Creative Inquiry Talk Guest Speaker Session October 19 th, 2015
Why Business Models Matter? n “business model” vs. “strategy” n Who customers are & how to make $$ by providing value vs. how you’ll beat competitors by being different n BM = absolute (no competitors) vs. Strategy = being different Models pass when both tests clarify how the business’s various elements fit together 2
Why Business Models Matter? n BMs: metaphors & analogies – mathematical formula – “riskless business” – writing a new story – managerial equivalent to the scientific method – because BMs tell a good story, it gets everyone in the organization aligned… n BMs without a Strategy “too many fledgling firms rushed to market with identical business models and no strategies to differentiate themselves” n BMs with a Strategy “his model was the same as Kmart, but his strategy was unique” 3
Reinventing Business Models n Breakthrough, game-changing products or services rarely emerge from established businesses n That’s because a radically new product/service usually needs a new business model n How to transcend this problem: – Understand your existing model at a granular level in order to reinvent it “BMs often look unattractive to internal & external stakeholders – at the outset” – Come up with a great way to help people get an important job done “took a good technology and wrapped it in a great BM” No more than 10% of innovation investment at global firms is focused on developing new business models 4
Business Models: Two Frameworks n Why Business Models Matter: 1. Narrative Test: via an unmet need or selling in innovative ways 2. Numbers Test: P&L must add up n Reinventing Your Business Model 1. 2. Profit Formula: revenue, cost structure, margin model, resource velocity 3. Key Resources: intangible vs. tangible 4. 5 Customer Value Proposition (CVP): “Job to be done” Key Processes: processes, rules, and norms
Reinventing Business Models Four Elements: 1) Customer Value Proposition (CVP) 2) Profit Formula 3) Key Resources 4) Key Processes (Johson, Christensen, & Kagermann, 2008) Key Resources • Human capital • Technology / equipment • Knowledge & information • Channels • Alliances / strategic partners • Branding Key Processes • Processes (e. g. design, product development, etc. ) • Rules & metrics (e. g. lead times, etc. ) • Norms (e. g. approach to customers and channels) 6 Customer Value Proposition (CVP) • Creating value for customers by identifying important “jobs” • Target customer • Job to be done • Offering Profit Formula • Revenue model =Px. V Business Model Coordinated method for delivering what customers want, how they want it, in a profitable way • Cost structure key assets, direct & indirect costs, scale • Margin model net @ transaction level • Resource velocity resource burn rate
Reinventing Business Models n Reinventing considerations… – A “job” fundamental problem in a given situation that needs a solution – Most important attribute of CVP is precision… – Biggest risk with CVP neglect of focus on one job, dilute their efforts – Selling a BM is “to persuade (often) existing customers to buy a program instead of a product…” – Rules, norms, and metrics may not be fully envisioned until after the new product / service is road tested… 7
New vs. Old Business Model Current Business Model New Business Model Current model may be revolutionary in a new market 1) Customer “shut out” (e. g. Tata’s Nano) Old model will do when CVP is met with: 2) New technology / business model (Apple & MP 3 players) • w/ current profit formula • using most, if not all, of current resources / processes • using same core metrics, rules, and norms Example P&G with the Swiffer 8 3) Job-to-be-done focus, where one does not exist (Fed. Ex) 4) Fend off low-end disrupters (Bloom going “upmarket”) 5) Shifting when global competition intensifies (Hilti) No Business is Bullet-proof Firms must continually seek “fit”
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