Dr Changer Velu outlines the importance of business model innovation following the adoption of new digital technologies as the basis for productivity improvements.

1. Chander Velu
IfM Briefing Day 2017
Business Model Innovation

2. Contents
• The productivity paradox
• New production technologies and business model innovation
• Business Model Innovation Research Group

3. Productivity growth has been declining in
the UK
Productivity and output in the UK, France and Germany, compared to the US
Source: Building Our Industrial Strategy Green Paper, January 2017
AsapercentageoftheUSA(USA=100)

4. The last decade has seen the most
dramatic decline in the UK
Source: The Conference Board, 2017
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
1956-65 1966-75 1976-85 1986-95 1996-2005 2006-2015
PercentageChange(%)
Years in Decades
Average Annual Growth of
Labour Productivity per hour worked

5. TFP growth in the UK has declined in the
last decade
Source: The Conference Board, 2017
(0.40)
(0.30)
(0.20)
(0.10)
-
0.10
0.20
0.30
0.40
1996-2005 2006-2015
PercentageChange(%)
Years in Decades
Annual Average Growth of Total Factor Productivity

6. Reasons for the productivity paradox
• Skills mismatch due to changes in product market structures
• Slowdown in technological diffusion across firms
• Legacy of financial crisis
• Mismeasurement due to digital economy
• Lack of business model innovation

7. Business models are the ‘BRIDGE’
between technology and the market
Technologies
Markets
Business Models
The system for value creation
and value capture
Knowledge of natural
phenomena and harnessing this
for a particular useful purpose
Institutions and social relations to
enables parties to engage in an
exchange
Source: Velu, C; BMI Research Programme (2017)

8. ICT intensive sectors contributed most to
slowdown in productivity
Source: van Ark, International Productivity Monitor, 2016

9. Productivity improvements were slow
following the adoption of electric motors
Source: David, P.A. (1990). The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox,
American Economic Review Papers and Proceedings, 80(2), 355-361.
Alternating Current power plant at the Westinghouse Electric & Mfg Co. exhibit at the
1893 World's Fair in Chicago.

10. Economics of new production technologies
Internet of ThingsAdditive Manufacturing
Reduction in transactions costs (e.g., information asymmetry)
resulting in decentralised collaborative organisation
Distributed manufacturing
enabling smaller (and micro-scale) manufacture closer to the end user
Distributed Ledger Technology

11. New business models with
Distributed Manufacturing
Smart appliance reports faulty part
License IP for spare parts
3D printed parts
replaced
and verified
2 million tons of waste E&EE
Warranty costs 2-10% sales ~ £12 billion
Long waiting times for customer
Large spare-parts holding
Paper warranty
Spare parts
Repair
Spare parts
Repair
Appliance

12. New business models and productivity
Organisational Entity
• OEM
• Retailer
• Bank/Finance Co
• 3D Parts Printer
Productivity Improvements
Reduced inventory of spare parts
Simplified warranty process
Efficient and timely payment
Timely parts replacement

13. Research and engagement
• Research
– Business model innovation frameworks (Sharing economy,
Industry 4.0, IP Commercialisation)
– Productivity measures at the firm level
– Economic implications of new technologies
• Courses and workshops through IfM ECS
• White Paper on Business Model Innovation

14. Chander Velu
c.velu@eng.cam.ac.uk
Thank you
Business Model Innovation
Research Group