This document discusses business model innovation (BMI). It defines BMI as reinventing a business itself by innovating two or more elements of its business model to deliver value in a new way. The document then covers the evolution of BMI principles, the relevance of BMI today to address disruption and competition, challenges companies may face with BMI like failure to scale up ideas, and provides examples of companies like Apple and Ikea that successfully applied BMI.

1. Business Model Innovation
When the Game Gets Tough, Change the Game
By:
Belinda Anne Tamayo

2. Agenda
• Quick Review of Business Model
• Define Business Model Innovation (BMI)
• Evolution of BMI
• Relevance of BMI Today
• Challenges of BMI
• Examples of Companies who applied BMI

3. What is a Business Model?
• Consists of two essential elements:
1. The Value Proposition
 Answers the question, What are we offering to
whom?
 Reflects explicit choices along the following 3
dimensions:
 Target Segments: Which customers do we choose to
serve? Which of their needs do we seek to address?
 Product or Service Offering: What are we offering the
customers to satisfy their needs?
 Revenue Model: How are we compensated for our
offering?

4. What is a Business Model?
2. The Operating Model
 Answers the question, How do we profitably deliver the
offering?
 Captures the business’ choices in the following 3 critical
areas:
 Value Chain: How are we configured to deliver on customer
demand? What do we do in-house? What do we outsource?
 Cost Model: How do we configure our assets and costs to
deliver on our value proposition profitably?
 Organization: How do we deploy and develop our people to
sustain and enhance our competitive advantage?

6. What is Business Model Innovation?
• Refers to the creation, or reinvention of a
business itself
• Innovation becomes Business Model Innovation
when two or more elements of a business model
are reinvented to deliver value in a new way
• BMI results in a company that not only
competes on the value proposition of its
offerings, but aligns its profit formula,
resources, and processes to enhance that value
proposition

7. Evolution and key principles of BMI
• Adrian Slywotzky (consultant and author)
▫ Highlighted the importance of adjusting the Business-Design
in order to drive/adjust value migration within an industry
• Clayton Christensen (Harvard Professor, Author: The Innovator’s
Prescription)
▫ Cited the need for business model innovation as one of the core
elements of a successful market disruption
• Mark W. Johnson (Innosight), Clayton Christensen, and Henning
Kagermann of SAP
▫ They explored the BMI concept in detail in their McKinsey Award
winning feature article Reinventing Your Business Model (December
2008)

8. Why is Business Model Innovation
Relevant today?
1. BMI can provide companies a way to break out of
intense competition, under which product or process
innovations are easily imitated, competitors’ strategies
have converged, and sustained advantage is elusive
2. It can help address disruptions that demand new
competitive approaches
3. IT can help address downturn – specific
opportunities, enabling companies, for example, to
lower prices or reduce the risks and costs of ownership
for customers
4. It can deliver superior returns compared to just doing
product or process innovation

9. What Can Go Wrong in BMI?
• Portfolio Boat
▫ Can happen when a company has become bogged down in too many
uncoordinated, bottom-up innovations
▫ Result: bloated, unbalanced, and overlapping portfolio of experiments, none
of which has enough resources or support to win the favor of senior
management
• Failure to Scale Up
▫ If a project fails to retain the initial excitement, there will be lack of attention
and resources to keep it from being scaled up successfully
▫ Maybe due to not being able to establish the right criteria or validations were
not done collected and analyzed correctly
• Pet Ideas
▫ Every industry has zombies – projects that don’t go anywhere but refuse to
die – some managers refuse to give up their pet ideas
▫ They need to put away those pet ideas to give way for better ones

10. What Can Go Wrong in BMI?
• Fixation on Ideation
▫ Some organizations are able to churn out ideas endlessly but rarely move on
to piloting and scaling them up
• Internal Focus
▫ A company may sometimes focus too much on the internal needs of the
organization and fail to address the evolving needs of customers
▫ BMI that takes an inside-out approach frequently results in too little change
too late and fails to capture the opportunity
• Historical Bias
▫ Organization must resist the temptation to overvalue past models and
undervalue forward-looking, disruptive ideas
▫ Organization would need a courageous and visible leader to overcome this
natural tendency

11. A Few Important Things when Striving
for BMI:
• Uncovering Opportunities
▫ Diagnose first the current model to understand its limitations
▫ Once a company understands it current choices, it is better
positioned to brainstorm new opportunities
• Implementing the New Model
▫ Scaling up is the most critical step for BMI
▫ Winners of BMI aren’t necessarily the originators of new models,
rather they are the first ones to successfully roll out ideas
• Building the Platform and Skills
▫ Most new business models are disruptive and can incur significant
internal resistance
▫ BMI requires a distinct set of processes and capabilities to overcome
an organization’s short-term focus and also sustain a BMI advantage
on a continuous basis

12. Examples
• Apple
▫ Was the first computer company to include music
distribution as an activity, linking it to the
development of the iPod hardware and software
▫ Not only did they grow by simply brining
innovative hardware, Apple transformed its
business model to encompass an ongoing
relationship with its customers

13. Examples
• Jetstar
▫ Qantas ultra-low cost airline to compete with
Virgin Blue
▫ Initiated international service in 2006, making it
the world’s first low-cost, long haul airline
▫ Pioneered revolutionary pricing by offering
traditionally bundled services, enabling customers
to customize the onboard experience with
different options for food, comfort, and
entertainment

14. Examples
• Ikea’s Mega Mall Division
▫ Noticed that whenever it opened a store in Russia,
the value of nearby real estate increased
dramatically
▫ Decided to explore two business models
simultaneously: sell through stores and capture
the appreciation in real estate
▫ Created a new division called Mega Mall, makes
more profit on developing and running malls in
Russia

16. References:
• Business Model Innovation, Wikipedia
• Business Model Innovation, When the Game
Gets Tough, Change the Game, December 2009
(Zhenya Lindgardt, Martin Reeves, George Stalk,
and Michael Deimler: The Boston Consulting
Group)
• Creating Value Through Business Model
Innovation (Raphael Amit and Christoph Zott)