Creative Inquiry Talk

Guest Speaker SessionGuest Speaker SessionOctober 19October 19thth, 2015, 2015

2

Why Business Models Matter?

“business model” vs. “strategy” Who customers are & how to make $$ by providing value

vs. how you’ll beat competitors by being different BM = absolute (no competitors) vs. Strategy = being

different

Models pass when both tests clarify how the business’s various elements fit together

3

Why Business Models Matter? 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… BMs without a Strategy “too many fledgling firms

rushed to market with identical business models and no strategies to differentiate themselves”

BMs with a Strategy “his model was the same as Kmart, but his strategy was unique”

4

Breakthrough, game-changing products or services rarely emerge from established businesses

That’s because a radically new product/service usually needs a new business model

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”

Reinventing Business Models

No more than 10% of innovation investment at global firms is focused on developing new business models

5

Business Models: Two Frameworks Why Business Models Matter:

1.Narrative Test: via an unmet need or selling in innovative ways

2.Numbers Test: P&L must add up Reinventing Your Business Model

1. Customer Value Proposition (CVP): “Job to be done”2. Profit Formula: revenue, cost structure, margin model,

resource velocity3. Key Resources: intangible vs. tangible4. Key Processes: processes, rules, and norms

6

Customer Value Proposition (CVP)

• Creating value for customers by identifying important “jobs”

• Target customer• Job to be done• Offering

Profit Formula• Revenue model

= P x V• Cost structure key assets, direct & indirect costs, scale

• Margin model net @ transaction level

• Resource velocity resource burn rate

Four Elements:1) Customer Value Proposition

(CVP)2) Profit Formula3) Key Resources4) 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)

Business ModelCoordinated method for delivering what customers want, how they want it, in a profitable way

Reinventing Business Models

7

Reinventing Business Models 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…

8

Current Business ModelCurrent model may be revolutionary in a new market

Old model will do when CVP is met with:

•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

No Business is Bullet-proof Firms must continually seek “fit”

New vs. Old Business Model

1) Customer “shut out” (e.g. Tata’s Nano)

2) New technology / business model (Apple & MP3 players)

3) Job-to-be-done focus, where one does not exist (FedEx)

4) Fend off low-end disrupters (Bloom going “upmarket”)

5) Shifting when global competition intensifies (Hilti)

New Business Model