Business Model Innovation


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A discussion of the importance of business model innovation.

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Business Model Innovation

  1. 1. Business Model Innovation<br />25 May 2010<br />Enterprise Connect Forum 2010<br />Dr Tim Kastelle<br />
  2. 2. Definition<br />A business model articulates the logic and provides data and other evidence that demonstrates how a business creates and delivers value to customers.<br />David Teece, Long Range Planning (forthcoming)<br />
  3. 3. Business Model Innovation – Critical but Overlooked<br />Source: Open Innovation by Henry Chesbrough<br />
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  5. 5. Source: Alex Osterwalder,<br />
  6. 6. Source: Johnson, Christensen & Kagermann, <br />Harvard Business Review, December 2008<br />
  7. 7. Source: Boston Consulting Group: Business Model Innovation: When the Game Gets Tough, Change the Game<br />
  8. 8. Business Model Issues<br />Every organisation/product has a business model, even if it’s not articulated<br />The same innovation will perform differently within different business models<br />The success of business models determines the dominant logic of the firm<br />This dominant logic can constrain future innovative possibilities – firms usually re-use a successful business model<br />
  9. 9. Business Model Innovations in Copying<br />1950s – copies made by mimeograph or dry thermal processes – very poor quality, hard to archive<br />Equipment was inexpensive, money was made on supplies<br />90% of machines made < 100 copies per month<br />
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  11. 11. The Arrival of Xerox<br />Invention of xerography – much higher quality, longer lasting (Chester Carlson files patent in 1937)<br />Haloid Corp buys patent, sells first Xerox machine in 1950<br />Problem: Xerox machines six times more expensive than competitive technology, cost per copy about the same<br />Kodak, GE, IBM and Arthur D. Little Consultants all concluded there was no market for Xerox machines<br />
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  13. 13. The New Business Model<br />High volume users<br />Lease machines instead of selling them, includes 2000 copies per month, customers pay extra for all further copies<br />Improved quality and convenience led to average user making 2000 copies per day!<br />The more copies made, the more money Xerox makes<br />
  14. 14. Dominant Logic of Xerox<br />More copies are better<br />New product innovations must lead to higher volume<br />Duplexing<br />Collating<br />Stapling<br />Copies per minute<br />
  15. 15. The State of Play by the1970s<br />Xerox and Kodak dominate the market, selling nothing but high volume machines<br />Sales are made by internal sales force, service performed by internal service teams<br />Cost of equipment very high (no more leasing)<br />Small volume users either use older methods or go to copy centres<br />
  16. 16. Another New Business Model<br />Cheap copiers, no features<br />Very high cost per copy, mediocre technology<br />Copiers sold through office supply stores<br />Sales and service outsourced<br />
  17. 17. Competing Business Models<br />
  18. 18. New Business Models for Disruptive Innovation<br />Choose a market segment whose needs are not being met<br />Focus on this segment, build competencies, increase skills<br />Use new competencies to expand into more profitable parts of the value chain or better market segments<br />Compete against large incumbents by changing the experience curve<br />Photocopiers - Xerox Market Share:<br />1975: 75%<br />1980: 42%<br />1985: 35%<br />Who has the big market share now? Canon and Ricoh<br />
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  25. 25. Summary<br />Everyone has a business model<br />We often don’t give them much thought<br />Business models are the key method for articulating value creation (and profit!)<br />Business model innovation is an option for everyone<br />
  26. 26. Resources<br />Open Innovation and Open Business Models by Henry Chesbrough<br />Seizing the White Space by Mark Johnson<br /><br /><br /><br /><br />Upcoming Issue of Long Range Planning<br />
  27. 27. Thank you!<br /><br />