Business Model Innovation

Refresher: 3 Types of Innovation Product Process Business Model Bryce

Business Model Innovation Innovation to Create Value Improving efficiencies through LEAN and other options, New Technology, Designs that are innovative and change people’s behaviours Innovation Enablers that Resource Change Access to financial resources, new warehousing or locational opportunities, new skilled staff or competencies, better deployment of capabilities and resources Innovation that captures value Focusing on effectiveness innovations and business model processes to appropriate value that is under-utilized, unassigned, or not value priced

WHY CRITICAL TO CONSIDER

A Business Model Framework Capabilities Customer Value Revenue Who Value Proposition Purchaser   User Influencer Partner Financial Delivery Costs Activities External Channels to Market Relationships Partnerships

Futures

Business Model Examples Tools

THREE QUESTIONS WHY HOW WHAT Business Model Innovation is about transforming key elements of your business or inventing completely new ways of doing business. THREE QUESTIONS WHY HOW WHAT

INTRODUCTION EXERCISE: At the table where you are sitting introduce yourself to those around you not by the WHAT, nor the HOW, but WHY? Why you do what you do? Make it customer centric!!

HOW TO DRIVE BMI IN AN ESTABLISHED COMPANY Need a clear process, with clear tasks and a dedicated team driving the efforts. Tools can help, but they are not enough; the process and the allocation of resources are crucial. ‘how things are done around here’, how value has traditionally being created and captured is hard to break!!

Business Model Innovation 1: Optional revenue logics Customer focus – traveller Scale = purchasing discounts Joint promotion of cheaper carrier (JetStar) Operational excellence + safety gives customer loyalty Brand association linked to nationalism – customer loyalty Revenue logic: Build traveller loyalty + alternative cheaper carrier Customer focus – airports Reverse auctioning of landing rights – positive cash flow Operational excellence – low operating costs Listing fees for all on board goods – positive cash flow Revenue logic: Profit sharing with the airport + hybrid / media model What other customer segments have you not thought of? How else could you deliver your capabilities & offerings?

Business Model Innovation 2: Customer Knowledge A business model is the recipe of your business built around an indepth customer / consumer knowledge and insight of their needs “Last year one million quarter inch drills were sold. Not because people wanted quarter inch drills but because they wanted quarter inch holes.” President of Black & Decker “What we sell is the ability of a 43-year-old accountant to dress in black leather, ride through small towns and have people be afraid of him.” Harley-Davidson marketing executive

Business Model Innovation 3: Options for appropriating value You are producing romantic pocket books for teenage females and younger middle age females with lower levels of education You are distributing through bookshops etc. Your price to the consumer is $1 Your distribution channel keeps 50% Your author gets 20% Your operating costs are 25% This leaves you with 5% in profit contribution [or $0.05] How do you quadruple the profit contribution without increasing the price?

Appropriating value – Mills & Boon Get into the customer eco-system – what do we know about the customer? What the customer wants? People who wanted to write, who wanted to talk about writing, and publish their writings The Radio play eco-system The TV series eco-system The Advertisement eco-system The E-Distribution eco-system for books The Mobile pay-as-you-go entertainment eco-system The Peer-to-peer publishing eco-system The Education eco-system The Product placement eco-system The Gaming eco-system The Bundled product eco-system

Business Model Innovation 4: Options for appropriating value Assuming you owned a chain of restaurants where global sales were sliding south rapidly, how would you double your turnover within 6 months? What assets and capabilities do you have to resource the change? What business model innovations could you apply?

Appropriating value: McCafé Ecology of existing & potential customer Utilise existing assets – chain of restaurants – new store layout and atmosphere Re-branded to McCafé Linked to the family and environmental concerns (Rainforest Alliance) Capture more customers at breakfast time and won them over from coffee chains to its lower-priced drinks (cheaper than Starbucks) Linking generational expectations – coffee and cake with BigMac - people linger longer and buy more New revenues from old assets

Business Model Innovation 5: Options for appropriating value Imagine you want to make $750,000 in 30 hours with a new music album How would you go about it, without a record company (who has sacked you because you were leaking music) Also you don’t want to be bothered by licensing so you use creative commons license? How would you connect with your fans to create a reason to buy?

Appropriating value – Nine Inch Nails C2Fs + RtB = Business Model = $$$$s NIN Rigorously connected to fans Ghost I IV Album 1st Album Created numerous options for interaction between the fans Free download of 9 tracks by inserting your email address $5 got you full 36 tracks + 46 page PDF file on the band and music = cheaper than iTunes $75 for the deluxe box with DVD, Blue Ray, and other cool stuff $300 Ultra Deluxe pack, only 2,500 personally signed packs = this sold out in 30 hours = $750,000 Issued under Creative Commons License, encouraged fans to remix it, share it, post it to blogs, play on podcasts, give it away….. Amazon lists it as the highest selling album for 3 years running The Slip 2nd Album Totally free album download – HQ MP3 with live Google maps of where it was being downloaded and live networks to join to engage with others + embedded tickets to purchase online for the next concert – 5,000 fans/concert @ $70/head = $375,000 x 3 concerts = $1,125m

Geofabric product manufactured in Australia

Instrumental value Intrinsic Extrinsic Value derived from the deployment of the offering Value derived from the possession of the offering Value derived from the appreciation of the offering Instrumental value Intrinsic Extrinsic © Copyright Göran Roos 2011

Exercise: Apply this thinking to two companies at your tables and consider how you might shift up the value proposition with the positioning of your offerings?

Business Problem Solving Production & System Integration Clipping the Ticket Business Problem Solving Consulting Product Design Supplier Management Production & System Integration Product Delivery Installation & Commissioning Product Life Cycle On-site Management Asset Management Process Outsourcing Front – End Services Back-End Services Product Sales & Operations Where in this value chain are you not clipping the ticket? What are your options for appropriating value?

Hallmark of a good business model Your profit exceeds your revenue from the base offering Where price or volume are not the only option

Engage your team!!