The document discusses Girota and Netessine's Business Model Innovation Matrix, which helps companies identify areas to change their business model by considering four decision areas: what, when, who, and why. It provides examples of business model changes in each area, such as Netflix switching from mailing DVDs to streaming. The matrix can be used for both new and established business models. The document advocates regularly evolving business models as customers, competitors, and markets change. It provides steps for conducting a business model audit to identify inefficiencies and make changes to improve efficiency and reduce risk.

1. Business
Model
Design
“What will get you there? Likely not what got you here.”

2. Girota and Netessine’s Business Model
Innovation Matrix helps trigger ideas and
different thinking to change risks, costs and
advantages.
• 4 decision areas each with 3 innovation
approaches.
• Applies to both established and new
disruptive business models business
models.
• Don’t let ‘where you started’ constrain
‘where you could go’.
• Following slide gives real examples but
business model changes are seldom one
offs – models need to continue to evolve
and develop as customers , competitors
and markets change. Amazon has never
stopped innovating in its business model!
What When Who Why
Select focused
vs. flexible
model
Delay decisions Transfer
decisions to
best-informed
players
Change profit
or revenue
streams to
align incentives
Change scope
of decisions
Change
decision
sequence
Transfer
decision rights
to party best
able to tolerate
consequences
Synchronize
differing time
horizons
Hedge of
complement
decisions with
each other
Split decisions
to obtain
partial info
before decision
implemented
Move decision
consequences
to party that
benefits most
Pursue a
vertical
integration
strategy

3. What
To sell?
When
Decisions are made?
Who
Makes which decision?
Why
Incentives?
Select focused vs. flexible
model
• Zappos Shoes vs Amazon
‘Everything’
• Netflix mailed DVDs vs
Blockbuster stores
Delay decisions
• Benetton dyeing after knitting to
postpone design and assortment
decisions
• American Airlines pioneering
dynamic pricing – internet retailers
now change prices daily, hourly,
even by user
• Kohl’s use of digital price tags
Transfer decisions to best-informed
players
• Zara having local stores decide
what fashion lines to stock –
empower the better informed
• 2008 US financial crisis showed
many parties not sufficiently
informed for their decisions
and incentives are misaligned
Change profit or revenue streams
to align incentives
• Nintendo limiting supply of Wii
• Rolls Royce offering both T&M
and PB contacts on engines -
change contracts between
parties to get alignment
• Behavioral economists’
understanding and influencing
for better outcomes
Change scope of decisions
• Software companies
changing from upgrades
and perpetual licenses to
subscription maintenance
and subscription licenses
Change decision sequence
• X-Prize competition getting
technologies developed and
proven before selecting which to
really invest in
Transfer decision rights to party
best able to tolerate consequences
• Walmart transferring store
replenishment to P&G –
decision maker who bears the
brunt with most increase the
value created
Synchronize differing time horizons
• LiveOps real time ‘hiring’ of call
center reps
• Toyota dopping competitive
supplier bidding for long-term
relationships
Hedge of complement
decisions with each other
• Zipcar changed car rental
from daily to hourly, Avis
bought Zipcar
• LAN airlines focusing on
passengers and cargo
Split decisions to obtain partial info
before decision implemented
• Dell receiving orders then building
PCs
• MyFab splitting buying decisions
in two, preferred selection and
purchase
Move decision consequences to
party that benefits most
• Amazon’s initial ‘sell all books,
carry few’ used publishers stock
• Modern focus on User
Experience and feedback to
drive satisfaction and
Pursue a vertical integration
strategy
• Kaiser Healthcare integrating
doctors, hospitals, pharmacies,
insurance
• Freddie Mac providing internal
health-maintenance clinic

4. BUSINESS MODEL AUDIT
• Identify all decisions in current or proposed business model.
• Map out inefficiencies and risks to identify most consequential
decisions – what has gone wrong, what could go wrong? Look for
symptoms, dig for root causes.
• Investigate possible changes to these decisions assessing business
model efficiency and risk
• Define new business model .
• Test with rapid prototyping – experiment, change, repeat..
• Expect opposition to change but don’t be hostage to past success!
“Healthy growth is not engineered. It is the
outcome of growing the demand … the
outcome of having superior products and
skills… the reward for innovation,
cleverness, efficiency, and creativity.”
Richard Rumelt

5. Obviously the above are just ideas
and they need customizing and
developing to your business.
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Skype: jeffdrust
www.linkedin.com/in/jeffdrust

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