Business Models point of view in Innovation Management

Transcription

1 Business Models point of view in Innovation Management TU-E5050 Collaborative Innovation Management COINNO (5 cr) Pekka Berg Hani Tarabichi Innovation Management Institute Aalto University 16/04/2016 IMI 1

2 TOPICS OF THE DAY 9.00 Start of the Day Learnings from your Homework Lecture 1: Offering/ Lusch and Vargo s service dominant logic Analysis of the pre-readings in the teams Outcome of the team discussions Lecture 2: Gassmann s Business Models Analysis of the pre-readings in the teams Outcome of the team discussions Lunch Afternoon of the Day Lecture 3: LEGO Serious Play Intro for the Homework Working for the COINNO corporate project dealing with the topic today Wrap-Up of the day End of the Day IMI 2

3 PreReadings 1. (Shafer et.al., 2005, The power of business models, Business Horizons 48, ) 2. O Gassmann, K Frankenberger, M Csik 2013, The St. Gallen Business Model Navigator, Working paper, bmi-lab.ch IMI 3

4 Readings (Voluntary) 1. Sundbo, J., Management of Innovation in Services. 2. Edvardsson, B. et.al Customer integration within service development A review of methods and an analysis of insitu and exsitu contributions. Technovation 32 (2012) Osterwalder, A. & Pigneur, Y Clarifying Business Models: Origins, Present, and Future of the Concept. 4. Chesbrough, 2007, Business model innovation: it s not just about technology anymore, Strategy & leadership, vol. 35 no , pp , Q Emerald Group Publishing Limited, ISSN Amit, Zott, 2012, Creating Value Through Business Model Innovation, MIT Sloan Management Review. 6. Mabogunje, A., Kyvsgaard Hansen, P., Berg, P Exploring Innovation A Language Approach. CO-CREATE Conference, Espoo, June Snowden et.al., 2007, A Leader s Framework for Decision Making, Harward Business Review, November 2007 IMI 4

5 Contents 1. Business Model approach 1. Introduction 2. Business Model by Shafer 3. Business Model by Gassmann 2. Teamwork 3. Homework 16/04/2016 IMI 5

6 Business Model between Offering and Impacts

7 Souce: Yrjö Neuvo, TEKES Seminar /04/2016 IMI 7

8

9 Components of Business Model (Osterwalder) Infrastructure management Product Customer interface Partner Network Customer Relationship Core Capabilities Value Configuration Value Proposition Distribution Channel Customer Segment Cost Structure Success/ Failure Revenue Streams Financial aspects 16/04/2016 IMI 9

10 What other business model frames do you know beyond Osterwalder?

11 TU-E Innovation and Project Management Business Models, Offerings and Impact Hani Tarabichi 11

12 Business.What is the SPIRIT for it!!?? Create Value Build New Business Improve and transforms organizations Innovative way of thinking Visionary Game changer Challenge driven

13 A?!

14

15 WhatsApp!! Feb 2014 Revenues $20 Millions Acquired by Facebook $19 Billions WhatsApp with that!!?

16 Many firms continuously introduce innovations to their products and processes. Yet, many companies will not survive in the long term despite their product innovation capabilities???!! These companies has failed to adapt their BM to the changing environment The future is for competitions between business models, Not between technologies and products.

17

18

19 Why companies fail to develop a breakthrough strategies? Cultural inertia and unwillingness to change a winning formula Contentment and complacency Processes and structures that become rigid and unyielding Strong and unquestioned beliefs and corporate sacred cows Conservatism and fear of losing the current profit stream Strong vested interests and politicking Managerial overconfidence or arrogance Unyielding habits and company norms Overreliance on what has worked in the past Passive and uncritical thinking and quick dismissal of information that conflicts with current view Stubbornness and a passionate but unreflective reliance on past processes, habits, and values 19

20 So.What s up with business models?? Business models have surged into the management vocabulary It has become quite fashionable to discuss business models Business models can serve a positive and powerful role in corporate management Interest in the BM concept from a wide range of disciplines

21 So.What s up with business models?? Business models can be powerful tools for: Analyzing Implementing communicating strategic choices In the mid-1990s, dot-com firms pitched business models to attract funding 27% of Fortune 500 firms used the term BM in their 2001 annual reports Media have certainly gotten on board also. Within major magazines and journals, only one article in 1990 used the term business model three times or more; by 2000, well over 500 articles fell into that category.

22 So.What s up with business models?? Business model can be defined as a unit of analysis to describe how the business of a firm works. Business model is often depicted as an overarching concept that takes notice of the different components a business is constituted of and puts them together as a whole (Demil and Lecocq 2010; Osterwalder and Pigneur, 2010). In other words, business models describe how the magic of a business works based on its individual bits and pieces.

23 What is a Business Model A Business Model describes the rationale how an organization creates, delivers and captures value. Source: Alexander Osterwalder and Yves Pigneur, 2010

24 What is a Business Model Business concept must be: Simple Relevant Understandable A business model is built on 9/?? blocks covering 4 areas: Customer Offers Infrastructure Financial viability

25 Rationale behind the Business Model Canvas (BMC) There is a need for a shared concept that everybody understands enabling description and commensurate discussion about business model(s) Model must be simple, relevant & intuitively understandable, but not oversimplifying the complexities of how an enterprise function. Differentiating business model from other concepts, such as a revenue model, strategy etc.

26 Rationale behind the Business Model Canvas (BMC) BMC tool describes any business model with 9/?? building blocks indicating the logic how company intends to make money (Value) Covers four main areas of business: Customers, offering, infrastructure, and financial viability To describe, analyze, design and validate any business model A blueprint for a strategy to be implemented through organizational structures, processes, and systems

27 So a quick recap =? OK?? = 10 X + Y = 10 What are the possibilities? =? > 3 now that s innovation management, be radical 27

28 Business is fundamentally concerned with creating value and capturing returns from that value, and a model is simply a representation of reality a firm s underlying core logic and strategic choices for creating and capturing value within a value network core logic: suggests that a properly crafted business model helps articulate and make explicit key assumptions about cause-and-effect relationships and the internal consistency of strategic choices business model reflects the strategic choices that have been made Successful firms create substantial value by doing things in ways that differentiate them from the competition

29 Value!! G-D Logic vs S-D Logic Value in exchange (G-D): Value is created in firm and distributed in market through exchange of goods for money. Roles of producers and consumers are distinct, value creation is a series of activities formed by the firm Value in use (S-D): roles of producer and consumer are not distinct. Value is co-created jointly and reciprocally. Value is created through interaction among providers and beneficiaries through integration of resources and application of competencies

30 Value Creation, Value Capture Can Value creation occurs alone!!!? Can value capture occurs alone!!? Hamel 2001, argues: neither value creation, nor value captures occurs in a vacuum! Both occur within a VALUE NETWORK Suppliers Partners Distribution channels Coalitions The role a firm chooses to play within its value network is an important element of BM 30

31 Value Creation, Value Capture

32 Components of BM according to Shafer et.al Strategic Create Value Value Network Capture Value Customer Value proposition Capabilities/compet encies Revenue/Pricing Competitors Output (offering) Strategy Branding Differentiation Mission Resource/Assets Processes/ Activities Suppliers Customer information Customer relationship Information flows Product/Service flow Cost Financial aspects Profits Adopted from: The power of business models, Scott M. Shafer, H. Jeff Smith, Jane C. Linder

33 Business Model.vs. Strategy!! A Business model is not a strategy Strategy can be viewed as a pattern of choices made over time! Strategy is a forward looking plan (Mintzberg), pattern, position, or perspective. Strategy is a position (Porter), choices about which products or services are offered in which markets based on differentiation features Strategy is a perspective (Drucker), choices about how business is conceptualized 33

34 Business Model.vs. Strategy!! A business model facilitates: Analysis Testing Validating firm s strategic choices 34

35 Problems of Business Models Misusing the business model concept can lead to problems Four common problems associated with creation and use of BMs: Flawed assumptions underlying the core logic Limitations in the strategic choices considered Misunderstandings about value creation and value capture Relying on flawed assumptions about the value network 35

36 Problems of Business Models 1/4 Flawed assumptions underlying the core logic: A firm moves into a danger zone if its business model s core logic is based on flawed or untested assumptions about the future Don t confuse assumptions with reality once a set of strategic choices has been made, the resulting business model be checked to ensure that implicit and explicit cause-and-effect relationships are wellgrounded as well as logical. 36

37 Problems of Business Models 2/4 Limitations in the strategic choices considered: A business model should address all of the firm s core logic for creating and capturing value, not just a portion of that logic Customer acquisition.vs. fulfilling orders (etoys) 37

38 Problems of Business Models 3/4 Misunderstandings about value creation and value capture: Tendency to focus so much on the value creation Organizations are unable to capture corresponding economic returns in relation to the value they create. (Yahoo!) Searches of the Web, accounts, stock quotes and other financial information, greeting cards, maps, driving direction.where is the money????? Executives confuse potential value with actual value 38

39 Problems of Business Models 4/4 Relying on flawed assumptions about the value network: A model mistakenly assumes that the existing value network will continue unchanged into the future Gas stations and supermarkets 39

40 Contents 1. Business Model approach 1. Introduction 2. Business Model by Shafer 3. Business Model by Gassmann 2. Teamwork 3. Homework 16/04/2016 IMI 40

41 PreReadings: O Gassmann, K Frankenberger, M Csik 2013, The St. Gallen Business Model Navigator, Working paper, bmi-lab.ch IMI 41

42 Business Model, Source: Gassmann et.al Discuss in your team about topics as follows of the paper: 1. Business model s four central dimensions: the Who, the What, the How, and the Value? 2. Research methodology? How they did this study? 3. Three steps pave the road to a new business model?

43 Business Model, Source: Gassmann et.al Discuss in your team about topics as follows of the paper: 1. Business model s four central dimensions: the Who, the What, the How, and the Value? 2. Research methodology? How they did this study? 3. Three steps pave the road to a new business model?

44 Business Model, Source: Gassmann et.al Discuss in your team about topics as follows of the paper: 1. Business model s four central dimensions: the Who, the What, the How, and the Value? 2. Research methodology? How they did this study? 3. Three steps pave the road to a new business model?

45 Business Model, Source: Gassmann et.al Discuss in your team about topics as follows of the paper: 1. Business model s four central dimensions: the Who, the What, the How, and the Value? 2. Research methodology? How they did this study? 3. Three steps pave the road to a new business model?

46 Business Model, Source: Gassmann et.al O Gassmann, K Frankenberger, M Csik The St. Gallen business model navigator- bmi-lab.ch

47 Business model definition the magic triangle Value?: The revenue model that captures the value The fourth dimension explains why the business model is financially viable; thus it relates to the revenue model. In essence, it unifies aspects such as, for example, the cost structure and the applied revenue mechanisms, and points to the elementary question of any firm, namely how to generate value What?: The value proposition towards the customer The second dimension describes what is offered to the target customer, or put differently, what the customer values. This notion is commonly referred to as the customer value proposition, or more simply, the value proposition. It can be defined as a holistic view of a company s bundle of products and services that are of value to the customer How?: The value chain behind the creation of this value To build and distribute the value proposition, a firm has to master several processes and activities. These processes and activities, along with the relevant resources and capabilities, plus their orchestration in the focal firm s internal value chain form the third dimension within the design of a new business model. Who?: The target customer Every business model serves a certain customer group. Thus, it should answer the question Who is the customer? Drawing on the argument that the failure to adequately define the market is a key factor associated with venture failure, we identify the definition of the target customer as one central dimension in designing a new business model. O Gassmann, K Frankenberger, M Csik The St. Gallen business model navigator- bmi-lab.ch

48 Barriers to innovation Why doesn't more companies just come up with a new business model and move into a blue ocean? It is because thinking outside the box is hard to do Mental barriers block the road towards innovative ideas 49

49 Oliver Gassmann, Karolin Frankenberger, Michaela Csik Identified 55 patterns of business models after studying hundreds of companies models from different industries applied in the past 25 years Only few phenomena are really new Often, innovations are slight variations of something that has existed elsewhere, in other industries, or in other geographical areas about 90 % of the innovations turned out to be such re-combinations of previously existing concepts 50

50 51

51 The St Gallen Business Model Navigator Transforms the main concept creating business model ideas by utilizing the power of recombination into a ready-to-use methodology, which has proven its usefulness in countless workshops and other formats 3 steps for a new business model: Initiation preparing the journey Ideation moving into new directions Integration completing the picture 52

52 The St Gallen Business Model Navigator Initiation preparing the journey 1/3 Before embarking on the journey towards new business models, it is important to define a starting point and rough direction. Describing the current business model, its value logic, and its interactions with the outside world is a good exercise for getting into the logic of business model thinking. It also builds a common understanding of why the current business model will need an overhaul, which factors endanger its future, or which opportunities cannot be exploited in the current business model. Investigating these woes and the predominant industry logic provides a rough direction according to which the generic business model patterns should be interpreted in step 2. 53

53 The St Gallen Business Model Navigator Ideation moving into new directions 2/3 Re-combining existing concepts is a powerful tool to break out of the box and generate ideas for new business models. To ease this process, we have condensed the 55 patterns of successful business models into a handy set of pattern cards. Each pattern card (see Fig. 28) contains the essential information that is needed to understand the concept behind the pattern: a title, a description of the general logic, and a concrete example of a company implementing the pattern in its business model. During the ideation stage, the level of information on the card is just right to trigger the creation of innovative ideas. 54

54 The St Gallen Business Model Navigator Integration completing the picture 3/3 There is no idea that is clear enough to be immediately implemented in a company. On the contrary, promising ideas need to be gradually elaborated into fullblown business models that describe all four dimensions (who? what? how? why?) and also consider stakeholders, new partners, and consequences for the market. 55

55 Remarks about BM An organization s business model is never complete as the process of making strategic choices and testing business models should be ongoing and iterative The probability of long-term success increases with the rigor and formality with which an organization tests its strategic options through business models 56

56 57

57

58

59

60

61

62

63

64

65

66

67 Contents 1. Business Model approach 1. Introduction 2. Business Model by Shafer 3. Business Model by Gassmann 2. Teamwork 3. Homework 16/04/2016 IMI 68

68 Homework 1 for / Corporate Case Illustrate Objectives of Your Case by Logical Areas and Logical Frame (see next two slides) 1. What is the vision of your industry project? 2. What is the nature of your project? 3. What are the hoped for impacts of your project? 4. What are the hoped for results of your project? 5. What are the next activities of your project? IMI 69

69 Logical areas of the of a project Logical Frame Strategies IMPACTS NATURE Business Intelligence VISION OF PROJECT FOCUS AREAS/ RESULTS Resources ACTIONS Input Analysis Goal setting Jussi Pihlajamaa, Pekka Berg / / IMI

70 LOGICAL FRAME: OBJECTIVES OF THE PROJECT Desired industry impacts of the project (WHY?) Desired immediate impacts of the project for the company (WHY?) Priority 1 Priority 2 Priority 3 Priority 4 Priority 1 Priority 2 Priority 3 Priority 4 Users of the outputs of the project (TO WHOM?) Target group Target group Target group Target group Focus 1 Focus 2 Focus 3 Focus 4 Focus areas/ Results of the project (subprojects) (WHAT?) Desired results by focus areas New knowledge, wisdom, products, services and methods Planned actions for realizing the outputs of project (HOW?) Priority 1 Priority 2 Priority 3 Priority 4 Jussi Pihlajamaa, Pekka Berg / / IMI

71 Homework 2 for : Offering and Business Model (see the next two slides) 1. Describe the (d)evolution (=innovation process) of your corporate case offering and business model based on this day learnings Your model in the starting point today What is the value proposition of your model? How do you create value in your model? How do you capture value in your model? Development of your model Utilise Radical Innovation Approach, if relevant Use Future Users thinking Use Service Dominant Logic thinking. Use the Gassmann s three-step imitation and re-combination -method and consider if some elements or ideas of the described 55 business models could be useful in your case. Extra, not mandatory How does your Offering and Business Model reflect the strategic choices and their operating implications of your Case company? Think also the change of the business model in next, 3? 5? 10 years? Be ready to present the status of your work in the beginning of the next lecture 16/04/2016 IMI 72

72 Good-Dominant logic versus Service-Dominant logic: A change of perspective Lusch R. and Vargo S., Toward a conceptual foundation for service science: Contributions from service-dominant logic, IBM SYSTEMS JOURNAL, VOL 47, NO 1, 2008

73 Business Model, Source: Gassmann et.al O Gassmann, K Frankenberger, M Csik The St. Gallen business model navigator- bmi-lab.

74 Homework 1. Don`t forget your Logical Frame Homework 2. Continue with your Offering and Business Model Homework. 3. Read the Pre-readings for the next lecture 4. Bring with you the background material supporting your team in the next lecture dealing with the more detailed conceptualisation and scenario building of your case (documents, information, thoughts, ) IMI 75

75 If something unclear don t hesitate to ask. Thank you! pekka.berg@aalto.fi /04/2016 IMI 76