2012_larrykeeley

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IMPROVINGTHEKNOWNINVENTINGTHENEWreinventing marketing in a time of businessmodel evolution

Larry Keeley

2012 CMO SummitMay 2012


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Doblin is a member of Monitor Group 2011 Monitor Company Group LPConfidential and not for distribution

IMPROVINGTH KNOWN

INV NTINGTH N W

reinventing marketing in a time of businessmodel evolution

2012 CMO SummitMay 2012


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Visualizing business models

Pop quiz!

1) Okay quick, visualize the model of your choice

2) Now visualize an architectural model

3) Now visualize a car model

4) Now visualize an airplane model

5) And now a business model


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3

Elevation DockElevationLabs

Surprising results~ Raised $400k within a week from 5,000 backers

~ 13,500 people from 50 countries engaged within

one month

~ Sold 21,120 units on Kickstarter

~ Sold 20,000 more through Lunatik.com

Apple noticed. Offered to put watch bands in stores.

~ They offered their customary (poor) profit split

~ Wilson showed data that 76% of buyers were buying

the Nano iPod because of his band

~ Now Apple is selling 2x as many bands as forecast

STORY#1: Reinventing PRODUCTS

5types:

Clever uses of connections reduces business friction


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4

4

Pebble platform: innovation assessment

Pebble breaks all crowdfunding records outstripping its funding goal by 8,900%

and raising over $8M

Adventures in Funding

A timeline perspective

2Hours

$100K12Hours

$500K48Hours

$1M

72Hours $2.5M23Days

$8.9MPrevious Kickstarter fund

raising record: $3M in 60 days.

Pebble, a customizable app-driven platform

e-ink watch, a new layer over smartphones


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5STORY#2: Reinventing INDUSTRIES


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FROM START THROUGH OCT. 2010

2,202 CF MEMBERS KILLED BY IEDSOVER ARE WOUNDED18,300

157,000 IEDsHAVE EITHER DETONATED

OR BEEN DETECTED

A U.S. SOLDIER WAS

3 x likelier to be

killed or woundedFROM AN IED THAN BY GUNFIRE

63% of all US deathsARE FROM IEDs

On the strategic and tactical role of IEDs in insurgency


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06.2003 04.2010

COMMAND LINE &

VOIED

INFRARED

TRIGGERS

RF

TRIGGERS

AMONIUM

NITRATE

BOMB

EXPLOSIVELY

FORMED

PENETRATORS

INCREASED ARMOR

PLATING

RHINOC-IED

RHINO IIC-IED

WARLOCK

RF-JAMMER

FIELD DETECTION

TRAINING

MINE RESISTANT

ARMOR PROTECTED

VEHICLE (MRAP)


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10Investment asymmetrya key effect

USA HAS SPENT OVER

$13 billion

ON SOLUTIONSTO DEFEAT IEDs

ESTIMATED TOTAL IED

OPERATIONAL COSTS

$36 million

MORE BROADLY, FOR EVERY $1SPENT BYINSURGENTS IN THE WAR ON TERRORUSTAXPAYERS SPENT $6.6 million


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11STORY#3: Reinventing INVENTION


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Innovations in how Apple operates match the sophistication of the

innovations in their devices and services

Apple innovates in profit model...

$3.3 billionCash paid for income taxes,worldwide, in 2011

$34.2 billionProfit before taxes,worldwide, in 2011

Apples profits have soared

but tax payments have

risen much more slowly

This graph originally appeared

in The New York Times


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Using revenue and tax manipulations legally available to digital tech

companies

Apple innovates in profit model...

DESIGN, PATENT,

MARKET

Cupertino, CA

(8.9% corp tax)

SALES REVENUES

Braeburn Capital

Reno, Nevada

(0% corp tax)

OVERSEAS

DISTRIBUTION

REINVENTED AS

COMMISSIONAIRES

High tax countries

NON-US SALES

REVENUES

iTunes SARL

Luxembourg

(low corp tax)

PATENT ROYALTIES

SALES & SERVICE

Double Irish:

Apple Operations Intl.,

Apple Sales Intl., Cork

(low corp tax)

ROUTING/ACCOUNTING

PROFITS

Dutch Sandwich:

Netherlands/Ireland/

British Virgin Islands

(low/no corp tax)

1

2

5

4

3


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1A significant research discovery radically alters howwe can diagnose or construct innovation effectively

Ten Types ofinnovation


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15Fundamental innovation discovery


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16

16

How you create

complementaryproducts and services

How you differentiate

your product or

service offerings

The Ten Types of Innovation


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17

17


How you

make money

How you align

your talent and assets

How you develop andcreate your offeringsHow you join withothers to create value


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18

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How you ensure and

enhance the value of

your offerings

How you represent your

offerings and business

How you fosterdistinctive experiences

How you connect your

offerings withcustomers and users


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19The Ten Types of Innovation

make money

align your talent and assets

join with others to

create value

develop and create

your offerings

create complementary

products and services

differentiate your product

or service offerings

ensure and enhance

the value of your offerings

represent your offerings

and business

connect your offerings with

customers and users

foster distinctive experiences

How you Such as


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20

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Using the Ten Types effectively

The average innovator is too focused on simple, product-based innovations.

300

33 32

14

36

243

62

22 2741

83

Average number of typesin use:

1.8 types

Source: Bibliometric search of Sysomos and Dialog databases, Monitor / Doblin analysis


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21

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Using the Ten Types effectively

Successful innovators look beyond product performance, and integrate twice as

many types of innovation.

74

103

58

82

179

79

47 44

60

43

200

Average number of typesin use:

3.6 types

N=214 companies, compiled from 2011 lists of most innovativecompanies from Forbes, BusinessWeek, MIT Review, and FastCompany


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All top innovators

138 companies

Research: top performers use innovation differently

The top innovators outperform the S&P 500

S&P 500

5-Year Indexed Stock Price Returns of the Top Innovators vs. S&P 500

St

ock

Price(

indexed

to1

00)

2007 2008 2009 2010 2011


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3-4 Types of Innovation

59 companies

5+ Types of Innovation

45 companies

Partly because their innovations are more sophisticated

Integrating more types of innovation delivers superior financial

returns

S&P 500

1-2 Types of Innovation

34 companies

5-Year Indexed Stock Price Returns of the Top Innovators vs. S&P 500

St

ock

Price(

indexed

to1

00)

2007 2008 2009 2010 2011


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Learn to see mechanisms for business design as

choices: vital, malleable, and key to value creation

Building betterbusiness models2

i h ff i l


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25Using the Ten Types effectively

A better set of building blocks: Innovation tactics

Premium

Cost Leadership

Predictive

Analytics

Metered Use

Forced Scarcity

Subscription

Membership

Installed Base

Switchboard

Auction

User-Defined

Freemium

Flexible Pricing

Float

Financing

Microtransactions

Volume

Ad-Supported

Licensing

Multi-Level

Marketing

Merger/Acquisition

Consolidation

Open Innovation

Secondary Markets

Supply Chain

Integration

Complementary

Partnering

Alliances

Franchising

Coopetition

Organizational

Design

Talent Systems

Incentive Systems

IT Integration

Outsourcing

Crowdsourcing

Social Network

Shared Back Office

Corporate

University

Decentralized

Management

Knowledge

Management

Flexible

Manufacturing

Standardization

Localization

Process Efficiency

Process

Automation

On-Demand

Production

Lean Production

Logistics Systems

Strategic Design

Intellectual

Property

Feature

Aggregation

Added

Functionality

Superior Product

Ease of Use

Engaging

Functionality

Environmental

Sensitivity

Safety

Simplification

Customization

Focus

Conservation

Styling

Cross Selling

Extensions/

Plug-ins

Product Bundling

Modular Systems

Product/Service

Platforms

Integrated

Offering

Try Before You

Buy

Guarantee

Loyalty Programs

Added Value

Concierge

Total Experience

Management

Supplementary

Service

Superior Service

Personalized

Information

User

Communities/Sup

port Systems

Lease or Loan

Expansion

Flagship Store

Go Direct

Non-Traditional

Channels

Pop-up Presence

Indirect

Distribution

Cross-selling

On-Demand

Co-branding

Brand Leverage

Private Label

Brand Extension

Novel Branding

Component

Branding

Transparency

Values Alignment

Certification

Process

Automation

Simplification

Curation

Experience

Enabling

Mastery

Autonomy and

Authority

Community and

Belonging

Personalization

Whimsy and

Personality

U i h T T ff i l


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26Using the Ten Types effectively

A better set of building blocks: Innovation tactics

104 unique innovation tactics spanning

across the Ten Types of Innovation Definitions and examples for each

tactic

Simple protocols for how to use thecards for innovation activities

P fit d l th f ll t


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27Profit models: the full taxonomy

28S l t P fit d l i d t il


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28Select Profit models: in detail

Risk Sharing helps align customers and users interests so everyone works to

achieve performance incentives

Problem: Johnson Controls (JCI) had difficultyaligning incentives with building owners whoneeded to achieve long-term efficiency savings,

but struggled with the significant capitalrequirements and uncertain outcomes of suchinfrastructure upgrades

Approach: JCI offered guaranteed lifecycle savingsand upside-sharing models on infrastructureupgrades to share both the burden and upside ofrisk with customers

If Johnson fails to achieve the guaranteedsavings, it pays the difference to the customer

if additional savings are achieved, they are splitbetween Johnson and the client

To help achieve the guaranteed outcomes, JCIoften keeps service staff on-site at installationsto ensure equipment is performing

29Th dl th f hi ith f hi kill


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29Threadless: the fashion company with no fashion skills

4 types:

30FarmVille innovation assessment


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Founded in 2007, as of 2011

$445 million in revenue

$9.7 billion in market cap

85+million membersOutnumbered real farmers in the U.S.

79 to 1

In-game sales of $45 millionin virtual goods sold to FarmVille farmers

Sweet Potato seed packets netted

$854,000 in three weeks

8types:

FarmVille: innovation assessment

31FarmVille: innovation assessment


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31FarmVille: innovation assessment

32Hyundai innovation assessment


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Hyundai found itself in a challenging sales environment



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and fought back by tuning into customers emotional state

3 types:

34Zipcar: innovation assessment


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34Zipcar: innovation assessment

7 types:

35Hilti: innovation assessment


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6 types:

Hilti: innovation assessment



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Identify the aspects of the offering that are undervalued and highly valued

by customers

Cost of buying a tool fleetCost of $2,075.89

Eliminate maintenance costsSaving $69.19

Differentiated ValueYour unique value deliveredminus that of your competitors

Reference ValuePrice of best alternative

Limited to Hilti-specificreplacement bladesCost of $324.40

Total EconomicValue = $3,886.00

Minimizing downtime

Saving $1,726.31

Eliminate tool replacement costSaving $341.00

Hiltis lease

fees = $2,304.24

Source of businessmodel innovation

Monthly leasingmodel reducestotal managementcost by 45.3%

* savings/costs per worker

37M-PESA: Innovation assessment


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37M-PESA: Innovation assessment

Which of these things is not like the other?

8

types:

38Innovating around climactic uncertainty


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38Innovating around climactic uncertainty

5 types:

Analytics, modeling, and rapid service for the "Age of Precision" Agriculture

39Dynamic auctions bring power to producers


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Creating new levels of efficiency and profitability

Dynamic auctions bring power to producers

4types:

40Geisinger Provencare: innovation assessment


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Geisinger Provencare: innovation assessment

Geisinger offers pricing and outcomes guarantees for complex cardio care

7 types:

3


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Platforms accelerate value migration

Seeing HowIndustries

Transform

3

42

Ten types of innovation: sector transformation patterns


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Business model-centricinnovationConfigure assets differently

to deliver value

Platform-centricinnovation

Reinvent or recombinecapabilities to deliver value

Experience-centricinnovationEngage customers differentlyto deliver value

Ten types of innovation: secto t a s o at o patte s

43Amazon evolves over time


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Learning from

1. The worlds largest online retailer

2. Market capitalization of ~$70Bn

3. Sells roughly three of every four e-books almosttwice the number of hardcover books they sell

4. And yet books and other media (e.g., DVDs, CDs)

comprise only half of its $25Bn in revenue

44Evolution of the bookstore


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1994



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2003



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2007

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Convergences in efficiency: consumer behaviors speed evolution


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SIMPLE SOPHISTICATEDSPECTRUM OF GREEN BEHAVIORS

Consumers drive convergences through their adaptationsof products and

adoptionof new behaviors

g y

48Convergences in efficiency: Energy usage behavior change


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A variety of actions, balanced across whats desirable, viable and feasible make

Montreals Bixi bike sharing program popular and successful

49Convergences in efficiency: Energy usage behavior change


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BetterPlace is building systems to bridge transportation contexts and drive

cleaner, more efficient use of vehicles

Battery swap,

if a faster recharge

is needed

Take your green

wheels where you

need to go

Grab your

reserved car

Book a train ticket

and a car in one

interaction

Technology partner

50Select Profit models: in detail


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Metered Use model helps induce faster behavioral change

Better Places business model enablesEV

drivers to pay for electricity on a per

mile basis Subscription model similar to service plans of

telecom companies

Customers sign up for a set number of

monthly miles

EVs are leased out or provided for free,

based on the term of plan

Swapping stations are parallel to gas stations,

enabling flexible mobility and convenience

51Convergences in efficiency: a shared experimental prototype


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Masdarzero carbon city, research hub, laboratory & proving ground

All photos and drawing from NYTimes

52THEBUSINESSMODELCONSTRUCTIONCHECKLIST


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The process of designing a new business model is similar to designing the

product or service it is meant to support...

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Begin with insight into how customers perceive valueDiscover your customers deep economiccontext, plus their unmet needs

Think differently and reframe possibilities to capture the value you createin fresh, fair, surprising waysFind something stupid at the core then build different value capture tactics & pricing models

Build a specific narrative and prototype the future business to show how itwould work, end to endEvaluate the concept with customers, partners and colleagues and find ways to simplify

Launch your offering in ways designed to foster trial, reduce user friction,

and establish rapid growth momentumMake it easy to try, compelling to use, and do something that seems magical

Evolve the services, systems, and business model over timeExpect and anticipate that the business model will change as your platform becomes more

pervasive, more of a defacto standard, and attracts second and third order innovations

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In a time of intense change:

Work on big problems withgreat teams

Find or build low friction methods

Do not wait for others to help

Physically go to front lines

Combine expertise

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Go get em!

Access to these notes:

http://clientweb.doblin.com

login: GE CMO Summit

password: innovation

Access will expire in two weeks

[email protected]


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