Business Model Innovation
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Just an overview of the business model concept, customer development, organizing for corporate business model innovation, business eco-system challenges, and a few ideas of research opportunities. I presented this during lunch at my office to introduce the more technically oriented researchers to the general topic. The presentation was, although fast paced, quite appreciated.
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Business Model Innovation
- 1. BUSINESS MODEL INNOVATION Marcus Linder 2014-09-30 Marcus Linder 1
- 2. TOPICS TODAY 1. Business model concept 2. Search vs. execution 3. Systematic search 4. Eco-systems 5. Research projects www.viktoria.se Marcus Linder Sorry, limited time for questions today. BUT – I work here.
- 3. THE BUSINESS MODEL CONCEPT 1. Business model concept 2. Search vs. execution 3. Systematic search 4. Eco-systems 5. Research projects
- 4. ”BUSINESS MODEL” IN BOOKS www.viktoria.se Src: goMoagrcleus nLigndrearms
- 5. ”BUSINESS MODEL” AT GOOGLE SCHOLAR 35000 30000 25000 20000 15000 10000 5000 0 1990 1995 2000 2005 2010 2015 www.viktoria.se "Business model" @ Google Scholar Search date: 2014-09-10 Marcus Linder
- 6. ”BUSINESS MODEL” GOOGLE WEB SEARCH 2005 2013 www.viktoria.se 2009 Marcus Linder Src: google trends
- 7. MANY TRIED TO OWN THE CONCEPT… www.viktoria.se Harvard: Johnson & Christensen 2008 (≈820) UC Berkley: Chesbrough & Rosenbloom 2002 (≈2000) Wharton: Amit & Zott 2001 (≈3100) Bain/Harvard: Magretta 2002 (≈1700) Marcus Linder
- 8. …and the winner is… www.viktoria.se Marcus Linder
- 9. Business model: The conceptual logic of how a business creates, delivers and captures economic value [from customers] www.viktoria.se Marcus Linder
- 10. THE BUSINESS MODEL CANVAS • Language for internal communication – avoid misunderstandings • Template to remember relevant business guesses to work through • Emotional help to focus on ”what we don’t know” – rather than what we have data on www.viktoria.se Marcus Linder
- 11. EVOLUTION OF THE BUSINESS MODEL CANVAS… www.viktoria.se Src: Osterwalder, A. (2004). The Business Model Ontology-a proposition in a design science approach. PhD, Universite de Lausanne. Marcus Linder
- 12. EVOLUTION OF THE BUSINESS MODEL CANVAS… www.viktoria.se Osterwalder 2008 Marcus Linder
- 13. www.viktoria.se Today’s dominant incarnation Marcus Linder
- 14. BUSINESS MODELS AS VALUE NETWORKS OR PLATFORMS Partners Channels & www.viktoria.se Focal firm’s business model customers ”We are developing a business model in which 22 firms work together to revolutionize home entertainment/international shipping/book reading/etc….” Marcus Linder
- 15. ”BUSINESS MODELS” AS REVENUE MODELS www.viktoria.se ”They use a razor and blade business model.” ”They use a freemium business model.” Marcus Linder
- 16. SEARCH VS EXECUTION 1. Business model concept 2. Search vs. execution 3. Systematic search 4. Eco-systems 5. Research projects
- 17. TWO PARTS TO A FIRM www.viktoria.se The ”performance engine” • Highly optimized ”machine” doing product development and operations – known goal and better/more/cheaper The ”business model innovation project” • Resource consuming group trying to learn under considerable uncertainty – finding new goal Marcus Linder
- 18. PERFORMANCE ENGINE • Role: Pays all the bills • Goal: Excellence in execution of verified business model • Learning: often immense • Type of learning: optimization of known parameters www.viktoria.se Marcus Linder
- 19. YOU MUST NOT HURT THE PERFORMANCE ENGINE! It pays the bills – and ALWAYS wins internal power/political struggles Marcus Linder 21
- 20. BUSINESS MODEL INNOVATION PROJECT • Role: Temporary organization to create new/extend performance engine. Consume today to maybe create tomorrow. • Goal: Design and verification of business hypotheses • Learning: Core task! • Type of learning: Finding parameters to be optimized www.viktoria.se Deals på restauranger, träning, resor, shopping, skönhet och mer Marcus Linder
- 21. PERFORMANCE ENGINE STRENGTHS www.viktoria.se Well established processes (e.g. NPD) are usually… …but are typically inflexible to deal with: Marcus Linder
- 22. AGAIN: YOU MUST NOT HURT THE PERFORMANCE ENGINE! It will eat your project for breakfast, if push comes to shove Marcus Linder 24
- 23. SYSTEMATIC SEARCH 1. Business model concept 2. Search vs. execution 3. Systematic search 4. Eco-systems 5. Research projects
- 24. WHAT I WAS TAUGHT IN SCHOOL… Marcus Linder 27
- 25. EXECUTE VS SEARCH Marcus Linder (Slide stolen from Henrik Berglund)
- 26. Marcus Linder (Slide stolen from Henrik Berglund)
- 27. Marcus Linder (Slide stolen from Henrik Berglund)
- 28. 1. Find a great idea. 2. (Do great market research) 3. Launch at great scale 4. Find out you forgot one key question 5. Go home… Marcus Linder
- 29. Marcus Linder (Slide stolen from Henrik Berglund)
- 30. There is a better way! Marcus Linder
- 31. Marcus Linder
- 32. BASIC IDEA State business model hypotheses • (not specs, don’t build) Prioritize hypotheses to test • (identifiy ”deal killers”) Iterate as needed, • otherwise realize idea (”build”) Test hypotheses • on market (low fidelity prototypes, possibly incremental dev.) Marcus Linder
- 33. BUSINESS MODEL CANVAS • Language for internal communication – avoid misunderstandings • Template to remember relevant business guesses to work through • Emotional help to focus on ”what we don’t know” – rather than what we have data on www.viktoria.se Marcus Linder
- 34. Guess! www.viktoria.se Guess! Guess! Guess! Guess! Guess! Guess! Guess! Guess! STARTING POINT: Marcus Linder
- 35. GOAL: Validated hypothesis www.viktoria.se Validated hypothesis Validated hypothesis Validated Validated hypothesis hypothesis Validated hypothesis Validated hypothesis Validated hypothesis Validated hypothesis Marcus Linder
- 36. 3 LAYERED BUSINESS MODEL www.viktoria.se Marcus Linder
- 37. DATA COLLECTION PHILOSOPHY A bias towards conversations Marcus Linder 44
- 39. WHY BIAS TOWARDS CONVERSATIONS? You don’t know precisely what and whom to ask • You can keep going even if you guessed wrong, less wasted effort (data) compared to surveys Guess-to-guess cycle time is a determinant of success • Tight cycles (testing few hyp) more cost effective than large (testing many) • Surveys are so cumbersome that you may get only one or two “large” shots! Conversations good at creating “insight” • Help you understand WHY a stakeholder thinks this or that way • Surprisingly powerful for (analytical) generalization • Increases chances of avoiding local optima and find global (less local) optima www.viktoria.se Marcus Linder
- 40. EMOTION = IMPORTANCE! www.viktoria.se Use a script – but be flexible! Try to get a conversation going! If customers show passion – follow them there and drill down! Marcus Linder
- 41. LOW FIDELITY PROTOTYPES www.viktoria.se Marcus Linder
- 42. PRODUCT-MARKET FIT When you present your idea, be most suspicious of ”yeah, that seems real nice”-type answers. (A prior need-based conversation helps with perspective.) www.viktoria.se Converse about this BEFORE you introduce your idea Value proposition Customer needs http://businessmodelalchemist.com/blog/2012/08/achieve-product-market-fit-with-our-brand-new-value-proposition-designer.html Marcus Linder
- 43. LOW FIDELITY PROTOTYPES TO AVOID FALSE NEGATIVES www.viktoria.se Marcus Linder
- 44. EMOTION = IMPORTANCE (As a first approximation) Marcus Linder 52
- 45. PAYMENT = VALIDATION (Later, but before building it properly) Marcus Linder 53
- 46. ECO-SYSTEMS 1. Business model concept 2. Search vs. execution 3. Systematic search 4. Eco-systems 5. Research projects
- 47. HOW TO SUCCEED AT INNOVATION Customer insight www.viktoria.se Operational excellence Marcus Linder
- 48. Missed: complementor insight – there was no carrot or stick for thousands of repair shops to quickly acquire tools and training. Plenty of good market research end customer insight On time, on spec. operational excellence www.viktoria.se Got large OEMs on board from start channel insight In Dec 2007, announced ”no further development” of PAX Launched in 1998 Marcus Linder
- 49. HOW TO SUCCEED AT INNOVATION www.viktoria.se Customer insight Operational excellence Value network operational excellence Value network insight Marcus Linder
- 50. RESEARCH PROJECTS 1. Business model concept 2. Search vs. execution 3. Systematic search 4. Eco-systems 5. Research projects
- 51. ROLES & IN-KIND Creating New Business is Hard Work! • Serious Business Model Validation ≈ 500-2000 hours • Too expensive to run completely by researchers! • (And wont work anyways…) Excellent in-kind task • Risk reduction focus facilitates motivation • Profit focus facilitates motivation www.viktoria.se Marcus Linder
- 52. RESEARCH OPPORTUNITIES Too-rare-to-study businesses • What are challenges of circular business models? • What are challenges of … Method development: • How can [particular method] be adapted to better suit development for… • …complex business eco-systems, Large established organizations, Non-profits, Particular offering type (multimodal transports, product-service systems, eco-innovation, www.viktoria.se …) Marcus Linder
- 53. THANK YOU FOR LISTENING 1. Business model concept 2. Search vs. execution 3. Systematic search 4. Eco-systems 5. Research projects www.viktoria.se Marcus Linder
Editor's Notes
- BM Concept: History & current use Search/execute: Preserving and coexisting with the performance engine Search: Customer development (focus), The other side, Lean startup, Sarasvathy Ecosystems: The wide lens, hold up problems, complements, network effects Reseach: In kind – opportunity and necessity; adaption of tools to corporations;
- But due to network effects inherent to terminology, there could only be one winner
- Specific firm. My addition: specific value proposition.
- Infrastructure side vs customer side, financial side When BMI – we are typically more comfortable in the infrastructure side More data = feel competent But usually the most important deal killer assumptions are on the right hand side. Even there, easy to fall in trap of talking about existing customer data.
- So BM is not obviously best concept to talk about and describe complex systems of actors. Other concepts might be supply chains, value chains, business eco-systems, product-service systems, value networks,
- Razor and blade – subsidy platform, profit from consumables Freemium – attract users and build network effects through free offering, profit from add-on features
- Duncan (1976). The ambidextrous organization: Designing dual structures for innovation. Killman, R. H., L. R. Pondy, and D. Sleven (eds.) The Management of Organization. New York: North Holland. 167-188. March (1991) Exploration and Exploitation in Organizational Learning, Organizational Science, vol 2 no 1, pp 71-87 Tushman & O’Reilly (1996). Ambidextrous organizations: Managing evolutionary and revolutionary change. California Management Review, 38, 8-30.
- The point was a service to coordinate collective action. Aimed at employees, parents, citizens AND consumers. Around 2008 they realized demand was enormous for consumer collective action. During early stages of GroupOn, everything was handled manually (inkl. emails). They were searching for the kind of deals and ways to attract consumers that would work. Today, it is about execution. Around 1-2 of 10 discontinuous innovation projects fail. Same number for VC backed startups.
- Stulen från Henrik Berglund
- Stulen från Henrik Berglund
- Stulen från Henrik Berglund
- WebVan: How do we get started the not-so-price sensitive customers? Boo.com: How many people has the computer/broadband to run our service? Coke: Do people really optimize only on taste? Online ”credit and delivery” grocery business. Bankrupt in 2001. Raised ca 1 billion USD (ca 10 miljarder SEK). Reasons: Too fast scaling. Didn’t get the first city profitable, but expanded to other cities = burn rate! Positioning as mass market, price sensitive customers – lost money on many customers Super complicated infrastructure created high costs What they should have done: Get the profit logic working on a smale scale (find right customers, pricing, do it all manually), and only then invest in infrastructure and new cities.
- Customer development helps with: What hypotheses to state What order to test them (prioritize) Tips & tricks about how to test tem Phases so that you can iterate efficiently (iterate only within part of the business idea to increase speed)
- Etablerad affär: Exekvera effektivt enligt plan Ny affär: Exekvera effektivt sökande efter plan Affärsplan för ny affär är ofta meningslösa gissningar Behövs: strukturerat sätt att göra gissningar till fakta
- The trick is do reach this quickly and cheaply You do that by discovering where you were wrong quickly and cheaply – i.e. without actually launching the new business And by using what you learn to develop better guesses
- Natural tendency is to focus effort where data is more available. For very new ideas, that tends to be around technology and costs. We might also like focus on current customer data. And to discuss data makes us feel competent and comfortable.
- Art – not science – Mats & Thomas are good
- Precisely what to ask E.g. guessed customer needs and segment are likely to be wrong/to change a few times between original idea and verified idea. Cycle time Testing channel assumptions/partner network assumptions/product attractiveness/… before verifying customer needs is a waste of time and money Insight
- Jeff Hawking, PalmPilot Nick Swinmurn in 1999, Zappos
- Skillnad mellan pains & gains är upplevd, ej objektiv, men väldigt viktig! (cf. Kahneman).
- Jeff Hawking, PalmPilot Nick Swinmurn in 1999, Zappos
- Previous flat-run tires required stiff walls bumpy ride. PAX has support by additional polymer ring. Bonus: assymetric wheel/tire design prevents flat tire from falling off (at speed!). Launched in 2000. End customer insight – plenty of market research Of course operational excellence – on time, on spec. Channel insight – early got OEMs on board Missed: complementors insight – there was no carrot or stick for thousands of repair shops to quickly acquire tools and training. Result: end customers who paid extra to avoid worry about flat tires got more trouble if they had a flat tire… However, the PAX system is, by all accounts, still doing well in military applications. Where the customer controls the service shops…
- If your value proposition is dependent on many independent developments, the chance that all will be on time/good enough is the probability of each multiplied. You might end up racing fast and well just to stand and wait at the red light (while competitors catch up). If your value proposition can fail because of one business actors out of many, you need to consider the incentives to adopt the innovation for each actor carefully. End customer adoption will be determined not by some average of business efforts, but by the least incentivized actors efforts. In PAX case: repair shops lacked incentives for the shift – a chicken and egg problem. How to resolve? 1. Launch the simplest possible ecosystem (VP+complementors) first. 2. Actor with most to gain takes leadership role and provides carrots to least incentivized – possible at a relative loss. In UC case: key component suppliers lacked incentives to change their offerings – would result in less sales/higher costs. UC could not take leadership role (incenitivize them) because of lack of scale. (Asset specificity may lead to bargaining and hold-up problems.)
- BM Concept: History & current use Search/execute: Preserving and coexisting with the performance engine Search: Customer development (focus), The other side, Lean startup, Sarasvathy Ecosystems: The wide lens, hold up problems, complements, network effects Reseach: In kind – opportunity and necessity; adaption of tools to corporations;