Innovation Management Business Planning and Writing

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1 Innovation Management Business Planning and Writing Univ-Prof Dr-Ing Wolfgang Maass Chair in Economics Information and Service Systems (ISS) Saarland University, Saarbrücken, Germany SS 2012 Wednesdays, 10:00 12:00 am Room 021, B4 1

2 Lecture Agenda Innovation Management 1 Introduction 2 Knowledge Management (1) 3 Knowledge Management (2) 4 Guest Lecture 5 Strategic Innovation Management Case Study 6 New Product Development 7 Creativity Techniques 8 Planning Product Features 9 Experimentation Strategies (1) 10 Experimentation Strategies (2) 11 Open Innovation 12 Diffusion and Adoption of Innovation 13 Business Planning and Writing Univ-Prof Dr-Ing Wolfgang Maass Slide 2

3 Agenda Business Model Business Model Canvas Main Elements Building Blocks Customer Segments Value Propositions Channels Customer Relationships Revenue Streams Key Resources Key Activities Key Partnerships Cost Structure Transfer of Building Blocks to Business Model Canvas Business Model Design Process Univ-Prof Dr-Ing Wolfgang Maass

4 Business Models (Osterwalder, 2011) Univ-Prof Dr-Ing Wolfgang Maass Slide 4

Business Model Definition Business Model A business model describes the rationale of how an organization creates, delivers, and captures value

everyone People involved in business model are supposed to talk about the same things Facilitation of description and discussion regarding the business

5 Business Model Definition Business Model A business model describes the rationale of how an organization creates, delivers, and captures value (Osterwalder & Pigneur, 2010) Development of a business model tool by Osterwalder & Pigneur: Requirements regarding the tool: Easily understandable by everyone People involved in business model are supposed to talk about the same things Facilitation of description and discussion regarding the business model Simple and relevant concept, however no oversimplification of company s complexity (Osterwalder & Pigneur, 2010) Univ-Prof Dr-Ing Wolfgang Maass Slide 5

6 Business Model Canvas Main Elements Tool: Business Model Canvas Tool consists of nine building blocks of company s value creation and delivery Building blocks are transformed into a business map Resembles a painter s canvas Nine building blocks: 1 Customer segments 2 Value propositions 3 Channels 4 Customer relationship 5 Revenue streams 6 Key resources 7 Key activities 8 Key partnerships 9 Cost structure Compose four main areas of business Customers Offer Infrastructure Financial viability Customer Key Key relationships activities partner- Value ships proposition 8 Key resources Channels 9 5 Cost Revenue structure streams Univ-Prof Dr-Ing Wolfgang Maass (Osterwalder & Pigneur, 2010; Business Model Foundry 2011) Slide 6 Customer segments

7 Building Blocks Customer Segments 1 Customer segments Defines the different groups of people or organizations an enterprise aims to reach and serve Profitable customers are needed for long-term survival of company Customers can be grouped into segments to satisfy their needs in a better way Company needs to decide which segments to focus on Company does not need to serve all segments Customer s needs and customer segmentation: Basis for design of business model Question: For whom are we creating value? Customers belong to different segments, if they require different product offers because of different needs they are contacted via different distribution channels they need different kinds of relationships to the company their profitabilities are different their willingness-to-pay is different (Osterwalder & Pigneur, 2010; Business Model Foundry 2011) Univ-Prof Dr-Ing Wolfgang Maass Slide 7

Building Blocks Customer Segments Different types of business models according to customer segments (examples)

customers eg, consumer electronics sector (flat screen TV) Slightly differing segments Segments with only

Systems (micromechanical engineering solutions): focuses on watch and medical industry and industrial automation

communication are concentrated on small specific segment eg, supplier-buyer relationship (car part producer

Very different needs among segments eg, Amazon: Diversified retail business (particularly private customers) by

8 Building Blocks Customer Segments Different types of business models according to customer segments (examples) Mass market No segmentation Product is offered for one large group of consumers Similar needs among all customers eg, consumer electronics sector (flat screen TV) Slightly differing segments Segments with only slightly differing needs Products proposed to different segments are only slightly different eg, Micro Precision Systems (micromechanical engineering solutions): focuses on watch and medical industry and industrial automation sector Needs are only slightly different Niche market Focus on specialized customer groups Product and communication are concentrated on small specific segment eg, supplier-buyer relationship (car part producer dependent of large automobile manufacturer) Diversified Two or more completely unrelated segments are focused Very different needs among segments eg, Amazon: Diversified retail business (particularly private customers) by offering cloud computing services New customers are web companies (Osterwalder & Pigneur, 2010) Univ-Prof Dr-Ing Wolfgang Maass Slide 8

Building Blocks Value Propositions 2 Value propositions Bundle of products and services that create value for a specific customer segment Satisfies customer need or provides a

is sold to consumers Question: Which customer needs are we satisfying?

9 Building Blocks Value Propositions 2 Value propositions Bundle of products and services that create value for a specific customer segment Satisfies customer need or provides a solution to his problem Customers switch to another company if their value proposition is superior One value proposition is offered to one customer segment Bundle of benefits which is sold to consumers Question: Which customer needs are we satisfying? Values offered to customers can be quantitative or qualitative quantitative values: price of product, speed of service qualitative values: design of product, customer experience (Osterwalder & Pigneur, 2010; Business Model Foundry 2011) Univ-Prof Dr-Ing Wolfgang Maass Slide 9

Building Blocks Value Propositions Examples of elements that can create value to customers Newness Needs that were

Customization Products and services are tailored to needs and problems of individual consumers eg, mymuesli

Price Offering similar value at low price creates value to price-sensitive consumers Business model needs to be

to use than previous products can create value Offering convenience and high usability eg, Apple ipod and itunes

10 Building Blocks Value Propositions Examples of elements that can create value to customers Newness Needs that were unknown to customer are satisfied by value propositions No similar product was available previously eg, smartphones Customization Products and services are tailored to needs and problems of individual consumers eg, mymuesli Brand/Status Value is created by using or wearing a special brand eg, Rolex watch signifies wealth and high status Price Offering similar value at low price creates value to price-sensitive consumers Business model needs to be adopted (low costs) eg, car Nano of Indian manufacturer Tata Convenience/Usability Offering products that are easier to use than previous products can create value Offering convenience and high usability eg, Apple ipod and itunes (convenient search, downloading and listening to music) Univ-Prof Dr-Ing Wolfgang Maass Slide 10 (Osterwalder & Pigneur, 2010)

Building Blocks Channels 3 Channels Describes how a company communicates with and reaches its customer segments to deliver a value proposition Interface between customers and company: Communication,

post-purchase support Questions: Through which channels do our customer segments want to be reached? How are our channels integrated?

11 Building Blocks Channels 3 Channels Describes how a company communicates with and reaches its customer segments to deliver a value proposition Interface between customers and company: Communication, distribution and sales channels Functions of channels are eg, raising awareness regarding company s products delivery of value proposition to customers enable purchase of products and provision of post-purchase support Questions: Through which channels do our customer segments want to be reached? How are our channels integrated? Types of channels Direct, eg, Web site (Adidas online shop) Indirect, eg, Retail stores (Adidas store) Channels can be owned by the company or by a partner (Osterwalder & Pigneur, 2010; Business Model Foundry 2011) Univ-Prof Dr-Ing Wolfgang Maass Slide 11

Building Blocks Customer Relationships 4 Customer Relationships Describes the types of relationships a company establishes with

od relationship does each of our customer segments expect us to establish and maintain with them?

Example: Mobile network operators used to conduct aggressive acquisition strategies (including mobile phones free of charge)

12 Building Blocks Customer Relationships 4 Customer Relationships Describes the types of relationships a company establishes with specific customer segments Motivation for customer relationships, eg, acquisition or retention of customers Questions: What type od relationship does each of our customer segments expect us to establish and maintain with them? How are they integrated with the rest of our business model? Example: Mobile network operators used to conduct aggressive acquisition strategies (including mobile phones free of charge) regarding customer relationships Today, customer retention and increase of revenue per customer more important (Osterwalder & Pigneur, 2010; Business Model Foundry 2011) Univ-Prof Dr-Ing Wolfgang Maass Slide 12

Building Blocks Customer Relationships Examples: Categories of customer relationships Personal assistance Relationship based on human

Communities Online communities for exchange of knowledge among users and with company Help companies getting feedback from customers

offer information according to the customer previous orders eg, MeineBahnde offers personalized information on collected points of

13 Building Blocks Customer Relationships Examples: Categories of customer relationships Personal assistance Relationship based on human interaction Customer communicates directly with employee of company eg, support during sales process via call center or Communities Online communities for exchange of knowledge among users and with company Help companies getting feedback from customers Automated service Mix of customer self-service and automated processes Can recognize individual customers (eg, via online profile) and offer information according to the customer previous orders eg, MeineBahnde offers personalized information on collected points of frequent traveler program and possible awards eg, H&M online community (Osterwalder & Pigneur, 2010) Univ-Prof Dr-Ing Wolfgang Maass Slide 13

14 Building Blocks Revenue Streams 5 Revenue Streams Represent the cash a company generates from each customer segment Two different types of revenue streams in a business model: Transaction revenues (one-time customer payments) Recurring revenues (ongoing payments for eg, support after purchase) Questions: For what value are our customers really willing to pay? How would they prefer to pay? Ways to generate revenue streams, eg, Asset sale: Selling physical products (eg, Audi sells cars, Amazoncom sells books, consumer electronics among other things) Usage fee: Use of a service (eg, hotel charges customers for number of nights spent in the room) Subscription fee: Continuous access to a service (eg, World of Warcraft Online allows access to game at each time of the day for a monthly fee) Licensing: Permission to use protected intellectual property (eg, technology industries, patent holders sell right to use to other companies for a license fee (Osterwalder & Pigneur, 2010; Business Model Foundry 2011) Univ-Prof Dr-Ing Wolfgang Maass Slide 14

15 Building Blocks Revenue Streams Pricing mechanisms: for generating revenue streams, can be fixed or dynamic (Osterwalder & Pigneur, 2010) Univ-Prof Dr-Ing Wolfgang Maass Slide 15

Building Blocks Key Resources 6 Key Resources Describes most important assets required to make a business model work Type of key resources depend on business model eg, microchip manufacturer: needs

16 Building Blocks Key Resources 6 Key Resources Describes most important assets required to make a business model work Type of key resources depend on business model eg, microchip manufacturer: needs expensive production facilities microchip designer: needs especially human resources Question: What key resources do our value propositions, channels, customer relationships and revenue streams require? Categorization of key resources Physical: Assets (machines, buildings) eg, retailers need many physical resources (Globus: retail stores, Amazon: IT and warehouses) Intellectual: Brands, patents, customer databases eg, Nike: Brand is large resource Human: Needed especially in knowledge-intensive industries eg, Pharma company Novartis: Needs experienced scientists Financial: Cash, credit lines eg, Ericsson borrows funds from banks to provide vendor financing (Osterwalder & Pigneur, 2010; Business Model Foundry 2011) Univ-Prof Dr-Ing Wolfgang Maass Slide 16

Building Blocks Key Activities 7 Key Activities Describes most important things a company must do to make its business model work Most important actions

Key activity is problem solving Categorization of key activities Production: Designing, making and delivering of products dominates business model of

of consultancies and hospitals eg, hospitals need to find solutions to illnesses Platform/Network: Can be eg, a web site eg, Ebay: key activity is

17 Building Blocks Key Activities 7 Key Activities Describes most important things a company must do to make its business model work Most important actions of company to operate successfully Depend on business model PC manufacturer Dell: Key activity is supply chain management Consulting company McKinsey: Key activity is problem solving Categorization of key activities Production: Designing, making and delivering of products dominates business model of manufacturing companies eg, automotive companies (Audi, VW) Problem solving: Come up with new solutions to customer s problems dominates business model of consultancies and hospitals eg, hospitals need to find solutions to illnesses Platform/Network: Can be eg, a web site eg, Ebay: key activity is maintenance and improvement of web site (Osterwalder & Pigneur, 2010; Business Model Foundry 2011) Univ-Prof Dr-Ing Wolfgang Maass Slide 17

18 Building Blocks Key Partnerships 8 Key Partnerships Describes the network of suppliers and partners that make the business model work Partnerships are created to eg, reduction of risk, acquisition of resources, optimization of allocation of resources Questions: Who are key partners and key suppliers? Which key activities do partners perform? Different types of partnerships Strategic alliance: Created between companies which are not competitors Coopetition: Created between companies which are not competitors Joint ventures: Created to develop new business, eg in another country Buyer-supplier relationship: Created to assure reliability of suppliers (Osterwalder & Pigneur, 2010; Business Model Foundry 2011) Univ-Prof Dr-Ing Wolfgang Maass Slide 18

Building Blocks Cost Structure 9 Cost Structure Describes all costs incurred to operate a business model Creating value and generating revenue incur costs Costs depend business model eg, low

Different types of business model cost structures Cost-driven: Minimization of costs wherever possible Maximization of automation Extensive outsourcing eg, low cost airlines (Ryanair)

19 Building Blocks Cost Structure 9 Cost Structure Describes all costs incurred to operate a business model Creating value and generating revenue incur costs Costs depend business model eg, low cost airlines (eg, Ryanair) created their business models focusing on low cost structures Question: Which key resources and key activities are most expensive? Different types of business model cost structures Cost-driven: Minimization of costs wherever possible Maximization of automation Extensive outsourcing eg, low cost airlines (Ryanair) Value-driven: Focus on creation of value, however also consider costs High degree personalizes service eg, luxury hotels (Osterwalder & Pigneur, 2010; Business Model Foundry 2011) Univ-Prof Dr-Ing Wolfgang Maass Slide 19

Transfer of Building Blocks to Business Model Canvas Building blocks are basis of Business Model canvas: Elements are transferred to canvas Business

analysis, discussion and stimulating creativity 9 8 6 7 2 5 4 3 1 Key partnerships Cost structure Key activities Key resources Value proposition Customer

20 Transfer of Building Blocks to Business Model Canvas Building blocks are basis of Business Model canvas: Elements are transferred to canvas Business Model Canvas is used to discuss business model parts Can be printed and pinned at a wall People can discuss it and add ideas on post-it s Tool for analysis, discussion and stimulating creativity Key partnerships Cost structure Key activities Key resources Value proposition Customer relationships Channels Revenue streams Customer segments (Osterwalder & Pigneur, 2010; Business Model Foundry 2011) Univ-Prof Dr-Ing Wolfgang Maass Slide 20

21 Example of Business Canvas: Emmas Enkel Video: Emmas Enkel Food manufacturers Suppliers Credit card companies (Visa & Master Card) PayPal Selling of food and household appliance About 4-5 employees Food store (physical) Online store Comfortable shopping without queuing Relaxing shopping with individual service Quick shopping from on the way Easy shopping: Food can brought to people s home Individual service Counter in store Via IPad in store On the way via smartphone or computer (online store) People with little time (egemployed people) Elderly people People who like social contact People who like individual service Value-driven cost structure Revenue from sale of food, beverages and household appliance Univ-Prof Dr-Ing Wolfgang Maass Slide 21

22 Business Model Design Process Business model design process is composed of five phases: Mobilize Understand Design Implement Manage Objective Prepare for a successful business model design project Research and analyze elements needed for the business model design effort Generate and test viable business model options, and select the best Implement the business model prototype in the field Adapt and modify the business model in response to market reactions Focus Setting the stage Immersion Inquiry Execution Evolution Description Assemble elements for business model design Describe motivation and establish a common language for design and analysis of business models Immersion of relevant knowledge regarding customers, technology and environment Identification of problems and needs Transform information and ideas into business model prototype (for testing) Best business model design is selected Implementation of the selected business model design Continuous monitoring, adapting and transformation of business model Management structure needs to be set up accordingly (Osterwalder & Pigneur, 2010) Univ-Prof Dr-Ing Wolfgang Maass Slide 22

23 Literature Books: Osterwalder, A & Pigneur, Y (2010), Business Model Generation, John Wiley & Sons Others: Business Model Foundry (2011), [ ] Emmas Enkel (2012), [ ] Osterwalder, A (2011), Burn Your Business Plan, [ ] Univ-Prof Dr-Ing Wolfgang Maass Slide 23

24 Univ-Prof Dr-Ing Wolfgang Maass Chair in Information and Service Systems Saarland University, Germany Univ-Prof Dr-Ing Wolfgang Maass

Business Model Canvas. Your Value Proposition describes the bundle of products and services that create value for a specific Customer Segment.

Business Model Canvas. Your Value Proposition describes the bundle of products and services that create value for a specific Customer Segment. 1. Value Proposition... Your Value Proposition describes the bundle of products and services that create value for a specific Customer Segment. Your Value Proposition is the reason why customers turn to