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1. BUSINESS MODEL INNOVATION
Presented By…..
Radha Rani
M. S. Ramaiah Institute of Management

2. Business Innovation
Definition :
Business innovation involves a wide spectrum of original
concepts, including development of new ways of doing
business, new business models, business application of
technology and communications, new management
techniques, environmental efficiency, new forms of
stakeholder participation, telecommunication, transport
and finance.

3. Business Innovation & Growth Strategies

4. Types of Innovation
Competence Enhancing Vs. Destroying Innovation:
 Competence enhancing innovation builds on existing
knowledge & skills.
 Whether an innovation is competence enhancing or
competence destroying depends on whose perspective
is being taken.
 An innovation can be competence enhancing to one
firm, while competence destroying for another.

5. Types of Innovation…
Architectural Innovation Vs. Component Innovation :
 Architectural innovation is an innovation that changes the
overall design of a system or the way its components
interact with each other.
 Component innovation is an innovation to one or more
components that does not significantly affect the overall
configuration of the system.

6. Types of Innovation…
Radical Vs. Incremental :
 Incremental innovations take the existing product or offering and
make small- step improvements to the original technology and
design. Incremental improvements add up to produce a great deal
of chance in an offering over time.
 Radical innovations can create an essentially different kind of
product or offering with a new combination of types of value
produced. The new products and services would require
customers to radically change there past behavior with the
promise of gaining equally dramatically new value. They are
disruptive technologies that permit entire industries and markets
to transform or even disappear.

7. Types of Innovation…
Technical vs. Social Innovations:
 Innovation does not have to be technical does not
indeed have to be a “thing” altogether.
 Management, that is the “useful knowledge” that
enables man for the first time to render productive
people of different skills & knowledge working together
in an “organization” is an innovation of the 19th century.

8. Business Model Innovation
 Business Model Innovation (BMI) refers to the
creation, or reinvention, of a business itself.
 A Business Model Innovation results in an entirely
different type of company that competes not only on the
value proposition of its offerings, but aligns its profit
formula, resources and processes to enhance that value
proposition, capture new market segments and alienate
competitors.

9.  Business model innovation rests not in the technology
or product or service, but in the business model itself.
 Business model is a broad-stroke picture of how an
innovative concept will create economic value for the
ultimate user, for the firm and its shareholders and
partners.
 It considers the infrastructure required to move the
product/service to the market in a manner that it is
both easy and convenient for customers and profitable
for the firm.

10. Evolution of Business Model
Innovation (BMI) Theory
The BMI concept was explored by :
 Clayton Christensen, a Professor at the
Harvard Business School
 Mark Johnson of Innosight, and
 Henning Kagermann of SAP in their feature
article “Reinventing Your Business Model”
published in December 2008 Harvard Business
Review.

11. Role of BMI
 Business Model Innovation is needed as one of the
core elements of a successful market disruption.
 First, a simplifying technology is needed to spark the
disruption, a new business model is then needed to
maximize the reach of the technology and a
comprehensive value network must finally evolve to
support it.

12. Key Principles of BMI Theory
 According to their construct, a business model
consists of four interlocking elements that, taken
together, create and deliver value.
 Innovation can occur in one or more of these
areas simultaneously :
Customer Value Proposition
Profit Formula
Key Resources
Key Processes

13. Customer Value Proposition
 A successful company is one that has found a way to
create value for customers — i.e. a way to help customers
get an important job done. By job we mean a fundamental
problem, in a given situation, that needs a solution.
 The best customer value proposition is an offering that
gets that job–and only that job–done perfectly. The lower
the price of the offering and the better the match between
the offering and the job, the greater the overall value
generated for the customer.
 The more important the job is to the customer, the lower
the level of customer satisfaction with current options, and
the better your solution is than your competitors’ at getting
the job done, the greater the value for your company.

14. Profit Formula
 The profit formula is the blueprint that defines how
the company creates value for itself.
 It consists of the following:
 Revenue model Price × Volume
 Cost structure Assets; direct and indirect costs;
and a model of how, and whether, scale affects costs
 Margin model How much does each transaction
need to net to cover the cost structure and deliver target
profits?
 Resource velocity How much revenue do we need to
generate per dollar of assets and per dollar of fixed costs,
and how quickly?

15. Key Resources
 The key resources (or assets) are the people,
technology, products, facilities, equipment and
brand required to deliver the value proposition
to the targeted customer.
 The focus here is on the key elements that
create value for the customer and company, and
the way those elements interact.
 Every company also has generic resources that
do not create competitive differentiation.

16. Key Processes
 Successful companies have operational and
managerial processes that allow them to deliver
value in a way they can successfully repeat and
increase in scale.
 These may include such recurrent tasks as
training, development, manufacturing,
budgeting, planning, sales and service.
 Key processes also include a company’s rules,
metrics and norms.

17. Business Model Innovation Cycle

18. 1. Environmental Framing
 The first step to business model innovation is
building a multi-disciplinary “business model
innovation team” with people from business,
process, technology, customer segments, Design,
R&D, HR...
 Get the team to understand the business model
environment (Social, Legal, Competitive and
Technological Landscape). Then frame the business
model design space.

19. 2. Business Model Innovation
 Within this design space the team can start generating different
business model prototypes. One example can be a Metamodel
with 9 business model building blocks that can help describe
business models.
 This can serve as a basis for iterative business model design
thinking and innovation.
 The team and a number of designated executives can then
select one or several of the business model prototypes for
implementation and testing.
 If several business models are selected this is called a
business model portfolio that can be like in the financial
world (portfolio management with risks, returns and
investments...)

20. 3. Organizational Designs
 Based on the business model portfolio the company
should reflect on how to best translate the models into
business units and business processes, called as
organizational design.
 The underlying Information Systems are designed to
support the implementation of the selected business
models (e.g. e-business systems, balanced scorecards,
data mining, etc.)
 Then the right people have to be brought in to
implement the design, the business processes and the
supporting technologies.

21. 4. Business Model Implementation
 Business Model Implementation involves
transforming models (business model, organizational
model, process model, information systems model)
into reality.
 After securing the external (e.g. venture capital) or
internal (e.g. budgets) financial funding the business
has to be built and run.
 The process doesn't end here! Business model
innovation is a continuous and iterative process that
ends with a business model (portfolio) evaluation and
re-starts with the framing of the changing business
environment - even for successful business models...

22. Types of Business Model Innovation
Three main types of business model innovations,
which can be used alone or in combination :
 Industry Models
 Revenue Models
 Enterprise Models

24.  All three types (or combinations) of business
model innovation can lead to successful financial
results.
 There is no significant variation in financial
performance across the different types of business
model innovation.
 With a sound strategy and strong execution, any
of the paths can lead to success.
 The best business model innovation strategies
provide a strong fit between the competitive
landscape for a particular industry and the
organization's strengths, shortcomings and
characteristics such as age and size.

25.  Because of its prevalence as a successful
innovation strategy, Enterprise Model
Innovation, emphasizing collaboration and
partnerships, should be a key consideration for
executives as they respond to change.

26. Financial Crisis - An Opportunity for
Business Model Innovation?
 Business model innovation is difficult to achieve because :
 It affects so many parts of an organization
 It needs the buy-in of so many different people.
 It requires the right organizational structures & sense of
urgency to make it happen.
 All these conditions are easier to achieve during an
economic downturn.
 People resist change much less when the survival of their
company and ultimately their jobs are at stake.
 Most people resist change in good times.
 This is the best opportunity a company will get to position
itself for the future of business model innovation.

27. Characteristics of an organization that
wants BMI
 Its board explicitly gives the management the
mandate to continuously examine business model
innovation.
 It extensively works with multidisciplinary teams
across "departments" and across hierarchies.
 It has mechanisms that allow innovative business
model ideas to be evaluated by peers during a first
phase, rather than "just by managers”.

28. Cont…
 It involves the customer in the process of business
model innovation.
 It maintains a portfolio of innovative business models
that may even cannibalize the existing business
model.
 It has the right physical space in place to allow
multidisciplinary business model project teams to
flourish. In other words, it has project/war rooms
dedicated to a project during it's entire duration and
with lots of whiteboards and walls to post visuals.

29. Five strategic circumstances fueling Business
Model Innovation
1. The opportunity to address the needs of large groups of
potential customers who are shut out of a market entirely
because existing solutions are too expensive or complicated for
them. This includes the opportunity to democratize products in
emerging markets (or reach the bottom of the pyramid).
2. The opportunity to leverage a brand-new technology, wrapping
the right business model around it or the opportunity to leverage
a tested technology in a whole new market.

30. Cont…
3. The opportunity to bring a job-to-be-done focus to a marketing-
driven industry. Such industries tend to make offerings into
commodities. But a jobs focus allows companies to redefine the
industry profit formula.
4. The need to fend off low-end disruptors. If Tata’s 1 Lakh
($2300) Nano is successful, it will threaten other automobile
makers.
5. The need to respond to a shifting basis of competition.
Inevitably, what defines an acceptable solution in a market will
change over time, leading core market segments to commoditize.

31. Examples of BMI where the business
model is the core value proposition
 Tata–Tata Nano 1 Lakh ($2300) city car
 Apple–iTunes Store + iPod
 WalMart–Discount retailing
 Hilti–Power tools leasing/subscription
 FedEx–Guaranteed overnight delivery
 Southwest–Low-cost regional air travel

32.  Current Success - It prevents companies from
asking themselves how their business model could
be replaced.
 Risk Avoidance - People are often unwilling to
take risks on a personal level, but also as an
organization. It is easier to stick with the status
quo.
 Organizational Structures - Because they are
not designed for new business models to emerge.
They sustain the status quo.
Obstacles to Business Model Innovation

33. Obstacles to BMI…
 Lack of customer understanding - Of course
organizations understand their customers, but
not good enough to design new business models
that address their emerging needs.
 Required size of innovations - In big
companies a potential new business model must
immediately demonstrate an opportunity of
millions of additional revenue.