Business model innovation

1. Objectives
•To develop and understanding of
business models and business model
innovation
•To position business model innovation
against core principles of the linear
rational process model
• To complete discussion of strategy in an
ideas lens

2. Revisiting stuck in the middle
• Blue ocean strategy often about playing off the
dichotomy between cost leadership and
differentiation.
• Especially with digital business models.
• Position in the ecosystem just as an important
competitive factor.
• Problems remain with value capture mechanisms.
• System to system competition rather than firm to firm.
• Value capture in systems of extreme importance and
causal ambiguity.

3. Revisiting industry analysis
• The 6th force, complimentors is key, technological
complementarity in the ecosystem, not in the firm, which
facilitates business model innovation
• Substitution may not come from within the industry but from
others, disruptive technologies/value becomes the
risk/opportunity. Barriers to entry are a myth if a firm never
enters that industry.
• Disruption may not come from breakthrough innovation but
recombinations of existing technologies ‘between’
industries.
• The intensity of competition may be irrelevant if blue oceans
exist and are exploited. Avoid the fight, and win.

4. Revisiting environmental analysis
• The distinction between inside and outside is blurring, opportunities might be
created as well as identified externally.
• The linear process of strategy increasingly inadequate due to the speed of
disruption and innovation.
• The basics stack up but can lead to myopic focus on the boundaries of analysis
used in the past: definition of market and industry need to be clear in order to
know in order to look beyond them
• Position in an ecosystem an essential new element in an analysis
• The need sometimes to share core competences with competitors to maintain
ecosystem centrality
• Dynamic capabilities are key
• The importance of identifying rules based norms - the rules of the game - so that
they can be broken

5. Revisiting strategic group analysis
• Closest competing concept, possibly an extension of the
concept
• Strategic group analysis relies on some medium term
spatial and temporal fixity in the underlying conditions of
competition.
• Business models deal better with competitive complexity
rather than two or three axes of competitive factors.

6. Revisiting strategic planning
• Subsumes concepts of markets and products/services,
portfolio analysis into the value proposition concept
• Subsumes generic strategies in terms of value capture
mechanisms
• Constant evolution in the value proposition rather than
periods of planning and implementation

7. PAUSE
•And watch the video clip on Mark
Zuckerberg (1 min)

8. Business models: definitions and meanings
• “The content, structure, and governance of transactions designed so as
to create value” (Amit and Zott 2001, p. 511).
• Business models guide the interaction of actors with other actors and
resources (Storbacka and Nenonen, 2011).
• Business models enable collective actors to form [new] shared
understandings, (Doganova and Eyquem-Renault, 2009).
• A way of communicating the strategy of a business (Coombes and
Nicholson, 2013.
Amit, R., & Zott, C. (2001). Value creation in e-business. Strategic Management Journal, 22(6-7), 493-520.
Storbacka, K., & Nenonen, S. (2011). Scripting markets: From value propositions to market propositions. Industrial Marketing
Management, 40(2), 255-266.
Doganova, L., & Eyquem-Renault, M. (2009). What do business models do? Innovation devices in technology entrepreneurship.
Research Policy, 38(10), 1559-1570.
Coombes, P.H., & Nicholson, J.D. (2013). Business models and their relationship with marketing: a systematic literature review.
Industrial Marketing Management, 42(5), 656-664.

9. Put another way. A business model is:
• Everything it takes to make something:
design, raw materials, manufacturing, labour,
skills, competences and so on.
• Everything it takes to sell that thing:
marketing, distribution, delivering a service,
and processing the sale.
• How and what the customer pays: pricing
strategy, payment methods, payment timing,
and so on.

10. Elements of business models
• Details the revenue capturing mechanism(s) by which
the firm will be paid for the offering;
• Estimates the cost structure and profit potential (given
value proposition and value chain structure);
• Describes the position of the firm within the value
network or ecosystem linking suppliers and
customers (incl. identifying potential complementors
and competitors)
• Formulates the competitive strategy by which the
innovating firm will gain and hold advantage over
rivals.

11. Critique: Is it just a value chain analysis by another
name?
Distribution
And
Outbound
Logistics
Operations
Purchased
Supplies
and
Inbound
Logistics
Sales and
Marketing
Service
Profit
Margin
Product R&D, Technology, Systems Development
Human Resources Management
General Administration
Primary Activities and Costs
Support
Activities
and Costs

12. Osterwalder, A. (2013). A better way to think about your business model.
Harvard Business Review, 6.

13. Business model innovation
• Product innovation (Ansoff)
• Market extension (Ansoff)
• Process innovation
• Business model innovation?
 Key drivers:
 Digitization
 Servitization
 The internet of things

14. Business model innovation (BMI)
• The impact of business model thinking, particularly business model
innovation (BMI), goes beyond the traditional concepts of business change.
• Business modelling is an activity or process designed to strategize the use
of business models.
• Hence, business model innovation, as a result of business modelling, is an
activity – the management of the creation of a business model that
challenges the competitive dynamics of a sector… or change of the
business model
• As relevant to discuss the defence of dominant positions by leaders against
disruptive business models.
• Small firms often presented with no win scenarios due to conditions
established by incumbents.
IFM White paper on Business model innovation
See unilearn

15. PAUSE
•And watch the video on
business model innovation
(8mins)

16. Servitization and solutions business models
• The innovation of organization's capabilities and processes to
better create mutual value through a shift from selling product to
selling Product-Service Systems.
• Two other definitions accompany this:
• (i) the idea of a product-service system - "an integrated product
and service offering that delivers value in use" and
• (ii) a "servitized organization which designs, builds and delivers
an integrated product and service offering that delivers value in
use".
• Solutions providers….
Neely, A. (2008). Exploring the financial consequences of the servitization of
manufacturing. Operations Management Research, 1(2), 103-118.

17. Servitization

18. IBM
https://revenuesandprofits.com/how-ibm-makes-money/