Management of Technology & Innovation MKTG5603 & Biotech Commercialisation MKTG5604 Workshop 1 Part B: Business Model & Innovation Strategy

Transcription

1 Management of Technology & Innovation MKTG5603 & Biotech Commercialisation MKTG5604 Workshop 1 Part B: Business Model & Innovation Strategy Professor Tim Mazzarol UWA Business School MOTI MKTG5603 BC MTKG5604 UWA Business School MBA Program M Biotech Program tim.mazzarol@uwa.edu.au

2 Four Strategic Environments Complex Problems RISK Administrator Operational planning CEO Formal strategic planning Certainty Uncertainty Shopkeeper Informal operational routine planning Salesman Informal intuitive strategic planning Simple Problems Source: Mazzarol & Reboud (2009)

3 Four Strategic Environments Complex Problems RISK Known Unknowns Administrator Operational planning CEO Formal strategic planning Unknown Unknowns Certainty Uncertainty Known Knowns Shopkeeper Informal operational routine planning Salesman Informal intuitive strategic planning Known Unknowns Simple Problems Source: Mazzarol & Reboud (2009)

4 Strategy as a Process Business Program Development Business Strategy Development Strategy Disciplined Execution

5 Seeing Innovation in Strategic Terms

6 SWOT Analysis Strengths Weaknesses Checklist: Internal analysis Factors within an organisations control Advantages over competition Opportunities External environment Factors largely beyond the control of people in the organisation Favourable circumstance of event, potential or existing S W O T Internal analysis Factors within an organisations control Disadvantages over competition Threats External analysis Factors largely beyond the control of people in the organisation Unfavourable circumstances or events Strengths + Weaknesses Management Employees Finance Legal Products and services Purchasing Research and development Distribution Marketing Facilities Position in the industry Opportunities + Threats Political Economic Social Technical

7 Learning and Inventing Making connections Familiar Breaking connections Two halves of a continuous process of learning and inventing. Making the strange familiar Strange Making the familiar strange Source: Basadur and Gelade (2003)

8 Strategy as a Process Business Program Development How will we achieve our targets? What is great performance? How do we compete? Business Strategy Development Where do we compete? Strategy What are our levers? How do we create an annual plan? Disciplined Execution How do we get it cone?

9 Creating Value with Capabilities

10 Threats Business Model Analysis Opportunities Competitive rivalry New market entrants Substitutions Regulatory Supplier power Buyer power Social & demographic Environmental Lean Canvas Products & Services Customer Value Proposition Lean Start-Up Distinctive Competencies Unmet market needs Ability to add value Ability to reduce cost Niche or mass-market Product innovation Process innovation Market innovation Dynamic Capabilities VRIO framework Process weaknesses: Management Organisation Learning Positional weaknesses: Technical, financial & physical assets Systems Path weaknesses: History, culture Paths Path dependencies Positions Processes Coordination & Learning Valuable Rare Difficult to copy No substitutes Organisational ability Types of assets: Tangible - Intangible Isolating mechanisms Weaknesses Gaps in knowledge & resources Mazzarol 2014 all rights reserved Technical, financial & Physical assets Strengths

11 What is a Capabilities System?

12 What is a Business Model? A business model is a conceptual tool containing a set of objects, concepts and their relationships with the objective to express the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams.

13 Elements of the Business Model Customer Value Proposition (CVP) Target Customer Characteristics Target Market Segments The Revenue Model Cost Structure Margin Model Resource Velocity (e.g. break-even, cash cycle, cost-profit-volume) PRODUCT PROFIT FORMULA KEY PROCESSES KEY RESOURCES Distribution Channels Customer relationships Value configuration HRM systems & Culture Operational management Rules, policies, metrics The Core Competencies Required Partnerships & Alliances Required Team structure Physical facilities needed Sources: Osterwilder, Pigneur & Tucci (2005) & Johnson, Christensen & Kagermann (2008)

14 Lean Canvas for Business Model Design

15 The Lean Canvas for Business Models Strategic Partners Key Activities Value Proposition Customer Relations Customer Segments Key Resources Channels Cost structure (how much it cost?) Revenue Stream (Monetizing) Sources: Osterwalder (2010)

16 The Lean Canvas for Business Models Strategic Partners Key Activities Operations management CRM systems Financial control systems HRM Systems Rules, policies, metrics Value Proposition Customer Relations Customer Segments What are the customers : Acquisition costs? Retention costs? Switching costs? Life time value? Do you need to work with others or can you proceed alone? If you need others who are the: Lead customers? Key suppliers? Resource network actors? Key Resources Core competencies? Team structure? Physical resources? Financial resources? How does the product or service help the customer : Save money Save time Add value Increase profits Channels How do you reach your customers? How can you deliver value to them? Can you do this directly or do you need to work via others? Who is the customer? What are their main problems or needs? What goals do they have? Demographics? Psychographics? Cost structure (how much it cost?) What are the main over head (fixed) costs? What are the anticipated variable costs? What is the anticipated gross profit margin? When will the business break even? Revenue Stream (Monetizing) How much is the customer willing to pay? How many customers will pay? How frequently will they pay? Cash cycle & cost-profit-volume analysis Sources: Osterwalder (2010)

17 The Lean Start-Up Process

18 Business Plan Pivot Be ready to change direction Multiple options Flexibility is the key IDEAS Assumptions Customer Value hypothesis Growth hypothesis LEARN Review problems Make mistakes once Portfolio Thinking Resources; autonomy, ownership BUILD Adapt Innovate Lean Start-Up Process DATA Grow Batch PRODUCT Sticky Viral Paid Small batches Experiment Focus on Metrics Actionable cause & effect Accessible simple to understand Auditable systematic & transparent MEASURE Innovation Accounting Use minimum viable product Fine-tune towards ideal goal Persevere or pivot Source: Ries 2011

19 Pivots A Pivot is a change in the firm s strategy designed to test a fundamental hypothesis about the product, business model and engine of growth. Pivot Type Zoom-in Pivot Zoom-out Pivot Customer Segment Pivot Customer Need Pivot Platform Pivot Business Architecture Pivot Value Capture Pivot Engine of Growth Pivot Channel Pivot Technology Pivot Description What was once thought to be a single feature of a product becomes the whole product. What was previously considered to be the whole product becomes a single feature of a much larger product. Product solves a real problem for customers but not the type of customers originally targeted. Recognition that the problem you thought you were solving is not very important to the target customers, thus requiring product redesign. Shifts the product from a component within a wider platform to the actual platform, or vice versa. Shift from high margin low volume (complex systems model) to low margin high volume (volume operations model) or vice versa. Changes to the way a product captures value using different revenue models. Change to the nature of the Growth Engine underlying the Business Model. Change to the channel structure used by the company to reach its customers. Change to the way that solutions are delivered using different technology. Sources: Ries (2011)

20 Engines of Growth: The Sticky Engine of Growth Engines of growth are a way to focus the new business model around a few key metrics to help concentrate their limited resources. Sticky Growth Engine Description: This growth engine is focused on the capture and retention of customers. Typically it uses database technology as the foundation where a customer has their own products or services hosted. This is most common in the case of websites and point of sales systems (e.g. itunes). Once a product or service is built on top of a database technology it becomes difficult for the customer to switch. Customers in IT sector become locked into the vendor they choose. This type of engine requires that it offer the customers compelling new capability to get them to risk being locked into a single vendor. Key issues: Relies on having a high customer retention rate. Requires tracking of customer retention and attrition rates (Churn rate). Churn rate = % of customers in period who cease to engage with the product. Rules: If the rate of new customer acquisition exceeds the churn rate the product will grow. The speed of growth is determined by the rate of compounding or the natural rate minus the churn rate. Key focus should be on improving customer retention rates. Sources: Ries (2011)

21 Engines of Growth: The Viral Engine of Growth Engines of growth are a way to focus the new business model around a few key metrics to help concentrate their limited resources. Viral Growth Engine Description: This growth engine is focused on the ability to get existing customers to bring in new customers. This can take the form of referrals via word of mouth, using online connections (e.g. Hotmail), or peer to peer marketing and sales (e.g. Tupperware). The Viral Engine is powered by a measurable feedback loop known as the Viral Loop. This can be measured using the Viral Coefficient. The higher the Viral Coefficient the faster the product will spread. Key issues: Relies on having a high rate of customer referrals to bring in new customers. Requires tracking of the Viral Loop and Viral Coefficient. Viral Coefficient = how many new customers will use a product as a result of each new customer that signs up (e.g. number of referrals per new customer). Viral Coefficients > 1 will grow. Rules: Focus on increasing the Viral Coefficient more than anything else. Many viral products do not charge customers directly but rely on indirect revenue (e.g. Facebook advertising). The value of a customer may not be measured purely in monetary terms but in their willingness to bring in new customers. Sources: Ries (2011)

22 Engines of Growth: The Paid Engine of Growth Engines of growth are a way to focus the new business model around a few key metrics to help concentrate their limited resources. Paid Growth Engine Description: This growth engine is focused on two things: increasing the revenue from each customer, or lowering the cost of acquiring a new customer. It is powered by a feedback loop, which is the amount of money that a customer spends with the product/firm over their life time. This produces the concept of the life time value (LTV) of each customer. Profits generated from this value are invested back into promotion, marketing and sales to generate growth. What must be monitored is the cost per acquisition (CPA). The margin between the LTV and the CPA determines the rate of growth. Key issues: Relies on customer life time value (LTV). Requires tracking of customer LTV against cost per acquisition (CPA) Margin between LTV and CPA determines the rate of growth. Rules: The margin between the LTV and CPA is the marginal profit. If the LTV is greater than the CPA the company will grow. If the LTV is lower than the CPA the company s growth will slow. Sources: Ries (2011)

23 7 Principles of Lean, Rapid & Profitable NPD Customer Focused NextGen Stage- Gate Front-end loaded Portfolio management Spiral development Metrics Holistic & Crossfunctional Sources: Cooper & Edgett (2005)

24 1. Customer Focused Key principles: Offer new products that provide benefits customers want. Offer customers new and unique benefits. Provide better value for money for customers. Offer products that are superior to competitors in meeting customer needs. Offer products that offer superior quality to competitors. Key actions: Work with lead customers to develop new products. Understand unmet customer needs, problems and value. Conduct voice of customer market research. Collaborate with end users during product development. Seek insights into buyer behaviour to identify benefits sought. Involve NPD development team in field work. Start early and expand the end user base. Sources: Cooper & Edgett (2005)

25 2. Front-end loaded Key principles: Focus on the front-end of the project. Scope the project via desk research. Build a business case (business model). Define the product and project. Collect information to allow future Go/Kill investment decisions. Features, Attributes, Requirements Benefits to be Delivered High Level Specs Value Proposition Product Definition Project Scope Positioning (plus pricing) Target Market Project Concept Key actions: Preliminary market assessment Market size; Customer interest, needs, value offer Competitors Technical assessment Technical complexity & risk IP rights issues Need for alliance partners Source-of-supply assessment Key suppliers Operations Market research Voice of customer research Concept testing Prototype minimum viable product Value-to-the-customer assessment Comparison with competitor product offering Business and financial analysis Develop business case assessment Sources: Cooper & Edgett (2005)

26 The Front-End Work Process The Front-End Work Idea Screen Second Screen Go To Development Gate 1 Stage 1 Gate 2 Stage 2 Gate 2 Stage 3 Discovery (Ideas) Project Scoping Build Business Case Development Sources: Cooper & Edgett (2005)

27 3. Spiral development Build Business Case Development Testing & Validation Gate 2 Stage 2 Gate 3 Stage 3 Gate 4 Stage 4 VoC User needs & wants study Full Proposition Concept Test Rapid- Prototype & Test First Prototype & Test Next Prototype & Test Field Trial Beta Test Sources: Cooper & Edgett (2005)

28 4. Holistic & cross-functional Key principles: Team for NPD is cross-functional. (e.g. financial. technical, sales, marketing, production) Projects undertaken by clearly assigned team of experts. Team follows project through from end-to-end (no hand-offs). Clearly identified project team leader. Leader from beginning to end of project. Key actions: Select project team carefully, all should be volunteers Team leaders are entrepreneurial-leaders with: Leadership skills People skills Vision for project Credibility within the company Goal focused Technically skilled Team s need: Excellent cross-functional communication & cooperation on project Shared & centralised IT systems Support from senior management Autonomy in day-to-day activities Accountability for project outcomes Sources: Cooper & Edgett (2005)

29 5. Metrics Key principles: Have clear performance metrics to measure project success/failure. Establish team accountability for results. Build in learning and improvement. Key actions: Put performance metrics in place Revenue vs. forecasted sales Profit vs. forecasted profits Profitability (NPV, Gross Profit Margin) Customer feedback & satisfaction Market share Time to market Performance against budget On-time performance (launch) Hold teams accountable project outcomes Practice continuous improvement & retrospective analysis Conduct Post-Launch Reviews First Review (interim): 1-2 months after launch Final Review: months after launch Sources: Cooper & Edgett (2005)

30 6. Portfolio management Business Strategy & Product Innovation Strategy 1. Strategic Portfolio Decisions Strategic Buckets & Product Roadmap 2. Tactical Portfolio Decisions: Project selection prioritization & resource allocation Portfolio Review: Holistic All projects reviewed for: Right priorities Right mix Alignment Sufficiency Resource adequacy By senior management Stage-Gate Process: Individual projects In depth evaluation Quality data available Go/Kill decisions Resources allocated By senior management Sources: Cooper & Edgett (2005)

31 Strategic Buckets Focus Resources into High Productivity Buckets New Product Projects Platform Projects (Change the basis of competition) Key issues: Size of buckets should reflect the strategic priorities of the business. Use metrics & benchmark data to determine where to invest money. Look at historical data to make allocation decisions. Measure yields from past R&D investments. Other Projects (Extensions, Modifications, Cost reductions, Fixes) The business strategy dictates the split of resources into buckets. Projects are then rank ordered within buckets, but using different criteria in each bucket. Sources: Cooper & Edgett (2005)

32 7. NextGen Stage-Gate Driving New Products to Market Idea Screen 2 nd Screen Go to Develop Go to Test Go to Launch Post Launch Review Idea Stage Gate 1 Stage 1 Gate 2 Stage 2 Gate 3 Stage 3 Gate 4 Stage 4 Gate 5 Stage 5 Discovery Scoping Business Case Development Testing Launch Sources: Cooper & Edgett (2005)

33 Gates are a Two-Part decision Part I Part II Pass Project is compared to Active & On-Hold projects. Does it improve the portfolio? Resources are allocated Pass/Kill Priorities Go is resourced: becomes Active Project Project is evaluated against Must Meet & Should Meet criteria. Does it pass these tests? Kill Placed On Hold Sources: Cooper & Edgett (2005)

34 Threats Business Model Analysis Opportunities Competitive rivalry New market entrants Substitutions Regulatory Supplier power Buyer power Social & demographic Environmental Lean Canvas Products & Services Customer Value Proposition Lean Start-Up Distinctive Competencies Unmet market needs Ability to add value Ability to reduce cost Niche or mass-market Product innovation Process innovation Market innovation Dynamic Capabilities VRIO framework Process weaknesses: Management Organisation Learning Positional weaknesses: Technical, financial & physical assets Systems Path weaknesses: History, culture Paths Path dependencies Positions Processes Coordination & Learning Valuable Rare Difficult to copy No substitutes Organisational ability Types of assets: Tangible - Intangible Isolating mechanisms Weaknesses Gaps in knowledge & resources Mazzarol 2014 all rights reserved Technical, financial & Physical assets Strengths

35 Group Discussion Working in teams Review the firm s innovation strategy. Prepare a business model using the Lean Canvas. Highlight major areas for future action and focus.

36 End of Presentation