                            (ir)relevant

  Scott Hirsch, MIG           scott@mig5.com
Some Provocative Points of View -
This Sets Up Our First Activity

    • You don’t own your ideas

    • You don’t want to own the infrastructure

    • You certainly don’t own your customers




    “Intellectual property is a vestige of dumb markets”


 Scott Hirsch, MIG         scott@mig5.com
Learning About (and from) Each Other

            In the spirit of this being a global conference
                    … that is focused on web2.0 …
         Let’s model some collaborative problem solving via
                           social networking

      Instructions
      1. Take a moment to think about a challenge you are facing
          today, it might be about …
          a) an innovation challenge
          b) a new product idea
          c) a sticky issue you are facing with a client

      2. Make sure the problem is something you feel comfortable
         sharing with the group. If not, think of something else.

      3. Write a short description of your issue … try your best to
         keep it under three sentences.
  Scott Hirsch, MIG              scott@mig5.com
Who Hates
Networking?
Scott Hirsch, MIG   scott@mig5.com
Be Like the Internet:
Collaborative, Disruptive, Networked


                    Bottom-Up Innovation




Scott Hirsch, Management Innovation Group
Web2.0 Expo - November 5, 2007


Scott Hirsch, MIG          scott@mig5.com
Bottom-Up Innovation:
A Personal Guide to Disrupting the World

Demystifying the Issue:                         Methodology:
- Too much high-level analysis and              - Open inquiry with web2.0
  “armchair quarterbacking”                       innovators
- Not enough personal stories from              - Pull characteristics and qualities
  real innovators                                 of innovators
- Too much emphasis on products,                - Ask for referrals for more
  not enough on process                           interviews

             Proposal:
             - A “how-to” guide for innovation as told by web2.0
               entrepreneurs and other market disruptors
             - Analysis and practical guidance for people at any
               level or type of organization
             - Focus on analytic frameworks, as well as softer
               skills of leadership and facilitation
Scott Hirsch, MIG                  scott@mig5.com
Generally, what I’ve heard:

 Web2.0 Innovators are …                                   and create cultures that ...

                                                                       embrace
                                    Collaborative                   transparency
     Persuasive
                                                                           embrace many
                                                                           points of view
                                              are accepting
                       Passionate
                                                 of failure

                                                                      have fluid concept
       Humble                                                          of “ownership”
                                     Facilitative

                                                                 don’t over-plan
                         Flexible                                their strategy

                                                                         value inspiration
       Persistent                           don’t over-
                                                                         and production
   (but not defensive)                   commit to solutions
   Scott Hirsch, MIG                      scott@mig5.com
Generally, what I heard:

Web2.0 Innovators are … and create cultures that … to manage ….
                             embrace many
          Flexible
                             points of view
                                                 Uncertainty
                           have fluid concept
       Persuasive
                                                 Openness
                           of idea ownership
                                                 Leadership
                                 embrace
     Collaborative                               Management
                              transparency
                                                 Hiring
                            share success &
                                                 Strategy
          Humble
                              accept failure
                                                 Competition
                            value inspiration    Marketing
       Passionate
                             and production      Biz Development
                                                 Product Development
                            are open to many
       Facilitative
                           viewpoints/options
      Persistent          Commit to direction,
  (but not defensive)       not solutions

    Scott Hirsch, MIG         scott@mig5.com
How Web2.0 Innovators Look at the World

     Strategy - Disruptive
     • Look at their business as a poker game, rather than a chess
       game
     • Aim to be the most open, rather than the first mover
     • Look for directional alignment, rather than the “right” answer

     Business Models - Networked
     • Focus on solving universal customer problems, rather than
       technology solutions
     • Favor experimentation over rationalization
     • Focus on building platforms, rather than owning customers

     Management - Collaborative
     • View opportunity cost as the scarce resource, rather than
       people and time.
     • View themselves as facilitators, rather than managers
     • Constantly seek to reframe challenges, rather than validate
       old points of view.
  Scott Hirsch, MIG              scott@mig5.com
Web2.0 Innovators’ View of Strategy




Scott Hirsch, MIG          scott@mig5.com
Web2.0 Innovators’ View of Strategy




                                                        Poker
       Chess
                                                        • Pay to play … small ante
       • Plan several moves
                                                          required to join
         ahead
                                                        • Pay for new information
       • No new information
                                                          each round
         needed
                                                        • You discover what you’ve
       • You know what you’ve
                                                          got and can only guess at
         got and what your
                                                          other players
         opponent has
                                                        • Business case is useless,
       • Decisions can be made
                                                          you look at options
         with a business case

                           Web2.0 Innovators look at their business
                            like a poker game, not a chess game
Adapted from Henry Chesborough, UC-Berkeley
       Scott Hirsch, MIG                      scott@mig5.com
Web2.0 Innovators’ View of Strategy
                                 High external awareness




                                                                   Open
Closed
                                                                   platform
platform




                                 Low external awareness
                      Web2.0 Innovators aim to be the most open,
                              rather than the first mover.
  Scott Hirsch, MIG                   scott@mig5.com
Web2.0 Innovators’ View of Business Models




Scott Hirsch, MIG     scott@mig5.com
Web2.0 Innovators’ View of Business Models

   “We knew that our focus was on collaboration -- not wikis -- and
   Joe had been talking about the long-tail of applications, so we
   started taking a broader view of the business … Google
   wouldn’t have acquired us if it weren’t for that shift in mindset.”
                                              -- Ken Norton




       Web2.0 Innovators focus on solving universal problems,
                 rather than technology solutions.
Scott Hirsch, MIG              scott@mig5.com
Web2.0 Innovators’ View of Business Models



          “Only time will tell whether Google has succeeded in building an
          evolutionary advantage. But consider: Since it's founding, it has
          repeatedly morphed its business model. Google 1.0 was a search
          engine that crawled the Web but generated little revenue; which led
          to Google 2.0, a company that sold its search capacity to
          AOL/Netscape, Yahoo and other major portals; which gave way to
          Google 3.0, an Internet contrarian that rejected banner ads and
          instead sold simple text ads linked to search results; which spawned
          Google 4.0, an increasingly global entity that found a way to insert
          relevant ads into any and all Web content, dramatically enlarging
          the online ad business; which mutated into Google 5.0, an
          innovation factory that produces a torrent of new Web-based
          services, including Gmail, Google Desktop, and Google Base. More
          than likely, 6.0 is around the corner.”
                                 - Gary Hamel, Wall Street Journal
                                 “Management A la Google” 04/26/06




  Web2.0 Innovators favor experimentation over rationalization.
Scott Hirsch, MIG                      scott@mig5.com
Web2.0 Innovators’ View of Management




Scott Hirsch, MIG               scott@mig5.com
Web2.0 Innovators’ View of Management

Top-Down Management                    Bottom-Up Management
Example: Yahoo! PBmemo                 Example: Google 80/20 rule


Scarce Resources:                      Scarce Resources:
• People (engineers)                   • Servers, opportunity to test
• Time and money                       • Opportunity cost
Bottlenecks:                           Bottlenecks:
• Getting management support           • Getting peer support
• Big “P” Politics                     • Little “p” politics
Decision Models:                       Decision Models:
• Pre-Rationalization process          • Darwinian “natural selection”
• Business cases                       • Strategic options

      Fear of false positives                    Fear of false negatives
Web2.0 Innovators believe opportunity cost is the scarce resource,
                  not people, time, or money.
 Scott Hirsch, MIG              scott@mig5.com
Web2.0 Innovators’ View of Management

 Traditional Rationalized View                     Web2.0 and the Beta View
 Management Decides                                Management Facilitates




                                                                  Triage,
                                                      Generate,
      Senior                                                      experiment,
                                                      Nurture,
      Leadership                                                  critique,
                                                      Promote,
      Gathers /                                                                  Adopt
                                     Fund                         prioritize,
                                                      Reward ->
                                                                  group,
      Generate                                        ideas
                                                                  abahdon,
      Ideas
                                                                  filter & sort



                        Tyranny of the
                        business case                                  Narrowing through
                                                                       experimentation provides
                                                                       better data and more criteria
                                                                       than a business case.

Web2.0 Innovators view themselves as facilitators rather than managers,
      and encourage smart divergence over quick convergence.
    Scott Hirsch, MIG                       scott@mig5.com
How Web2.0 Innovators Look at the World
                                                                           s
                                                                          k
                                                                       or
     Strategy - Disruptive                                           w
                                                                     et
     • Look at their business as a poker game, rather than a chess n
                                                                al
                                                             ci
       game
                                                          so
     • Aim to be the most open, rather than the first mover
                                                       d
                                                      n“right” answer
                                                   ,a
     • Look for directional alignment, rather than the
                                                      de
                                                   fa
                                            w
     Business Models - Networked
                                         llo problems, rather than
                                      ye
     • Focus on solving universal customer
                                  X,
       technology solutions
                                JA rationalization
     • Favor experimentation A
                            n over
     • Focus on buildingha
                        t platforms, rather than owning customers
                             e
                        or
                      m
                ut
    Management - Collaborative
             bo
    • View opportunity cost as the scarce resource, rather than
          s a and time.
         i
       people
      .0
   b2 View themselves as facilitators, rather than managers
    •
  e • Constantly seek to reframe challenges, rather than validate
W
       old points of view.
  Scott Hirsch, MIG               scott@mig5.com
BREAK


Scott Hirsch, MIG    scott@mig5.com
Be Like the Internet:
Collaborative, Disruptive, Networked


               Uncovering Strategies and Business Models




Scott Hirsch, Management Innovation Group
Web2.0 Expo - November 5, 2007


Scott Hirsch, MIG              scott@mig5.com
What is a business model?


Scott Hirsch, MIG         scott@mig5.com
Guess the
company?




   Scott Hirsch, MIG   scott@mig5.com
Can anyone think of a web2.0 version of this?




Dangerʼs
Sidekick




  Scott Hirsch, MIG   scott@mig5.com
Generic Business Models
Which are Web2.0?

• Per item and “all you can eat”
• Razors and blades
• Free trial, followed by subscription
• Free, advertising supported
   • Any non-web2.0 examples?
• Recruit your friends and save money
• Market maker, aggregator, switchboard
   • Ebay, Amazon
• Turn cost centers into profit centers
   • Ryan Air
   • Hotels (phone, TV, minibar)
   • Apple
    Scott Hirsch, MIG   scott@mig5.com
We shape our
 buildings, and
thereafter they
   shape us.




 Scott Hirsch, MIG   scott@mig5.com
We shape our
 buildings business
models, and thereafter
   they shape us.




    Scott Hirsch, MIG    scott@mig5.com
Why do business
models matter?
  Customers                    Products                    Revenue and Costs

                                                           technology companies succeed by
                                                           keeping switching costs high,
                                                           selling version upgrades
                                                           (think microsoft)
                                                           Growth -> increase the install
                               ISP service
  Customers are                                            base, while keeping attrition low
  motivated by:
                                                           Customer acquisition costs are
                                                           high (unless you have a monopoly)
  availability of other ISPs
                                                           $/user is largely fixed
  unwillingness to switch

  loyalty to AOL “software”                                Because switching cost is high,
  and content                                              products only need to be “good
                                                           enough”
                               Software services for my
                               computer



   Scott Hirsch, MIG                      scott@mig5.com
Why do business
models matter?
  Customers                   Products                     Revenue and Costs
                                                          Media companies succeed by
                                                          connecting customers with useful
                                                          content/services (think craigslist);
                                                          monetizing more customer
                                                          interactions (think adsense)
                                                          Growth -> many levers: increase
                                                          visits, pageviews, CPM, long-tail
  Customers are                                           and mass markets
  motivated by:
                                                          Customer acquisition costs are low
                               Software services for me
  the value of the AOL
                                                          $/user is variable
  network of content and
  services
                                                          Products need to work well --
  loyalty to AOL “hooks”
                                                          innovations can be used to hook
  (products that uniquely
                                                          new customers
  combine content and
  services)
  relative value of the AOL
  experience
                              Monetizable content
  Scott Hirsch, MIG                      scott@mig5.com
How would you describe
eCommerce business
models?                                                                 -Content provider

                                                                        -Direct to consumer

 -B2B
                                                                        -Full service provider

 -B2C             -Brokerage (e.g., buyer aggregator,
                                                                        -Intermediary
                  auctions, search agent, marketplace)
                                                                        
- Shared infrastructure
                  
- Advertising (e.g., portals, free model,
                   attention marketing, bargain discounter)             
- Value net integrator

                                                                        -Virtual community

                  -Infomediary (e.g. registration)

                                                                        - Whole of enterprise
                  -Merchant (e.g., virtual store)

                  
- Manufacturer (i.e., disintermediation)

                                                                       - Focused distributor (e-tailers,
                  
- Affiliate (i.e.,click-through purchase)
                                                                       market-places, aggregators,
                  
- Community (e.g., knowledge                        infomediaries)

                   networks)

                                                                       - Portal (horizontal, vertical, affinity)

                  -Subscription
                                       - Producer (manufacturer, info
                                                                       services)
                  - Utility (i.e., pay as you go)
                                                                       - Infrastructure (ISP, hardware,
                                                                       software)
    Scott Hirsch, MIG                                 scott@mig5.com
The Frame of Your Business Model Matters
          … A LOT!




Scott Hirsch, MIG         scott@mig5.com
The Strategic Continuum



   Make & Sell                                     Sense & Respond




   Strategic Lenses                                Strategic Lenses
   • Forecasting                                   • Learning
   • Planning                                      • Adaptation

                    Web2.0 is more like a taxi than a bus.

Scott Hirsch, MIG                 scott@mig5.com
The Strategic Continuum




                                           Sense & Respond
Make & Sell
                                           • Respond to the Market
• Offer to the Market
                                           • Knowledge Embedded in
• Knowledge Embedded
                                             People/Process
  in Things
                                           • Customization
• Mass-production
                                           • Focus on Flexibility
• Focus on Efficiency
                                           • Profit from Return and
• Profit from Margin and
                                             Scope
  Scale




                    Is your company a taxi or a bus.

Scott Hirsch, MIG                scott@mig5.com
Business Model Lock-In +
the Innovatorʼs Dilemma
                                          Abstract


                   Frameworks: We                      Imperatives: We Fall
                        Identify the                     Back on the Value
                    Problems That Fit                   Propositions That Fit
                   In Our Definition of                    Our Solutions
                       the Industry
             Analysis                                                Synthesis



                  Observations:                              Solutions: We
                 Confirmation Bias                          Create Incremental
               Leads Us to See What                        Improvements to the
                    We Know                                  Wrong Problems

                                          Concrete
   Scott Hirsch, MIG                  scott@mig5.com
Example from Telecoms
                                           Abstract



                      Frameworks:                       Imperatives: Invest in
                     Reliability of the                  POTS Redundancy to
                      Network is Key                        Ensure Uptime
                   (.99999 availability)
             Analysis                                                 Synthesis



                 Observations:
                 Customers Get                             Solutions: Fiber Optic
              Frustrated When They                             Cables and High
                Can’t Make Calls                            Throughput Switches

                                           Concrete
   Scott Hirsch, MIG                   scott@mig5.com
Other Examples

 “I think there is a world market             “The Americans have need of the
      for maybe five computers.”               telephone, but we do not. We have
                                              plenty of messenger boys.”
     - IBM Chairman Tom Watson
                                                        - British Post Office
                                                        Commissioner Sir William Preece

                                              “So we went to Atari and said, 'Hey,
        quot;While theoretically and
                                              we've got this amazing thing, even built
   technically television may be
                                              with some of your parts, and what do
     feasible, commercially and
                                              you think about funding us? Or we'll
 financially it is an impossibility.quot;
                                              give it to you. We just want to do it. Pay
          - TV inventor Lee DeForest
                                              our salary, we'll come work for you.'
                                              And they said, 'No.' So then we went to
                                              Hewlett-Packard, and they said, 'Hey,
                                              we don't need you. You haven't got
                                              through college yet.”.
                                                            - Apple Founder Steve Jobs
    Scott Hirsch, MIG                  scott@mig5.com
Innovating on Business Models
“…the key to sustained success is business model innovation.”
                           - Harvard Business Schoolʼs Clay Christensen




                                  Who do we serve?



How do we provide it?                                            What do we provide?




                                                         How do we
           How do we differentiate &
                                                         make money?
           sustain advantage?

    Scott Hirsch, MIG                   scott@mig5.com
Developing Business Models
                                            What do we
                                            provide?
                                                                       Who do we serve?
 How do we provide it?
                                                                             TARGET
                        PARTNER                                             CUSTOMER
                        NETWORK


                                                    VALUE
                                                 PROPOSITION
      CORE                                                                        CUSTOMER
   CAPABILITIES                                                                  RELATIONSHIP




                      DISTRIBUTION                                          VALUE
                        CHANNEL                                         CONFIGURATION
                                            PRODUCT/SERVICE




                                        COST                      REVENUE
                                     STRUCTURE                    STREAMS


                                     How do we make money?
  Scott Hirsch, MIG                              scott@mig5.com
Developing Business Models
                                         What do we
                                         provide?
                                                                   Who do we serve?
 How do we provide it?
                                                                         TARGET
                       PARTNER                                          CUSTOMER
                       NETWORK

                                                VALUE
      CORE                                   PROPOSITION                      CUSTOMER
   CAPABILITIES                                                              RELATIONSHIP




                      DISTRIBUTION                                      VALUE
                                         PRODUCT/SERVICE
                        CHANNEL                                     CONFIGURATION



How do we
                                    COST                      REVENUE
differentiate &                  STRUCTURE                    STREAMS
sustain
advantage?                           How do we make money?
  Scott Hirsch, MIG                          scott@mig5.com
Marketing innovations                                                 Serving different
                                                                      people,serving
                                            What do we
                                                                      them differently
                                            provide?
 How do we provide it?
                                                                             TARGET
                        PARTNER                                             CUSTOMER
                        NETWORK


                                                    VALUE
                                                 PROPOSITION
      CORE                                                                        CUSTOMER
   CAPABILITIES                                                                  RELATIONSHIP




                      DISTRIBUTION                                          VALUE
                        CHANNEL                                         CONFIGURATION
                                            PRODUCT/SERVICE




                                        COST                      REVENUE
                                     STRUCTURE                    STREAMS


                                     How do we make money?
  Scott Hirsch, MIG                              scott@mig5.com
Targeting Different Customers


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                                       for details and a free auto quote.




  Scott Hirsch, MIG   scott@mig5.com
Channel Innovations
Getting products                              What do we
                                              provide?
toHow do we provide it?
   customers                                                             Who do we serve?
differently                                                                    TARGET
                          PARTNER                                             CUSTOMER
                          NETWORK


                                                      VALUE
                                                   PROPOSITION
       CORE                                                                         CUSTOMER
    CAPABILITIES                                                                   RELATIONSHIP




                        DISTRIBUTION                                          VALUE
                          CHANNEL                                         CONFIGURATION
                                              PRODUCT/SERVICE




                                          COST                      REVENUE
                                       STRUCTURE                    STREAMS


                                       How do we make money?
    Scott Hirsch, MIG                              scott@mig5.com
Opening Up Whole New Markets


 Platform Innovation at


 Cement is a commodity … need to differentiate the business
   model. Major builders and distributors touch only part of
   the national market for cement.

 “Platforms” explore major opportunity arenas:
    How to serve very poor customers
    How to deliver “solutions” (rather than cement)            1. KEEP THE AIMING
    How to address the needs of small vendors                  POINTS FRESH.

                                                               2. TIME BOUND THE
                                                               CHALLENGES.

                                                               3. MOVE ON TO THE
                                                               NEXT.

  Scott Hirsch, MIG                scott@mig5.com
New Product Innovations
                                            What do we
                                            provide?
                                                                       Who do we serve?
 How do we provide it?
                                                                             TARGET
                        PARTNER                                             CUSTOMER
                        NETWORK


                                                    VALUE
                                                 PROPOSITION
      CORE                                                                        CUSTOMER
   CAPABILITIES                                                                  RELATIONSHIP




                      DISTRIBUTION                                          VALUE
                        CHANNEL                                         CONFIGURATION
                                            PRODUCT/SERVICE




                                        COST                      REVENUE
                                     STRUCTURE                    STREAMS


                                     How do we make money?
  Scott Hirsch, MIG                              scott@mig5.com
New Product Categories




  Scott Hirsch, MIG   scott@mig5.com
Customer Experience Innovations
                                            What do we
                                            provide?
                                                                       Who do we serve?
 How do we provide it?
                                                                             TARGET
                        PARTNER                                             CUSTOMER
                        NETWORK


                                                    VALUE
                                                 PROPOSITION
      CORE                                                                        CUSTOMER
   CAPABILITIES                                                                  RELATIONSHIP




                      DISTRIBUTION                                          VALUE
                        CHANNEL                                         CONFIGURATION
                                            PRODUCT/SERVICE




                                        COST                      REVENUE
                                     STRUCTURE                    STREAMS


                                     How do we make money?
  Scott Hirsch, MIG                              scott@mig5.com
Finding new approaches
for known needs



 Can Target make it easier
 to take your medicine?




                                         Can flying actually be fun again?


  Scott Hirsch, MIG          scott@mig5.com
Finance innovations
                                     What do we
                                     provide?
                                                         Who do we serve?
 How do we provide it?
                                                              TARGET
                        PARTNER                              CUSTOMER
                        NETWORK


                                          VALUE
                                       PROPOSITION
      CORE                                                          CUSTOMER
   CAPABILITIES                                                    RELATIONSHIP




                      DISTRIBUTION                            VALUE
                        CHANNEL                           CONFIGURATION
                                     PRODUCT/SERVICE



Getting paid by
                  COST          REVENUE
different      STRUCTURE        STREAMS

people or in    How do we make money?
different ways
  Scott Hirsch, MIG                     scott@mig5.com
Innovations in cost
structures
                                          Dell pioneered a J-I-T
                                          production system that
                                          allowed them to pay for
                                          components after their
                                          customers had already paid
                                          Dell.


Skype uses open
internet standards
and free
infrastructure to
offer free and low-
cost calls to its
customers.




     Scott Hirsch, MIG   scott@mig5.com
Innovations in where
revenue comes from


                                       Trilogy creates
                                       customized software
                                       that helps its customers
                                       solve business problems
                                       and gets paid as a
                                       percentage of cost
                                       savings or new revenue
                                       created.




  Scott Hirsch, MIG   scott@mig5.com
Hybrid innovations: new
revenue, new sales channels




                      Enterprise: Focus on offering
                      short-term replacement vehicles
                      paid for by insurance companies
  Scott Hirsch, MIG    scott@mig5.com
Innovative combinations:
new cost structures, new
customers, new partners



                                 vs.




                      Radically reducing costs opens up
                      new target customer possibilities
  Scott Hirsch, MIG               scott@mig5.com
Hybrid innovations: new
customer experiences, new
products, new services, new
capabilities




  Scott Hirsch, MIG   scott@mig5.com
Business Model
(Netflix in 1999)
 Who do we serve?


 What value do we provide?


 How do we provide it?


 How do we make money?


 How are we differentiated?
   Scott Hirsch, MIG          scott@mig5.com
Activity: Prototyping Business Models

Who Is the consumer / market segment?
- Target customer
- Customer relationship

     What do we provide (key attribute in the value proposition)?
     - Product/service
     - Value proposition


           How do we provide it?
           - Partner network:
           - Distribution channel:
           - Core capability:

                        How do we make money?
How do we
                        -Revenue streams:
differentiate
                        -Cost structure
& sustain
advantage?
    Scott Hirsch, MIG                scott@mig5.com
The Innovation Cycle Applied to
Business Models    Abstract

                  Frameworks                        Imperatives
                       (Insight)                       (Ideas)




            Analysis                                                Synthesis




                 Observations                       Solutions
                       (Context)                      (Artifacts)
                                   Concrete
  Scott Hirsch, MIG                scott@mig5.com
The Innovation Cycle Applied to
Business Models    Abstract

                  Frameworks                        Imperatives
                       (Insight)                       (Ideas)




            Analysis                                                Synthesis



                Describe the
                business model


                 Observations                       Solutions
                       (Context)                      (Artifacts)
                                   Concrete
  Scott Hirsch, MIG                scott@mig5.com
The Innovation Cycle Applied to
Business Models    Abstract

                  Frameworks                       Imperatives
                      (Insight)                       (Ideas)



               Find the
               whitespace
            Analysis                                               Synthesis




                 Observations                      Solutions
                      (Context)                      (Artifacts)
                                  Concrete
  Scott Hirsch, MIG               scott@mig5.com
The Innovation Cycle Applied to
Business Models    Abstract

                  Frameworks                        Imperatives
                       (Insight)                          (Ideas)




                                                    Describe the new
                                                    value combination
            Analysis                                               Synthesis




                 Observations                         Solutions
                       (Context)                        (Artifacts)
                                   Concrete
  Scott Hirsch, MIG                scott@mig5.com
The Innovation Cycle Applied to
Business Models    Abstract

                  Frameworks                        Imperatives
                       (Insight)                          (Ideas)




            Analysis                                                  Synthesis

                                                    Think through go-
                                                    to-market strategy




                 Observations                         Solutions
                       (Context)                        (Artifacts)
                                   Concrete
  Scott Hirsch, MIG                scott@mig5.com
Moving from Customer to Business
                                    Abstract

                  Frameworks                        Imperatives
                       (Insight)                       (Ideas)




                      Find the
            Analysis                                                Synthesis
                      story


                 Observations                       Solutions
                       (Context)                      (Artifacts)
                                   Concrete
  Scott Hirsch, MIG                scott@mig5.com
Moving from Todayʼs Story to Tomorrowʼs
                                    Abstract

                  Frameworks                        Imperatives
                       (Insight)                       (Ideas)



                                                    Tell a
                                                    new
            Analysis                                                Synthesis
                                                    story


                 Observations                       Solutions
                       (Context)                      (Artifacts)
                                   Concrete
  Scott Hirsch, MIG                scott@mig5.com
Telling a New Story

What Weʼre Going to Do …
- First step was to take an analytic look at the existing
  story.
- Now weʼre going to stretch to be a little more creative
  to tell a new story
- Show you a framework for thinking about business
  models through innovation lenses.
- Weʼre going to practice using these lenses




Scott Hirsch, MIG        scott@mig5.com
Innovation Lenses
Finding Opportunity


                                           Business Models
     Customer Needs

           Trends &                            Industry
                          Innovations
        Discontinuities                       Orthodoxies
                              Products
                          
                              Services
                          
                              Markets
                          
                              Partners
                          
                              Channels
                          
           Latent &                           Unleveraged
                              Management
                          
         Unmet Needs                            Assets




  Scott Hirsch, MIG       scott@mig5.com
Innovation Lenses
Opportunities Derived from Customer Needs


Customer Needs                                Trends & Discontinuities
                                              Whatʼs happening in the
    Trends &                                  market? What emerging
                      Innovations
 Discontinuities                              technological, social, or
                          Products
                      
                                              economic changes might
                          Services
                      
                                              impact your competitive
                          Markets
                      
                                              environment?
                          Partners
                      
                          Channels
                      
   Latent &
                          Management
                                             Latent & Unmet Needs
 Unmet Needs
                                              Looking at your current
                                              customers or target market,
                                              what needs are not being
                                              addressed?


  Scott Hirsch, MIG          scott@mig5.com
Innovation Lenses
Finding Opportunity


                                                    Business Models
Industry Orthodoxies
                                                        Industry
What does the industry take
                               Innovations
for granted about how to                               Orthodoxies
                                  Products
make money? Can you               Services
imagine alternatives?             Markets
                                  Partners
                               
Unleveraged Assets                 Channels            Unleveraged
                                  Management
What assets do you have that                             Assets
disruptors donʼt? Are they
being used?




   Scott Hirsch, MIG               scott@mig5.com
Finding new channels                                            Industry Orthodoxies
                                                                - people value security
                      Same benefits as MS Office, but via
                                                                - don’t trust online storage
                      the Web rather than installed software.
                                                                - MS owns this market


                                                                Trends & Discontinuities
                                                                - software as a service
                                                                - ubiquitous connectivity




  Scott Hirsch, MIG                      scott@mig5.com
Customer Service and Experience

                                       Unmet Needs
                                        people want F2F support
                                        people want education

                                       Industry Orthodoxies
                                        retail is a reseller industry
                                        there is no profit in retail

                                       Trends & Discontinuities
                                        people are willing to pay
                                         extra for service
                                        Ipod halo effect is real




  Scott Hirsch, MIG   scott@mig5.com
New customers, new distribution,
new value configuration
                      37Signals’ Basecamp project management tools target
                      end-users as buyers, rather than corporate IT buyers.


                                                   Unmet Needs
                                                    Enterprise solutions
                                                     overshot needs of users

                                                   Industry Orthodoxies
                                                    IT Manager won’t allow it
                                                    Business customers
                                                     won’t buy it

                                                   Trends & Discontinuities
                                                    Software as service
                                                    Corporate rebellion



  Scott Hirsch, MIG              scott@mig5.com
Power of Customer Data                 Unleveraged Assets
                                       • Customer browse and
                                         purchase histories
                                       • Capability to determine
                                         likelihood to buy




                                           What data do you
                                           have access to that
                                           can be repurposed to
                                           help customers buy
                                           from you more often?

  Scott Hirsch, MIG   scott@mig5.com
Moving from Todayʼs Story to Tomorrowʼs
                                    Abstract

                  Frameworks                        Imperatives
                       (Insight)                       (Ideas)



                                                    Tell a
                                                    new
            Analysis                                                Synthesis
                                                    story


                 Observations                       Solutions
                       (Context)                      (Artifacts)
                                   Concrete
  Scott Hirsch, MIG                scott@mig5.com
Innovation Lenses
(Netflix in 1999)
 Unmet Needs
 - I hate paying late fees
 - I want a bigger selection

 Trends/Discontinuities
 - Demise of VHS
 - Rise of DVD players

 Industry Orthodoxies
 - People want to see the box
 - You need retail space to carry inventory

 Unleveraged Assets
 - Customer data


   Scott Hirsch, MIG             scott@mig5.com
Innovation Lenses
(Netflix in 2007)
 Unmet Needs
 • I can’t get the darn video
   onto my ipod

 Trends/Discontinuities
 • More and more interest in watching video anywhere and anytime

 Industry Orthodoxies
 • Digital Rights Management cannot be overcome

 Unleveraged Assets
 - Online relationships, huge selection
 - Database of customer preferences, recommendations



   Scott Hirsch, MIG            scott@mig5.com
Exercise: Telling a new story
First, do some brainstorming around the innovation lenses:
- Latent/Unmet Needs
   What insights do you have about how customers behave?
- Trends and Discontinuities
   What trends can you get ahead of the cure on?
- Industry Orthodoxies:
   How can you challenge the current beliefs about your market?
- Unleveraged Assets:
   What assets do you have that others donʼt … or donʼt use?

Some challenge questions to get you thinking:
  How would we make money if we gave the product away?
  What assets are we not leveraging? Include intangibles!
  (relationships, data, etc.)
  If you were a start up with the same assets what would you do
  to disrupt this market
Scott Hirsch, MIG           scott@mig5.com
Prototyping Business Models

Who Is the consumer / market segment?




     What do we provide (key attribute in the value proposition)?




           Who is in our value chain?




                        How do we make money?
How do we
differentiate
& sustain
advantage?
    Scott Hirsch, MIG               scott@mig5.com
Innovation Lenses
Finding Opportunity


                                           Business Models
     Customer Needs

           Trends &                            Industry
                          Innovations
        Discontinuities                       Orthodoxies
                              Products
                          
                              Services
                          
                              Markets
                          
                              Partners
                          
                              Channels
                          
           Latent &                           Unleveraged
                              Management
                          
         Unmet Needs                            Assets




  Scott Hirsch, MIG       scott@mig5.com
Key Takeaways:

   • The way you frame your business model really
     matters … Are you a bus company or a taxi
     company?

   • Frames help you understand your business model
     … look for patterns

   • Frames change when you look forward … break
     your current frame to look at the future




Scott Hirsch, MIG       scott@mig5.com
Be Like the Internet:
Collaborative, Disruptive, Networked


                    Learning from a Failure Experience
                         Activity in Teams of Two



Scott Hirsch, Management Innovation Group
Web2.0 Expo - November 5, 2007


Scott Hirsch, MIG               scott@mig5.com
Learning from Experiences:
How People Make Decisions


                                opportunity



Where You                                                      Where You
                      context                       solution
 Are Now                                                       Want To Be


                                 problem


  Scott Hirsch, MIG                scott@mig5.com
Why A Failure Experience?


    • People think much more objectively and critically
      about failures

     In analyzing past successes, people are naturally
      susceptible to “self-attribution bias”

    • Those who don’t learn from history are doomed to
      repeat it.

    • That which doesn’t kill you, makes you stronger



 Scott Hirsch, MIG         scott@mig5.com
Innovation Mindset:
Finding Opportunity In Failure
                                                       What is the context of the
                                                       failure experience? Who
                                                         were the key players
                      opportunity                               involved?


                                                       How would you handle the
                                                          situation differently,
     context                        solution            knowing what you know
                                                                  now?


                                                        What were the barriers
                       problem                         you encountered? Focus
                                                         on interpersonal and
                                                          systemic barriers.


  Scott Hirsch, MIG                   scott@mig5.com
Five Things to Remember When Doing Inquiry:

    1. Cast aside your biases, listen & observe
       • Let them tell their story
       • Listen for emotion
    2. Note any contradictions
       • Inconsistencies beg additional questions
       • Check for clarity
    3. Listen for the personal story
       • Challenge perceptions for normal
       • Note sources of pride and frustration
    4. Distinguish between needs and solutions
       • Needs open up possibilities
       • Solutions constrain them
    5. Look beyond the obvious
       • Watch for workarounds
       • Great insight is in the nuances


 Scott Hirsch, MIG           scott@mig5.com
Discussion and Questions …


    • What did you learn in your interview?

     Were you able to frame the problem?

     Were you able to reframe and find the opportunity?




 Scott Hirsch, MIG         scott@mig5.com
Thank you!
                      Scott Hirsch
               Management Innovation Group
                    Scott@mig5.com


Scott Hirsch, MIG         scott@mig5.com

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Be Like the Internet

  • 1. Be Like the Internet: Collaborative, Disruptive, Networked Scott Hirsch, Management Innovation Group (scott@mig5.com) Web2.0 Expo - November 5, 2007 Scott Hirsch, MIG scott@mig5.com
  • 2. MIG is a strategy consultancy … here are some companies we’ve helped: Scott Hirsch, MIG scott@mig5.com
  • 3. Scott Hirsch, MIG scott@mig5.com
  • 4. Scott Hirsch, MIG scott@mig5.com
  • 5. Web2.0 Changes the Way You Think About Your Company By changing the way you think about your … • development process • products/services • strategy • business model • management decisions • personal skills and leadership style “We need to stop confusing web2.0 with AJAX, yellow fades, and social networks … it’s a whole new way of thinking about business.” --SixApart Scott Hirsch, MIG scott@mig5.com
  • 6. Web2.0 Innovators Are Always Re-framing The advertising model is something that we've looked at. Can I see an immediate application for the Wii, no. However, one of the things that we are smart enough to say is quot;never say never.quot; But it is clear that the Mii consumers love to create their Miis. They would like more and more options to decorate their Miis. We're going to address part of that with a channel called quot;Check Me Out,quot; where you'll be able to post your Miis and create Miis of historical or popular figures and compare and vote on them. This is a recognition of a deep-seated need by consumers to drive a lot of personalization with these Mii characters and we're looking to help bring that to life in a way that makes sense. Reggie Fils-Aime COO, Nintendo What word defines the Wii? Scott Hirsch, MIG scott@mig5.com
  • 7. Web2.0 Innovators Are Always Re-framing A conversation in early 2002 - from The Search by John Battelle Scott Hirsch, MIG scott@mig5.com
  • 8. How? By organizing the worldʼs information and making it accessible and useful Or? By providing advertisers with the opportunity to deliver measurable, cost-effective online advertising that is relevant to the information displayed on any given page Scott Hirsch, MIG scott@mig5.com
  • 9. Find the Frame Product Culture Products Process Process > Rapid prototyping > For consumers - search that > Fast execution > Willingness to change the works and snazzy new apps Open innovation - one day paradigm > For advertisers - access to per week for research > Commitment to serving motivated customers Darwinian prioritization advertisers and consumers > For content owners - free > “Do no evil” money Scott Hirsch, MIG scott@mig5.com
  • 10. What Weʼre Going to Do 9:30 - 9:45 Introduction and Start-Ups 9:45 - 10:15 Learn About Each Other 10:15 - 10:45 Bottom-Up Innovation 10:45 - 11:00 Break 11:00 - 11:45 Web2.0 Strategy and Business Models 11:45 - 12:00 Leadership in a Web2.0 World 12:00 - 12:15 Learning from Failure Experiences 12:15 - 12:30 Putting It Into Practice Scott Hirsch, MIG scott@mig5.com
  • 11. The Demise of the Internally Focused System: Silicon Valley Before 2000 • If I discover it, I will find a market for it. • If I launch it first, I will own it. • I can build the most important technology pieces myself. • If I fail, I will move on to something else. • If I am successful, the best people will want to work for me. Web2.0 Shifts • Good Ideas are widely distributed today … there is no monopoly on useful knowledge. • Innovation doesn’t happen within a single firm anymore. • Failure is an opportunity to learn and change. • Not all the smart people in the world work for us. Scott Hirsch, MIG scott@mig5.com
  • 12. Trends and Discontinuities in Silicon Valley - How Web2.0 Changed the Way We Think About Strategy About Business Customers as Partners New Revenue Streams • Customers lead the • Google Adsense makes conversation business out of hobby • Customers as developers • Open platforms broaden on open platforms potential audiences Emergent Business Models Greatly Reduced Costs • Value first … business • Global talent pools model second • (Almost) anyone can start • Experimentation over set a company strategies • VCs become less • Openness is king (ir)relevant Scott Hirsch, MIG scott@mig5.com
  • 13. Some Provocative Points of View - This Sets Up Our First Activity • You don’t own your ideas • You don’t want to own the infrastructure • You certainly don’t own your customers “Intellectual property is a vestige of dumb markets” Scott Hirsch, MIG scott@mig5.com
  • 14. Learning About (and from) Each Other In the spirit of this being a global conference … that is focused on web2.0 … Let’s model some collaborative problem solving via social networking Instructions 1. Take a moment to think about a challenge you are facing today, it might be about … a) an innovation challenge b) a new product idea c) a sticky issue you are facing with a client 2. Make sure the problem is something you feel comfortable sharing with the group. If not, think of something else. 3. Write a short description of your issue … try your best to keep it under three sentences. Scott Hirsch, MIG scott@mig5.com
  • 16. Be Like the Internet: Collaborative, Disruptive, Networked Bottom-Up Innovation Scott Hirsch, Management Innovation Group Web2.0 Expo - November 5, 2007 Scott Hirsch, MIG scott@mig5.com
  • 17. Bottom-Up Innovation: A Personal Guide to Disrupting the World Demystifying the Issue: Methodology: - Too much high-level analysis and - Open inquiry with web2.0 “armchair quarterbacking” innovators - Not enough personal stories from - Pull characteristics and qualities real innovators of innovators - Too much emphasis on products, - Ask for referrals for more not enough on process interviews Proposal: - A “how-to” guide for innovation as told by web2.0 entrepreneurs and other market disruptors - Analysis and practical guidance for people at any level or type of organization - Focus on analytic frameworks, as well as softer skills of leadership and facilitation Scott Hirsch, MIG scott@mig5.com
  • 18. Generally, what I’ve heard: Web2.0 Innovators are … and create cultures that ... embrace Collaborative transparency Persuasive embrace many points of view are accepting Passionate of failure have fluid concept Humble of “ownership” Facilitative don’t over-plan Flexible their strategy value inspiration Persistent don’t over- and production (but not defensive) commit to solutions Scott Hirsch, MIG scott@mig5.com
  • 19. Generally, what I heard: Web2.0 Innovators are … and create cultures that … to manage …. embrace many Flexible points of view Uncertainty have fluid concept Persuasive Openness of idea ownership Leadership embrace Collaborative Management transparency Hiring share success & Strategy Humble accept failure Competition value inspiration Marketing Passionate and production Biz Development Product Development are open to many Facilitative viewpoints/options Persistent Commit to direction, (but not defensive) not solutions Scott Hirsch, MIG scott@mig5.com
  • 20. How Web2.0 Innovators Look at the World Strategy - Disruptive • Look at their business as a poker game, rather than a chess game • Aim to be the most open, rather than the first mover • Look for directional alignment, rather than the “right” answer Business Models - Networked • Focus on solving universal customer problems, rather than technology solutions • Favor experimentation over rationalization • Focus on building platforms, rather than owning customers Management - Collaborative • View opportunity cost as the scarce resource, rather than people and time. • View themselves as facilitators, rather than managers • Constantly seek to reframe challenges, rather than validate old points of view. Scott Hirsch, MIG scott@mig5.com
  • 21. Web2.0 Innovators’ View of Strategy Scott Hirsch, MIG scott@mig5.com
  • 22. Web2.0 Innovators’ View of Strategy Poker Chess • Pay to play … small ante • Plan several moves required to join ahead • Pay for new information • No new information each round needed • You discover what you’ve • You know what you’ve got and can only guess at got and what your other players opponent has • Business case is useless, • Decisions can be made you look at options with a business case Web2.0 Innovators look at their business like a poker game, not a chess game Adapted from Henry Chesborough, UC-Berkeley Scott Hirsch, MIG scott@mig5.com
  • 23. Web2.0 Innovators’ View of Strategy High external awareness Open Closed platform platform Low external awareness Web2.0 Innovators aim to be the most open, rather than the first mover. Scott Hirsch, MIG scott@mig5.com
  • 24. Web2.0 Innovators’ View of Business Models Scott Hirsch, MIG scott@mig5.com
  • 25. Web2.0 Innovators’ View of Business Models “We knew that our focus was on collaboration -- not wikis -- and Joe had been talking about the long-tail of applications, so we started taking a broader view of the business … Google wouldn’t have acquired us if it weren’t for that shift in mindset.” -- Ken Norton Web2.0 Innovators focus on solving universal problems, rather than technology solutions. Scott Hirsch, MIG scott@mig5.com
  • 26. Web2.0 Innovators’ View of Business Models “Only time will tell whether Google has succeeded in building an evolutionary advantage. But consider: Since it's founding, it has repeatedly morphed its business model. Google 1.0 was a search engine that crawled the Web but generated little revenue; which led to Google 2.0, a company that sold its search capacity to AOL/Netscape, Yahoo and other major portals; which gave way to Google 3.0, an Internet contrarian that rejected banner ads and instead sold simple text ads linked to search results; which spawned Google 4.0, an increasingly global entity that found a way to insert relevant ads into any and all Web content, dramatically enlarging the online ad business; which mutated into Google 5.0, an innovation factory that produces a torrent of new Web-based services, including Gmail, Google Desktop, and Google Base. More than likely, 6.0 is around the corner.” - Gary Hamel, Wall Street Journal “Management A la Google” 04/26/06 Web2.0 Innovators favor experimentation over rationalization. Scott Hirsch, MIG scott@mig5.com
  • 27. Web2.0 Innovators’ View of Management Scott Hirsch, MIG scott@mig5.com
  • 28. Web2.0 Innovators’ View of Management Top-Down Management Bottom-Up Management Example: Yahoo! PBmemo Example: Google 80/20 rule Scarce Resources: Scarce Resources: • People (engineers) • Servers, opportunity to test • Time and money • Opportunity cost Bottlenecks: Bottlenecks: • Getting management support • Getting peer support • Big “P” Politics • Little “p” politics Decision Models: Decision Models: • Pre-Rationalization process • Darwinian “natural selection” • Business cases • Strategic options Fear of false positives Fear of false negatives Web2.0 Innovators believe opportunity cost is the scarce resource, not people, time, or money. Scott Hirsch, MIG scott@mig5.com
  • 29. Web2.0 Innovators’ View of Management Traditional Rationalized View Web2.0 and the Beta View Management Decides Management Facilitates Triage, Generate, Senior experiment, Nurture, Leadership critique, Promote, Gathers / Adopt Fund prioritize, Reward -> group, Generate ideas abahdon, Ideas filter & sort Tyranny of the business case Narrowing through experimentation provides better data and more criteria than a business case. Web2.0 Innovators view themselves as facilitators rather than managers, and encourage smart divergence over quick convergence. Scott Hirsch, MIG scott@mig5.com
  • 30. How Web2.0 Innovators Look at the World s k or Strategy - Disruptive w et • Look at their business as a poker game, rather than a chess n al ci game so • Aim to be the most open, rather than the first mover d n“right” answer ,a • Look for directional alignment, rather than the de fa w Business Models - Networked llo problems, rather than ye • Focus on solving universal customer X, technology solutions JA rationalization • Favor experimentation A n over • Focus on buildingha t platforms, rather than owning customers e or m ut Management - Collaborative bo • View opportunity cost as the scarce resource, rather than s a and time. i people .0 b2 View themselves as facilitators, rather than managers • e • Constantly seek to reframe challenges, rather than validate W old points of view. Scott Hirsch, MIG scott@mig5.com
  • 31. BREAK Scott Hirsch, MIG scott@mig5.com
  • 32. Be Like the Internet: Collaborative, Disruptive, Networked Uncovering Strategies and Business Models Scott Hirsch, Management Innovation Group Web2.0 Expo - November 5, 2007 Scott Hirsch, MIG scott@mig5.com
  • 33. What is a business model? Scott Hirsch, MIG scott@mig5.com
  • 34. Guess the company? Scott Hirsch, MIG scott@mig5.com
  • 35. Can anyone think of a web2.0 version of this? Dangerʼs Sidekick Scott Hirsch, MIG scott@mig5.com
  • 36. Generic Business Models Which are Web2.0? • Per item and “all you can eat” • Razors and blades • Free trial, followed by subscription • Free, advertising supported • Any non-web2.0 examples? • Recruit your friends and save money • Market maker, aggregator, switchboard • Ebay, Amazon • Turn cost centers into profit centers • Ryan Air • Hotels (phone, TV, minibar) • Apple Scott Hirsch, MIG scott@mig5.com
  • 37. We shape our buildings, and thereafter they shape us. Scott Hirsch, MIG scott@mig5.com
  • 38. We shape our buildings business models, and thereafter they shape us. Scott Hirsch, MIG scott@mig5.com
  • 39. Why do business models matter? Customers Products Revenue and Costs technology companies succeed by keeping switching costs high, selling version upgrades (think microsoft) Growth -> increase the install ISP service Customers are base, while keeping attrition low motivated by: Customer acquisition costs are high (unless you have a monopoly) availability of other ISPs $/user is largely fixed unwillingness to switch loyalty to AOL “software” Because switching cost is high, and content products only need to be “good enough” Software services for my computer Scott Hirsch, MIG scott@mig5.com
  • 40. Why do business models matter? Customers Products Revenue and Costs Media companies succeed by connecting customers with useful content/services (think craigslist); monetizing more customer interactions (think adsense) Growth -> many levers: increase visits, pageviews, CPM, long-tail Customers are and mass markets motivated by: Customer acquisition costs are low Software services for me the value of the AOL $/user is variable network of content and services Products need to work well -- loyalty to AOL “hooks” innovations can be used to hook (products that uniquely new customers combine content and services) relative value of the AOL experience Monetizable content Scott Hirsch, MIG scott@mig5.com
  • 41. How would you describe eCommerce business models? -Content provider
 -Direct to consumer
 -B2B -Full service provider
 -B2C -Brokerage (e.g., buyer aggregator, -Intermediary auctions, search agent, marketplace) 
- Shared infrastructure 
- Advertising (e.g., portals, free model, attention marketing, bargain discounter) 
- Value net integrator
 -Virtual community
 -Infomediary (e.g. registration)
 - Whole of enterprise -Merchant (e.g., virtual store) 
- Manufacturer (i.e., disintermediation) - Focused distributor (e-tailers, 
- Affiliate (i.e.,click-through purchase) market-places, aggregators, 
- Community (e.g., knowledge infomediaries)
 networks)
 - Portal (horizontal, vertical, affinity)
 -Subscription
 - Producer (manufacturer, info services) - Utility (i.e., pay as you go) - Infrastructure (ISP, hardware, software) Scott Hirsch, MIG scott@mig5.com
  • 42. The Frame of Your Business Model Matters … A LOT! Scott Hirsch, MIG scott@mig5.com
  • 43. The Strategic Continuum Make & Sell Sense & Respond Strategic Lenses Strategic Lenses • Forecasting • Learning • Planning • Adaptation Web2.0 is more like a taxi than a bus. Scott Hirsch, MIG scott@mig5.com
  • 44. The Strategic Continuum Sense & Respond Make & Sell • Respond to the Market • Offer to the Market • Knowledge Embedded in • Knowledge Embedded People/Process in Things • Customization • Mass-production • Focus on Flexibility • Focus on Efficiency • Profit from Return and • Profit from Margin and Scope Scale Is your company a taxi or a bus. Scott Hirsch, MIG scott@mig5.com
  • 45. Business Model Lock-In + the Innovatorʼs Dilemma Abstract Frameworks: We Imperatives: We Fall Identify the Back on the Value Problems That Fit Propositions That Fit In Our Definition of Our Solutions the Industry Analysis Synthesis Observations: Solutions: We Confirmation Bias Create Incremental Leads Us to See What Improvements to the We Know Wrong Problems Concrete Scott Hirsch, MIG scott@mig5.com
  • 46. Example from Telecoms Abstract Frameworks: Imperatives: Invest in Reliability of the POTS Redundancy to Network is Key Ensure Uptime (.99999 availability) Analysis Synthesis Observations: Customers Get Solutions: Fiber Optic Frustrated When They Cables and High Can’t Make Calls Throughput Switches Concrete Scott Hirsch, MIG scott@mig5.com
  • 47. Other Examples “I think there is a world market “The Americans have need of the for maybe five computers.” telephone, but we do not. We have plenty of messenger boys.” - IBM Chairman Tom Watson - British Post Office Commissioner Sir William Preece “So we went to Atari and said, 'Hey, quot;While theoretically and we've got this amazing thing, even built technically television may be with some of your parts, and what do feasible, commercially and you think about funding us? Or we'll financially it is an impossibility.quot; give it to you. We just want to do it. Pay - TV inventor Lee DeForest our salary, we'll come work for you.' And they said, 'No.' So then we went to Hewlett-Packard, and they said, 'Hey, we don't need you. You haven't got through college yet.”. - Apple Founder Steve Jobs Scott Hirsch, MIG scott@mig5.com
  • 48. Innovating on Business Models “…the key to sustained success is business model innovation.” - Harvard Business Schoolʼs Clay Christensen Who do we serve? How do we provide it? What do we provide? How do we How do we differentiate & make money? sustain advantage? Scott Hirsch, MIG scott@mig5.com
  • 49. Developing Business Models What do we provide? Who do we serve? How do we provide it? TARGET PARTNER CUSTOMER NETWORK VALUE PROPOSITION CORE CUSTOMER CAPABILITIES RELATIONSHIP DISTRIBUTION VALUE CHANNEL CONFIGURATION PRODUCT/SERVICE COST REVENUE STRUCTURE STREAMS How do we make money? Scott Hirsch, MIG scott@mig5.com
  • 50. Developing Business Models What do we provide? Who do we serve? How do we provide it? TARGET PARTNER CUSTOMER NETWORK VALUE CORE PROPOSITION CUSTOMER CAPABILITIES RELATIONSHIP DISTRIBUTION VALUE PRODUCT/SERVICE CHANNEL CONFIGURATION How do we COST REVENUE differentiate & STRUCTURE STREAMS sustain advantage? How do we make money? Scott Hirsch, MIG scott@mig5.com
  • 51. Marketing innovations Serving different people,serving What do we them differently provide? How do we provide it? TARGET PARTNER CUSTOMER NETWORK VALUE PROPOSITION CORE CUSTOMER CAPABILITIES RELATIONSHIP DISTRIBUTION VALUE CHANNEL CONFIGURATION PRODUCT/SERVICE COST REVENUE STRUCTURE STREAMS How do we make money? Scott Hirsch, MIG scott@mig5.com
  • 52. Targeting Different Customers YOUR NEXT ACCIDENT COULD BE FORGIVEN Your car insurance rates wonʼt go up just because of an accident. Even if itʼs your fault. Accident Forgiveness starts the day you sign up for Your Choice Auto Insurance. Sign up now. CALL 1–866–621–6900 for details and a free auto quote. Scott Hirsch, MIG scott@mig5.com
  • 53. Channel Innovations Getting products What do we provide? toHow do we provide it? customers Who do we serve? differently TARGET PARTNER CUSTOMER NETWORK VALUE PROPOSITION CORE CUSTOMER CAPABILITIES RELATIONSHIP DISTRIBUTION VALUE CHANNEL CONFIGURATION PRODUCT/SERVICE COST REVENUE STRUCTURE STREAMS How do we make money? Scott Hirsch, MIG scott@mig5.com
  • 54. Opening Up Whole New Markets Platform Innovation at Cement is a commodity … need to differentiate the business model. Major builders and distributors touch only part of the national market for cement. “Platforms” explore major opportunity arenas: How to serve very poor customers How to deliver “solutions” (rather than cement) 1. KEEP THE AIMING How to address the needs of small vendors POINTS FRESH. 2. TIME BOUND THE CHALLENGES. 3. MOVE ON TO THE NEXT. Scott Hirsch, MIG scott@mig5.com
  • 55. New Product Innovations What do we provide? Who do we serve? How do we provide it? TARGET PARTNER CUSTOMER NETWORK VALUE PROPOSITION CORE CUSTOMER CAPABILITIES RELATIONSHIP DISTRIBUTION VALUE CHANNEL CONFIGURATION PRODUCT/SERVICE COST REVENUE STRUCTURE STREAMS How do we make money? Scott Hirsch, MIG scott@mig5.com
  • 56. New Product Categories Scott Hirsch, MIG scott@mig5.com
  • 57. Customer Experience Innovations What do we provide? Who do we serve? How do we provide it? TARGET PARTNER CUSTOMER NETWORK VALUE PROPOSITION CORE CUSTOMER CAPABILITIES RELATIONSHIP DISTRIBUTION VALUE CHANNEL CONFIGURATION PRODUCT/SERVICE COST REVENUE STRUCTURE STREAMS How do we make money? Scott Hirsch, MIG scott@mig5.com
  • 58. Finding new approaches for known needs Can Target make it easier to take your medicine? Can flying actually be fun again? Scott Hirsch, MIG scott@mig5.com
  • 59. Finance innovations What do we provide? Who do we serve? How do we provide it? TARGET PARTNER CUSTOMER NETWORK VALUE PROPOSITION CORE CUSTOMER CAPABILITIES RELATIONSHIP DISTRIBUTION VALUE CHANNEL CONFIGURATION PRODUCT/SERVICE Getting paid by COST REVENUE different STRUCTURE STREAMS people or in How do we make money? different ways Scott Hirsch, MIG scott@mig5.com
  • 60. Innovations in cost structures Dell pioneered a J-I-T production system that allowed them to pay for components after their customers had already paid Dell. Skype uses open internet standards and free infrastructure to offer free and low- cost calls to its customers. Scott Hirsch, MIG scott@mig5.com
  • 61. Innovations in where revenue comes from Trilogy creates customized software that helps its customers solve business problems and gets paid as a percentage of cost savings or new revenue created. Scott Hirsch, MIG scott@mig5.com
  • 62. Hybrid innovations: new revenue, new sales channels Enterprise: Focus on offering short-term replacement vehicles paid for by insurance companies Scott Hirsch, MIG scott@mig5.com
  • 63. Innovative combinations: new cost structures, new customers, new partners vs. Radically reducing costs opens up new target customer possibilities Scott Hirsch, MIG scott@mig5.com
  • 64. Hybrid innovations: new customer experiences, new products, new services, new capabilities Scott Hirsch, MIG scott@mig5.com
  • 65. Business Model (Netflix in 1999) Who do we serve? What value do we provide? How do we provide it? How do we make money? How are we differentiated? Scott Hirsch, MIG scott@mig5.com
  • 66. Activity: Prototyping Business Models Who Is the consumer / market segment? - Target customer - Customer relationship What do we provide (key attribute in the value proposition)? - Product/service - Value proposition How do we provide it? - Partner network: - Distribution channel: - Core capability: How do we make money? How do we -Revenue streams: differentiate -Cost structure & sustain advantage? Scott Hirsch, MIG scott@mig5.com
  • 67. The Innovation Cycle Applied to Business Models Abstract Frameworks Imperatives (Insight) (Ideas) Analysis Synthesis Observations Solutions (Context) (Artifacts) Concrete Scott Hirsch, MIG scott@mig5.com
  • 68. The Innovation Cycle Applied to Business Models Abstract Frameworks Imperatives (Insight) (Ideas) Analysis Synthesis Describe the business model Observations Solutions (Context) (Artifacts) Concrete Scott Hirsch, MIG scott@mig5.com
  • 69. The Innovation Cycle Applied to Business Models Abstract Frameworks Imperatives (Insight) (Ideas) Find the whitespace Analysis Synthesis Observations Solutions (Context) (Artifacts) Concrete Scott Hirsch, MIG scott@mig5.com
  • 70. The Innovation Cycle Applied to Business Models Abstract Frameworks Imperatives (Insight) (Ideas) Describe the new value combination Analysis Synthesis Observations Solutions (Context) (Artifacts) Concrete Scott Hirsch, MIG scott@mig5.com
  • 71. The Innovation Cycle Applied to Business Models Abstract Frameworks Imperatives (Insight) (Ideas) Analysis Synthesis Think through go- to-market strategy Observations Solutions (Context) (Artifacts) Concrete Scott Hirsch, MIG scott@mig5.com
  • 72. Moving from Customer to Business Abstract Frameworks Imperatives (Insight) (Ideas) Find the Analysis Synthesis story Observations Solutions (Context) (Artifacts) Concrete Scott Hirsch, MIG scott@mig5.com
  • 73. Moving from Todayʼs Story to Tomorrowʼs Abstract Frameworks Imperatives (Insight) (Ideas) Tell a new Analysis Synthesis story Observations Solutions (Context) (Artifacts) Concrete Scott Hirsch, MIG scott@mig5.com
  • 74. Telling a New Story What Weʼre Going to Do … - First step was to take an analytic look at the existing story. - Now weʼre going to stretch to be a little more creative to tell a new story - Show you a framework for thinking about business models through innovation lenses. - Weʼre going to practice using these lenses Scott Hirsch, MIG scott@mig5.com
  • 75. Innovation Lenses Finding Opportunity Business Models Customer Needs Trends & Industry Innovations Discontinuities Orthodoxies Products  Services  Markets  Partners  Channels  Latent & Unleveraged Management  Unmet Needs Assets Scott Hirsch, MIG scott@mig5.com
  • 76. Innovation Lenses Opportunities Derived from Customer Needs Customer Needs Trends & Discontinuities Whatʼs happening in the Trends & market? What emerging Innovations Discontinuities technological, social, or Products  economic changes might Services  impact your competitive Markets  environment? Partners  Channels  Latent & Management  Latent & Unmet Needs Unmet Needs Looking at your current customers or target market, what needs are not being addressed? Scott Hirsch, MIG scott@mig5.com
  • 77. Innovation Lenses Finding Opportunity Business Models Industry Orthodoxies Industry What does the industry take Innovations for granted about how to Orthodoxies  Products make money? Can you  Services imagine alternatives?  Markets  Partners  Unleveraged Assets Channels Unleveraged  Management What assets do you have that Assets disruptors donʼt? Are they being used? Scott Hirsch, MIG scott@mig5.com
  • 78. Finding new channels Industry Orthodoxies - people value security Same benefits as MS Office, but via - don’t trust online storage the Web rather than installed software. - MS owns this market Trends & Discontinuities - software as a service - ubiquitous connectivity Scott Hirsch, MIG scott@mig5.com
  • 79. Customer Service and Experience Unmet Needs  people want F2F support  people want education Industry Orthodoxies  retail is a reseller industry  there is no profit in retail Trends & Discontinuities  people are willing to pay extra for service  Ipod halo effect is real Scott Hirsch, MIG scott@mig5.com
  • 80. New customers, new distribution, new value configuration 37Signals’ Basecamp project management tools target end-users as buyers, rather than corporate IT buyers. Unmet Needs  Enterprise solutions overshot needs of users Industry Orthodoxies  IT Manager won’t allow it  Business customers won’t buy it Trends & Discontinuities  Software as service  Corporate rebellion Scott Hirsch, MIG scott@mig5.com
  • 81. Power of Customer Data Unleveraged Assets • Customer browse and purchase histories • Capability to determine likelihood to buy What data do you have access to that can be repurposed to help customers buy from you more often? Scott Hirsch, MIG scott@mig5.com
  • 82. Moving from Todayʼs Story to Tomorrowʼs Abstract Frameworks Imperatives (Insight) (Ideas) Tell a new Analysis Synthesis story Observations Solutions (Context) (Artifacts) Concrete Scott Hirsch, MIG scott@mig5.com
  • 83. Innovation Lenses (Netflix in 1999) Unmet Needs - I hate paying late fees - I want a bigger selection Trends/Discontinuities - Demise of VHS - Rise of DVD players Industry Orthodoxies - People want to see the box - You need retail space to carry inventory Unleveraged Assets - Customer data Scott Hirsch, MIG scott@mig5.com
  • 84. Innovation Lenses (Netflix in 2007) Unmet Needs • I can’t get the darn video onto my ipod Trends/Discontinuities • More and more interest in watching video anywhere and anytime Industry Orthodoxies • Digital Rights Management cannot be overcome Unleveraged Assets - Online relationships, huge selection - Database of customer preferences, recommendations Scott Hirsch, MIG scott@mig5.com
  • 85. Exercise: Telling a new story First, do some brainstorming around the innovation lenses: - Latent/Unmet Needs What insights do you have about how customers behave? - Trends and Discontinuities What trends can you get ahead of the cure on? - Industry Orthodoxies: How can you challenge the current beliefs about your market? - Unleveraged Assets: What assets do you have that others donʼt … or donʼt use? Some challenge questions to get you thinking: How would we make money if we gave the product away? What assets are we not leveraging? Include intangibles! (relationships, data, etc.) If you were a start up with the same assets what would you do to disrupt this market Scott Hirsch, MIG scott@mig5.com
  • 86. Prototyping Business Models Who Is the consumer / market segment? What do we provide (key attribute in the value proposition)? Who is in our value chain? How do we make money? How do we differentiate & sustain advantage? Scott Hirsch, MIG scott@mig5.com
  • 87. Innovation Lenses Finding Opportunity Business Models Customer Needs Trends & Industry Innovations Discontinuities Orthodoxies Products  Services  Markets  Partners  Channels  Latent & Unleveraged Management  Unmet Needs Assets Scott Hirsch, MIG scott@mig5.com
  • 88. Key Takeaways: • The way you frame your business model really matters … Are you a bus company or a taxi company? • Frames help you understand your business model … look for patterns • Frames change when you look forward … break your current frame to look at the future Scott Hirsch, MIG scott@mig5.com
  • 89. Be Like the Internet: Collaborative, Disruptive, Networked Learning from a Failure Experience Activity in Teams of Two Scott Hirsch, Management Innovation Group Web2.0 Expo - November 5, 2007 Scott Hirsch, MIG scott@mig5.com
  • 90. Learning from Experiences: How People Make Decisions opportunity Where You Where You context solution Are Now Want To Be problem Scott Hirsch, MIG scott@mig5.com
  • 91. Why A Failure Experience? • People think much more objectively and critically about failures  In analyzing past successes, people are naturally susceptible to “self-attribution bias” • Those who don’t learn from history are doomed to repeat it. • That which doesn’t kill you, makes you stronger Scott Hirsch, MIG scott@mig5.com
  • 92. Innovation Mindset: Finding Opportunity In Failure What is the context of the failure experience? Who were the key players opportunity involved? How would you handle the situation differently, context solution knowing what you know now? What were the barriers problem you encountered? Focus on interpersonal and systemic barriers. Scott Hirsch, MIG scott@mig5.com
  • 93. Five Things to Remember When Doing Inquiry: 1. Cast aside your biases, listen & observe • Let them tell their story • Listen for emotion 2. Note any contradictions • Inconsistencies beg additional questions • Check for clarity 3. Listen for the personal story • Challenge perceptions for normal • Note sources of pride and frustration 4. Distinguish between needs and solutions • Needs open up possibilities • Solutions constrain them 5. Look beyond the obvious • Watch for workarounds • Great insight is in the nuances Scott Hirsch, MIG scott@mig5.com
  • 94. Discussion and Questions … • What did you learn in your interview?  Were you able to frame the problem?  Were you able to reframe and find the opportunity? Scott Hirsch, MIG scott@mig5.com
  • 95. Thank you! Scott Hirsch Management Innovation Group Scott@mig5.com Scott Hirsch, MIG scott@mig5.com