topic 4 business model innovation
DESCRIPTION
ACPS 2010 Module 6Topic 4 Business Model Innovation3 Types of Business Model InnovationAction StepsTRANSCRIPT
© 2010 IBM Corporation
Zaheer Travadi – Sr. Strategy & Transformation Consultant | Program Manager – WW STG Run Rate Marketing
Module 6 - Services innovationBusiness Model Innovation
© 2010 IBM Corporation2 IBM-SPJIMR – ACPS 2010
Step One: Check your OPPORTUNITY
Category Questions
After-Market Opportunity How competitive is your company’s total spend on the “Cost of Quality” relative to peers?
To what extent is there untapped opportunity in the after-market?
Services Growth Opportunity
To what extent is there an opportunity to materially impact top line growth with new services?
Are customers demanding these services or sourcing them from competition?
Strategic Importance To what degree can service provide a competitive advantage to the firm’s overall success?
To what degree would improvements in the service chain enable improvement across the enterprise?
© 2010 IBM Corporation3 IBM-SPJIMR – ACPS 2010
Step Two: Check your MATURITY
Category Questions
Business Model Clarity How aligned is service’s value proposition with the core enterprise business strategy?
How well does the current service operational model support the direction service is headed?
Operational Maturity How integrated are the processes, data, tools, and management of the entire service chain?
How integrated is the service chain with sales, marketing and product development?
Service Offering Maturity How well do the firm’s service offerings match up with its customers shifting priorities?
How well do the firm’s service offerings align with core product offerings?
© 2010 IBM Corporation4 IBM-SPJIMR – ACPS 2010
Top-line learnings about business model innovation
1 Business Model Innovation improves margins
2Three distinct types of Business Model Innovation have been identified
3All three types of Business Model Innovation can lead to financial success -- the right strategy and execution are key.
4Enterprise model innovation through collaborative innovation is the most predominant model.
© 2010 IBM Corporation5 IBM-SPJIMR – ACPS 2010
Business Model Innovation improves margins
Operating Margin Growth in Excess of Peers
(Compound annual growth rate over 5 years)
OperationsInnovators
-1%
0%
1%
2%
3%
4%
5%
6%
Products/ Services/Markets
Innovators
Business Model
Innovators
Source: The Global CEO Study 2008: Expanding the Innovation Horizon
1
© 2010 IBM Corporation6 IBM-SPJIMR – ACPS 2010
Business Model Innovation
Enterprise model Innovation
Three distinct types of business model innovation have been identified
Revenue model Innovation
• Gillette innovated the pricing model by giving away razors and making money on the blades
• Netflix shifted the revenue model from product / rental based to a subscription based annuity model
PRICING / REVENUE MODEL
VALUE PROPOSITION• Cirque du Soleil reconfigured offering and value elements to transform the circus experience
Industry model Innovation
INDUSTRY TRANSFORMATION
• Moving from one value chain to another, leveraging its brand across industries including airline, media and telecoms
HORIZONTAL MOVES
• Apple transformed the music industry through a new way of connecting hardware with software to download music with iPods/iTunes product & service combination
• Dell redefined the PC value chain and industry model by using a direct to customer sales model
INTEGRATION• Zara’s Fast Fashion model is supported by a highly integrated business model along its value chain
SPECIALIZATION• Bharti created a highly specialized Telco business model by focusing only on its key differentiators – marketing, sales and distribution – and partnering for everything else
EXTERNAL COLLABORATION• P&G’s innovative R&D collaboration model “connect & develop”, sourcing over 50% of ideas externally
2
© 2010 IBM Corporation7 IBM-SPJIMR – ACPS 2010
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Source: IBM Institute for Business value analysis of Thomson ONE Banker financial data and company annual reports, 1997 – 2006
Revenue Industry/
Enterprise Model
Revenue / Enterprise
Model
Enterprise / Industry Model
Industry / Revenue
ModelRevenue
ModelEnterprise
ModelIndustry Model
10 y
ear
Sto
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AG
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Each type of business model innovation, alone or together, can lead to financial success
10-year Stock CAGR versus Type of Business Model Innovation
3
© 2010 IBM Corporation8 IBM-SPJIMR – ACPS 2010
Enterprise model innovation through collaborative innovation is the most prominent model
0 5 10 15 20 25 30
Enterprise Model
Revenue Model
Industry Model
# of Business Model Innovators focused on BMI Path
(Based on 35 best practice cases)
# of Companies
External Collaboration Specialization/Integration
Value Proposition Revenue / Pricing
Transformation Horizontal Moves 22
25
28
4
© 2010 IBM Corporation9 IBM-SPJIMR – ACPS 2010
Approaches to industry model Innovation
Transforming the industry value chainCompanies are changing the “rules of the game” by challenging traditional value chains through disintermediation. Example: the “Dell Direct” model.
Transforming industries through horizontal movesDifferentiating expertise, experience and assets are moved aggressively to another industry value chain. Example: Virgin move from music industry to airline company.
© 2010 IBM Corporation10
IBM-SPJIMR – ACPS 2010
Approaches to revenue model innovation
Competing through new pricing and revenue models
Industry “rules of the game” are transformed through fundamental shifts in underlying pricing and revenue models, such as charging for ring tones or offering monthly subscriptions for DVDs
Innovating value proposition through reconfiguration
The opening of new, uncontested spaces generates a leap in customer value through reconfiguration of competitive factors, creation of unprecedented value propositions and completely new markets.
© 2010 IBM Corporation11
IBM-SPJIMR – ACPS 2010
Approaches to enterprise model innovation
Integration / specialization continuum Integration requires execution of all business components across the enterprise while specialization requires collaboration and partnering on selected non-differentiating business components. Enterprise integration case-- Zara. Specialization case:--Bharti
Collaboration and partnering Organizations are redefining the extended enterprise as they seek collaboration in a selected number of business areas/components and partnerships ranging from supplier relationships to legal joint ventures – leading in some cases to value networks
© 2010 IBM Corporation12
IBM-SPJIMR – ACPS 2010
Action step 1Understanding context and parameters
Age of Company
Industry
Financial Performance• Depending on age and
organizational legacy, companies are pursuing different business model innovation paths . . . e.g., enterprise model innovation is most relevant to companies 50 years and older
• Understanding implications will set the framework for decisions on both type and degree of business model innovation
• Nature of business model innovation opportunities vary by industry, depending on unique characteristics and maturity in each industry
• Understanding the nature of opportunities within – and across – industries allows identification of incremental or radical innovations
• Benchmark performance against industry peers, especially financial opportunities created through business model innovation
© 2010 IBM Corporation13
IBM-SPJIMR – ACPS 2010
Focus on Integrating Service
Operations and Reducing Cost
Focus on Growing Services Revenue
Pursue Cost Reduction and New
Revenue Opportunities in
Parallel
Traditional After-Sales Support
Model
Defining a company’s overall strategic intent for service determines the overall service business model
Service Model Strategic Intent
Degree of Services Led Growth
Degree of Optimization
Take these steps to define strategic intent:
– Map all the activities the customer performs in using and maintaining the product throughout its lifecycle
– Understand the customer’s expectations for support and service throughout this lifecycle
– Identify a unique value proposition to customers and the enterprise
– Align the overall service strategy with the enterprise strategy
– Identify and prioritize opportunities for services revenue growth and cost reduction
The outcome of this assessment is a strategic intent that is:
– Clearly defined and actionable
– Aligned with competitive and market context
– Able to be effectively communicated to stakeholders
© 2010 IBM Corporation14
IBM-SPJIMR – ACPS 2010
Action step 2Assessing current and desired positions to create path
High
Low
Revenue Model
Industry Model Enterprise Model
Moving from current to target position• Are there ways to reconfigure / re-allocated sources of revenue in your
business?
• How can you sell elements of your services / offerings differently?
• How can you reconfigure value elements in your business?
• How can you select and leverage unique assets & capabilities in your business that provide competitive
differentiation?
• What should you do vs where should you partner for optimal
value?
• How can you leverage new / emerging business models in your industries? From other industries?
• How does new/emerging technology change the parameters?
• Are you a leader of follower when it comes to industry change?
Current PositionTarget Position
Degree of Innovation
• How does the degree of innovation relate to your industry? How will it change in the future?
• Do you have the right balance?
Timing of Innovation
• Do you drive change in the industry, or is it imposed on you? Lead vs follow?
• What are the disruptive technologies or models emerging today?
BMI Path
• Which business model innovation paths are we / should you explore?
• Which ones are most aligned with our industry, capabilities, vision?
© 2010 IBM Corporation15
IBM-SPJIMR – ACPS 2010
Leaders manage the services offering portfolio with the same degree of rigor as the product development portfolio
Strategy & Portfolio
Product Development Process
Project Execution
Metrics
Systems & Infrastructure
Teams & Organization
Select A ModelIdentify &
Address Gaps
Manage Like Product
Development
New Product Development Strategy and Delivery Framework
How Does This Apply To Services?
Strategy & Portfolio Do the offerings support the our business strategy & objectives? Are the services aligned to our customers’ needs &
expectations?
Service Offering Development Process Are our services well-defined? How quickly do they gain
traction in the marketplace? Do we have a process to sunset underperforming services?
Project Execution Are we launching services in a timely and efficient manner? Is there an appropriate sequence & timing for services’ launch?
Metrics Are we using the right metrics to measure team and process
performance? Do these metrics alert us to potential project pitfalls and process
improvements?
Systems & Infrastructure Do we have the right systems in place to enable our services
sales & delivery? Do other stakeholders have access to these systems?
Teams & Organization What are unique skills and capabilities required to execute
successfully? Is our organization and team structure consistent with services
delivery needs?
© 2010 IBM Corporation16
IBM-SPJIMR – ACPS 2010
Action step 3Building capabilities
Industry models– Do you have a systematic way to envision future industry scenarios and implications
for your innovation strategy?
Revenue models– How can you exploit new / emerging revenue models as well as new value offerings,
and manage the implications for your business and competitive positioning? – Do you have a structured approach to thinking through revenue implications?
Enterprise models– Do you understand - and leverage - your unique capabilities and assets? – What capabilities and processes do you have in place to develop, maintain,
evaluate and terminate external collaboration for innovation?
© 2010 IBM Corporation17
IBM-SPJIMR – ACPS 2010
Existing organizational and governance structures must be updated to reflect the new business model and management discipline
Organization Structure How is our organization structured today and what changes are required to support our new business model?
How can we balance the needs and interests of the global organization and geographies/business units?
What degree of services sales and delivery is currently performed by partners? What governance framework is required to enforce accountability and improve the timeliness
and effectiveness of decision-making?
Roles and Responsibilities
What are the new skills and capabilities required to execute the new business model? What capability gaps exist between the current and future state? How will we acquire these new capabilities (i.e. training, new hires, etc.)? Can we leverage
partners to fill these gaps? Is new headcount required for the transition to the new model and the subsequent steady
state?
Metrics and Measurements
What are the correct metrics to measure operational achievement against future state goals? Are these performance metrics aligned to our business plan for the global organization Are other internal and external stakeholders aligned with our business objectives? How often will we collect these measurements and make necessary adjustments to the
business?
Key Questions about Organization