Business Model Innovation by dr. Patrick Stähler

Why should your business exist?

European Innovation Academy 2012 Tallinn Dr. Patrick Stähler, fluidminds

The philoso-

phical ques-

tion for all

buisnesses

That’s me: !I love to do ski mountaineering!!

You need a lot of

training and luck to

have days like this!

We need new boxes for fresh ideas. We see only what we are able to see.

Outside the box thinking

What are

the new boxes?

„The firm dominates the global market with a market share of 40% and has outperformed technology giants like Siemens or Motorola. No other firm brings out more new products (around 80 p.a.) to the market. Among youngsters, it the most admired brand in its field. ”

Would you invest in this firm?!

Dr. Patrick Stähler | 11!

This was in 2007 the most innovative firm on earth. Today, Nokia is in serious troubles.!

1 device!

Apple killed Nokia not with a new device but with a platform eg. business model!

„Which innovation expanded the global addressable market for mobile communication the most?*“!

*After the invention of mobile telephony itself!


Which innovation made this possible?!

Prepaid!

A small change in billing opened new markets in Africa, Asia, Latin America, Youths, etc..!

1!Everybody wants to be innovative, but what is innovation?!

We need new boxes for innovation!

Technological Innovation!

Process Innovation!

Process Innovation!

Product & Service Innovation!

Business Model Innovation!

2!Beyond product innovation!

Innovation comes in different forms !process, service, business models innovation!


1 device!

Innovation is all about being different!

But if everybody is doing the same, you have to find something else!

Optimal is when different business models exists and all have devoted customers!

3!Innovation is not only about new things!

Innovation is about differentiation !

Transistor was invented at the end of the 1940s!

The importance of business model thinking!

But SONY made in 1955 a successful product out of the transistor and developed a successful business model out of it for the next 50 years.!


Do you know this man?!Hans Rausing = Inventor of the Tetra Pack Systems!

He could have sold his packaging machines, "but…!

But he sold packaged services! Tetra Pack is not a product innovation but an implementation of an innovative business model !

product/technology value

creates

X!

business strategy

enables

defines

business model

Technology or a new produt does not create value. It is the business model

4!Beyond product innovation!

Your business model is decisive for value creation!not a new technology, not a product!

To develop a business model, is "

To Do the "right things "And Not to do things right!

„What is a !

! !business model?“!

The business model is the DNA of your business!

Are you aware of your DNA? !

The business model gives meaning to your employees and customers!

4 key questions for a successful business:

What excites our customers

Value Proposition

How do we create value for our customers?

Value Architecture

How do we earn money?

Revenue Model

Who is on our team? What values do we pursue?

Team & Values

The job of the entrepre-neur

What industry are we in? Who are our competitors?!

“!

„!

In which industry are we in?!“!

„!


That was the job the customer wanted to do.!“!

„!

Value Proposition

Customer •  Who is your

customer? •  What job do we

solve for them?

Value •  What value do we

create for our customers? What value do we create for our partners?

What excites your customer?

“!To put a computer on every desk and in every home”!

“!To organize the world’s information and make it universally accessible”!

Value architecture

O!er •  What is our o!er?

Distribution & Communication Channels

•  How do we reach our customers?

•  How do we communicate with our customers?

How do we create the value?

Value Chain •  What activiites do

we have to do to produce our o!er?

•  How does our value chain look like?

Partner •  What partners do

we need?

Core Capabilities •  What are the core

capabilities we need?

Revenue Model

Cost Structure •  Cost structure is

defined by your value architecture.

Revenue Sources •  With what do we

earn money?

How do we earn money?

Team & Values

Team •  Who is in our

team? •  What

competencies do we have in our team?

Values •  What values do we

life in our team? •  How do we

interact with each other and with customers?

Who is on our team? What values do we live?

CustomersWho are our customers?What job do we solve for our customers?

Customer BenefitWhat benefit do we create for our customers?What benefit do we create for our partners?

O!erWhat is our o!er?

Value ChainWhat are our value creating steps?What is our value chain?

Core CapabilitiesWhat are the core capabilities we need?

Distribution & Communication ChannelsHow do we reach our customers?How do we communicate with our customers?

PartnerWhich partners do we need?

Questions for successful Business Model Innovation

Cost StructureCost structure is defined by the value architecture.

Revenue SourcesWith what do we earn money?

TeamWho is on our team?What competencies do we have on the team?

ValuesWhat values do we pursue?How do we interact with each other and the customers?

Value Architecture Value Proposition

Revenue Model

Team & Values


Customer BenefitWhat benefit do we create for our customers?What benefit do we create for our partners?

O!erWhat is our o!er?

Value ChainWhat are our value creating steps?What is our value chain?

Core CapabilitiesWhat are the core capabilities we need?

Distribution & Communication ChannelsHow do we reach our customers?How do we communicate with our customers?

PartnerWhich partners do we need?

Questions for successful Business Model Innovation

Cost StructureCost structure is defined by the value architecture.

Revenue SourcesWith what do we earn money?

TeamWho is on our team?What competencies do we have on the team?

ValuesWhat values do we pursue?How do we interact with each other and the customers?


Revenue Model

Team & Values

The Case!

At the beginning of the 1990s the world in the power tool industry was in perfect order!

!  Established brands in a growing, European market!!  Competition was well defined and Bosch was the uncontested market leader!

And then the Chinese came along…..!

Die Ausgangsituation!

! Over 200 new competitors in a short period of time!

…and the market stagnated at the same time. !

Dire consequences: "A steep decline in the average price per sold tool and….!

Do-it-yourself chains in Germany: 1993 until 2002!

93! 01!00!94! 95! 96! 97! 98! 99! 02!

88!78!

69! 65! 64! 67! 62! 58! 56!

Ø – price in Euro!

52!

Sales(Mio. units)!

3,8!

5,9!

329!Sales (Mio. Euro)!

307!

Source: GfK!

… and declining market share for the established brands and exponential growth for the no-names and trade brands!

95!

73 71! 67

6! 27! 29! 33!

0%

100%

1991 2000 2001 2002

No Names & Trade Brands

Established Brands

Market Share Powertools"(Germany)!

!  Strong increase of market share for no-names and trade brands!!  Bosch Power Tools DIY 2002 with a market share of 33% but loss making!

Source: GfK, Do-it-yourself shops!

Simple task from your board:!!  Defend market leadership!!  Improve profitability!

Your Head!THE working tool "

65!Dr. Patrick Stähler. Leuphana University Lüneburg!

Which directions should we take?!

How about this crazy idea?!

“ How about making a power tool which is much weaker than the last generation but we make it also very handy and nicely designed. For that we charge a premium and market it to people who are not really into DIY. ”!!“ Great idea, isn’t it? ”!

The solution: Tools for the IKEA Generation!

Here is the solution for Bosch: the IXO, the first power tool for the IKEA generation!

!  Bosch introduces the IXO to the market !!  Instead of following the traditional mantra

of “better, stronger, faster” Bosch used a new battery technology to make tools smaller and more user friendly!

!  Instead of going for the traditional market of MMS (men, muscles and sweat) the IXO addresses the soft DIYs that assembles its IKEA furniture but not more!

!  Thereby, it addresses a new, previously unserved market of non-customers!

!  The IXO is a typical value innovation that opened up new, uncontested markets!

Shift from technology to user orientation !

… prior 2002!

!reliable, very powerful and "long-living products!

!  !

Building and "repairing!

!  !

Technologie"orientation!

!  !

unemotional "technology orientation!

!  !

since 2002 …!

! ! reliable, easy to use "products and services!

!  Building/repair, planning "and home decoration!

!  User and usage "orientation!

!  inspiring people!

The traditional market:"MMS or Men, Muscles and Sweat!


New market:!Addressing previously non-customers like soft DIYlers and particularly woman!

Changed consumer behavior!The first power tool for the kitchen drawer!

Bosch IXO is the world record holder in units sales!

!  IXO was first power tool with Li-Ionen technology!!  IXO is the best selling power tool in the world!

10 Mio. "times sold!

2004! 2005! 2006! 2007! 2008! 2009! 2010!

Growing market share and highly profitable!

33 33 33 34 37 36 37

40 38 34 31 29 26 25

27 29 33 35 34 38 38

'00 '01 '02 '03 '04 '05 '06

No Name / Trade Brands

Other Brands

Bosch

Market share in power tools "(DIY Shops Germany)!

!

Source: GfK!

The strategy canvas of Bosch IXO: A clear profile of the value innovation!

-1

0

1

2

3

4

5

6 Traditional brands No-Name Bosch

Bosch used the new battery technology for a disruptive value innovation!

Advantages of Li-Ion!!  can be formed into a variety of shapes and

sizes so as to efficiently fill available space in the devices!

!  lighter than other—often much lighter.!

!  do not suffer from the memory effect!

!  low self-discharge rate of approximately 5% per month, compared with over 30% per month in nickel metal hydride batteries (Source Wikipedia)!

Sustaining innovation = Serving today’s customers!!  Extend performance in direction of what

today’s customers like!!  Use the Li-Ion technology for stronger and

more heavy duty tools!

Disruptive innovation = Finding new customers with different needs!!  Use for a new market segments that values

different performance parameters like usability, handiness than traditional customers!

!  Performance of tool will be worse in parameters current customers value!

Your Head!THE working tool "

5!Sustaining innovations are difficult to master, but !

Disruptive innovation can kill your business model!

Your Head!Also the biggest impediment to change

Business Model Innovation: Killing your competitor softly


If you are in a market for giants...!

.. and you play with their rules you will get nowhere…!

„…but if you can create your own rules of engagement than you can compete even in a market for giants. “!

“Well, I know we are in a commodity market where the price is key, but I believe we can sell the good for 10x as much as before.”!

Would you dare to say this? What would be the answer of your boss?!

Customer!utility!

price!

costs!

company !profit!

customer!value!+!

+!

The magic formular for great firms!

Business model innovation!1.  Value Innovation "

We offer a better value proposition for an existing or new problem!

2.  Architectural innovation "We reconfigure the value chain so that a better value proposition emerges!

3.  Revenue model innovation "We change the revenue mix and thereby creating a better value proposition!

4.  Cultural Innovation"Change the culture to create more value, e.g. Zappos with the best customer service !

Fight eye diseases in India with mass production processes for low costs"the basic idea behind Aravind Eye Hospitals!!  The network of not-for-profit hospitals and vision

centers performs 300,000 eye surgeries each year -- 70% for free -- using broadband connections to on-call doctors in city hospitals for instant diagnosis. !

!  Camps in rural areas screen thousands of patients weekly. "We are going from village to village to provide eye care to the unreached," says Aravind's chairman, Dr. P. Namperumalsamy. !

!  Aravind won the 2008 Gates Award for Global Health.!

Customers

Customer Benefit

Business Model:

Cost Structure Revenue Sources

Team Values


Revenue Model

Team & Values

O!er

Value Chain

Core Capabilities


Partner

!  eye surgery! !  paramedics scanning rual villages!

!  highly standardized surgeries!!  high division of labor !

!  low cost production system!

!  process know-how!

!  cross- subsidies between middle class patients and the poor!

!  middle class Indians!!  poor Indians!

!  good quality eye surgery!!  affordable eye surgery even

for the poor!!  Doing good for middle class

indians!

Case IKEA!Value Architecture!!  Customers have to transport and

assemble the furniture by themselves, thereby saving IKEA to expensive steps in their value creating process!

Value Proposition!!  At the same time a new value proposition

is created: Instant satisfaction without waiting for the later delivery of the furniture!

Revenue Model!!  Due to the high volume, furniture can be

produced in an industrial fashion that leads to even lower production costs!

!  Therefore, the furniture can be sold for a much lower price!

Geberit – a product innovator?!

From plumber supply to under-the-wall systems for baths!

Customers

Customer Benefit

Business Model:


Team Values


Revenue Model

Team & Values

O!er

Value Chain

Core Capabilities


Partner

•  Plumbers!

•  Homeowners, !•  Plumbers!

•  Faster and more convenient renovation of baths!

•  Plumbers have all components from one source. High margin!

•  Higher costs due to more expenses e.g. trainings!

•  Higher revenues since plumbers know only „Geberit“!

•  Partner management!•  Training of

plumbers !

•  Plumbers are as well customers as the distribution channel!

•  Plumbers are also reached via trainings!

Geberit’s innovation: From plumbers’ supplier to baths renovator!

•  Longterm thinking!•  relationship building!

A deliberate change of a business model is a great strategy!

!  All components of a business model are starting points for innovation!

!  Value Innovation!

!  Architectural Innovation!

!  Revenue Model Innovation!

!  Cultural Innovation!

!  At the end, all business model innovation must create more value to the customers!

Starting points of business model innovation!

Customers

Customer Benefit

Business Model:


Team Values


Revenue Model

Team & Values

O!er

Value Chain

Core Capabilities


Partner

Entrepreneurial Design


Creating Business model innovations is a creative and analytical process at the same time. There is a reason why god gave us two brain hemispheres !

1

Customer Insight -  Observe your customers

What job is not yet or badly solved?

-  How does the Customer Experience Cycle look like?

-  On what customer insights is your idea based?

-  validate customer insight

2

Understand -  understand the current

solutions and their strength & weakness

-  understand how the potential customer thinks and decides

-  understand the market & market mechanism

3

Ideate Develop as many ideas as possible in the area of -  customers/ value

proposition -  value architecture -  revenue model

4

Design -  decide for three or four

options -  design the business

models for the options -  check the

interdependencies in the business models

-  work on the uniqueness (positioning)

-  optimize the building blocks

5

Decide & Prototype -  decide for the best

model to go for -  build prototype -  test prototype with

customers -  write business case -  decide again or work on

di!erent option

6

Build & Learn -  execute business model -  learn continuously from

customer feedback and control KPIs

-  adjust and refine continuously the business model

Where do we get a Value Innovation from? Let‘s find new customer insights as a starting point!

Customers’ insight

New value proposition

Business model

innovation

1







Value PropositionThe best way is to start with the job we solve for our customers?!

Buy Delivery/ Assembly Usage Comple-

ments Service Disposal

How can we find systematically new customer insights?!

Source: cp. Kim, W.C., Mauborgne, R., Knowing a Winning Business Idea when you see one, HBR Sep-Oct. 2000!

Buyer Utility Map!

!  Understand how the customers are buying, using and disposing the product!

!  Understand the whole lifecycle of customers‘ utility!

!  How can we improve the buyer‘s utility cycle?!!  Can we do more for the customer?!

!  Can we leave something to the customer?!

Where can I start in the buyer utility map? – "The Dyson Vacuum Cleaner!

Disposal!Service! Complements! Use! Delivery!Buy!

Customer!Productivity!

Simplicity!

Usability!

Risk!

Image & !fun!

Enviromental !friendlyness!

++!

Starting"Points!

Dyson = value innovation!

Dyson vacuum cleaner – inspired by technology "The vacuum cleaner for men!

Customer Insights!!  Bags and filters get clogged and restrict

airflow. Loss of suction!!  Vacuum cleaners are marketed as

household aids. Are there different segments?"!

Value Proposition for customers!!  Dyson vacuum cleaners have NO bags

and do NOT get clogged due Cyclone technology. Therefore, NO loss of suction. !

!  Dyson positions itself as technical, highly engineered products that address men. !

Revenue Model!!  Dyson demands premium prices for its

vacuum cleaners.!

Dyson = !Value Innovation!

Blacksocks – we save the world from socks problems!

Disposal!Putting"in pairs! Washing! Use! Delivery!Buy!

Customer!Productivity!

Simplicity!

Usability!

Risk!

Image & !fun!

Enviromental !friendlyness!

Starting"Points!

Blacksocks – We solve the world from its socks problems!

10'000 12'000

25'000

40'000

0

10'000

20'000

30'000

40'000

2001 2002 2005 2008

Socks subscription!(2001-2008)! Customer Insights!

!  Buying socks is no fun!!  Putting socks in pairs even less fun!!  Good socks are a sign of „Being well

dressed“"!

Value Proposition!!  Blacksocks subscription solves all

problems!!  Always enough new socks !!  No pairing needed since all socks are

identical!

Revenue Model!!  Upfront payment !!  Easy planning and negative working

capital!

Blacksocks = revenue model innovation !

20% market share!in Switzerland*!

* premium segment starting at 9CHF!

2





3



Customers

Customer Benefit

Business Model:


Team Values


Revenue Model

Team & Values

O!er

Value Chain

Core Capabilities


Partner

Use the canvas to develop your business model!

4







Angebot

Produktion

Kernfähigkeiten

Vertrieb & Kommunikation

Partner

Kunden

Nutzen

Geschäftsmodell:

Kostenstruktur Ertragsquellen

Team Werte

Wertschöpfungsarchitektur Value Proposition

Ertragsmodell

Team & Werte

Created with the friendly support of Wolfsburg AG | Designed by Gottschalk+Ash Int’l

5

Decide & Prototype -  decide for the best model

to go for -  build prototype -  test prototype with


di!erent option

6




1






2





3



4







5

Decide & Prototype -  decide for the best

model to go for -  build prototype -  test prototype with


di!erent option

6




!  Be specific!!  Keep it simple!!  Self-explanatory!!  Focus on the relevant points!!  Do not reinvent the world!

Checklist for writing your business model!

!  differentiated!!  customer-centric!!  specific!!  better narrow than broad!!  relevant!!  based-on core capabilities!

Checklist for positioning your business model!

The Art of Pitching!3rd part!

I pitch, therefore I am


Source: Great ideas for starting something (by Guy Kawasaki)!

Know your audience for the pitch!

Investor‘s pitch! Pitch to partners!

Sales pitch to customers!

What is a good pitch for investors? (short version)!

Current Status, timeline!

Key financials!

Underlying magic (uniqueness)!

Your business model (the essentials)!

Your solution & benefit for customer!

Problem you solve!

What do you do?!

Source: Great ideas for starting something (by Guy Kawasaki)!

10!Customers are slow to change behavior!

Customers need time to understand and learn about the innovation!

What is a good strategy?!

trend!

differentiation!

build on strengths!

focus!

It’s about finding the right trend to surf! !

It is about differentiation!

„Business model innovation is !

!about being!

!DIFFERENT!“!

NO, REALLY DIFFERENT!!


DOING!not learning to do,!

is the essence of !entrepreneurship!

Guy Kawasaki, The Art of the Start 2004, p. xi!

„Scary to be this nail. Where will the hammer hit next time?“!

More Information on!http://blog.business-model-innovation.com!

Dr. oec. Patrick Stähler!fluidminds GmbH!Seefeldstrasse 5a!CH-8008 Zü[email protected]!www.fluidminds.ch!blog.business-model-innovation.com!

Business Model Innovation by dr. Patrick Stähler

Business

Transcript of Business Model Innovation by dr. Patrick Stähler