business models point of view in innovation management · ©imi 2 9.00 start of the day –...
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16/04/2016 © IMI 1
Business Models point of view
in Innovation Management
TU-E5050
Collaborative Innovation Management
COINNO
(5 cr)
14.4.2016
Pekka Berg
Hani Tarabichi
Innovation Management Institute
Aalto University
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9.00 Start of the Day
– Learnings from your Homework
– Lecture 1: Offering/ Lusch and Vargo´s service dominant logic
– Analysis of the pre-readings in the teams
– Outcome of the team discussions
– Lecture 2: Gassmann´s Business Models
– Analysis of the pre-readings in the teams
– Outcome of the team discussions
12.00 Lunch
13.00 Afternoon of the Day
– Lecture 3: LEGO Serious Play
– Intro for the Homework
– Working for the COINNO corporate project dealing with the topic
today
15.30 Wrap-Up of the day
16.00 End of the Day
TOPICS OF THE DAY
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PreReadings
1. (Shafer et.al., 2005, The power of business models, Business
Horizons 48, 199-207.)
2. O Gassmann, K Frankenberger, M Csik – 2013, The St. Gallen
Business Model Navigator, Working paper, bmi-lab.ch
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Readings (Voluntary)
1. Sundbo, J., 1997. Management of Innovation in Services.
2. Edvardsson, B. et.al. 2012. Customer integration within service development—A review
of methods and an analysis of insitu and exsitu contributions. Technovation 32 (2012)
419–429.
3. Osterwalder, A. & Pigneur, Y. 2005. Clarifying Business Models: Origins, Present, and
Future of the Concept.
4. Chesbrough, 2007, Business model innovation: it’s not just about technology anymore,
Strategy & leadership , vol. 35 no. 6 2007, pp. 12-17, Q Emerald Group Publishing
Limited, ISSN 1087-8572
5. Amit, Zott, 2012, Creating Value Through Business Model Innovation, MIT Sloan
Management Review.
6. Mabogunje, A., Kyvsgaard Hansen, P., Berg, P. 2013. Exploring Innovation – A Language
Approach. CO-CREATE Conference, Espoo, 16-19 June 2013.
7. Snowden et.al., 2007, A Leader´s Framework for Decision Making, Harward Business
Review, November 2007
Contents
1. Business Model approach
1. Introduction
2. Business Model by Shafer
3. Business Model by Gassmann
2. Teamwork
3. Homework
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Business Model between Offering and Impacts
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Souce: Yrjö Neuvo, TEKES Seminar 8.3.2006
Components of Business Model (Osterwalder)
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Partner
Network
Value
Configuration
Core
Capabilities
Value
Proposition
Distribution
Channel
Customer
Segment
Customer
Relationship
Cost
Structure
Revenue
StreamsSuccess/Failure
Product
Financial aspects
Infrastructure management Customer interface
What other
business model frames
do you know beyond
Osterwalder?
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TU-E5000 - Innovation and Project Management
Business Models, Offerings and Impact
Hani Tarabichi
• Create Value
• Build New Business
• Improve and transforms organizations
• Innovative way of thinking
• Visionary – Game changer
• Challenge driven
Business….What is the SPIRIT for it!!??
A?!”
• Feb 2014• Revenues $20
Millions
• Acquired by Facebook $19 Billions
• WhatsApp with that!!?
WhatsApp!!
http://www.statista.com/statistics/260819/number-of-monthly-active-whatsapp-users/
• Many firms continuously introduce innovations to their products and processes.
• Yet, many companies will not survive in the long term despite their product innovation capabilities
• ???!!
• These companies has failed to adapt their BM to the changing environment
• The future is for competitions between business models, Not between technologies and products.
Why companies fail to develop a breakthrough strategies?• Cultural inertia and unwillingness to change a ‘winning formula’
• Contentment and complacency
• Processes and structures that become rigid and unyielding
• Strong and unquestioned beliefs and corporate sacred cows
• Conservatism and fear of losing the current profit stream
• Strong vested interests and politicking
• Managerial overconfidence or arrogance
• Unyielding habits and company norms
• Overreliance on what has worked in the past
• Passive and uncritical thinking and quick dismissal of information that conflicts with current view
• Stubbornness and a passionate but unreflective reliance on past processes, habits, and values
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So….What’s up with business models??
• Business models have surged into the management vocabulary
• It has become quite fashionable to discuss business models
• Business models can serve a positive and powerful role in corporate
management
• Interest in the BM concept from a wide range of disciplines
So….What’s up with business models??
• Business models can be powerful tools for:
– Analyzing
– Implementing
– communicating strategic choices
• In the mid-1990s, dot-com firms pitched business models to attract funding
• 27% of Fortune 500 firms used the term BM in their 2001 annual reports
• Media have certainly gotten on board also. Within major magazines and
journals, only one article in 1990 used the term business model three times
or more; by 2000, well over 500 articles fell into that category.
• Business model can be defined as a unit of analysis to describe how the
business of a firm works.
• Business model is often depicted as an overarching concept that takes
notice of the different components a business is constituted of and puts
them together as a whole (Demil and Lecocq 2010; Osterwalder and
Pigneur, 2010).
• In other words, business models describe how the magic of a business
works based on its individual bits and pieces.
So….What’s up with business models??
A Business Model describes the rationale how
an organization creates, delivers and captures
value.
Source: Alexander Osterwalder and Yves Pigneur, 2010
What is a Business Model
What is a Business Model
• Business concept must be:
– Simple
– Relevant
– Understandable
• A business model is built on 9/?? blocks covering 4 areas:
– Customer
– Offers
– Infrastructure
– Financial viability
Rationale behind the Business Model Canvas (BMC)
• There is a need for a shared concept that everybody understands
enabling description and commensurate discussion about business
model(s)
– Model must be simple, relevant & intuitively understandable, but not over-
simplifying the complexities of how an enterprise function.
– Differentiating business model from other concepts, such as a revenue model,
strategy etc.
Rationale behind the Business Model Canvas (BMC)
• BMC tool describes any business model with “9/?? building blocks”
indicating the logic how company intends to make money (Value)
– Covers four main areas of business: Customers, offering, infrastructure, and
financial viability
– To describe, analyze, design and validate any business model
– A blueprint for a strategy to be implemented through organizational structures,
processes, and systems
So a quick recap
• 5 + 5 = ?
• OK??
• 5 + 5 = 10
• X + Y = 10
• What are the possibilities?
• 1 + 1 = ?
• 1 + 1 > 3 now that’s innovation management , be radical
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• Business is fundamentally concerned with creating value and capturing
returns from that value, and a model is simply a representation of reality
• a firm’s underlying core logic and strategic choices for creating and
capturing value within a value network
– core logic: suggests that a properly crafted business model helps articulate and make
explicit key assumptions about cause-and-effect relationships and the internal
consistency of strategic choices
– business model reflects the strategic choices that have been made
– Successful firms create substantial value by doing things in ways that differentiate them
from the competition
Value!!
• G-D Logic vs S-D Logic
• Value in exchange (G-D): Value is created in firm and distributed in market
through exchange of goods for money. Roles of producers and consumers
are distinct, value creation is a series of activities formed by the firm
• Value in use (S-D): roles of producer and consumer are not distinct. Value is
co-created jointly and reciprocally. Value is created through interaction
among providers and beneficiaries through integration of resources and
application of competencies
Value Creation, Value Capture
• Can Value creation occurs alone!!!?
• Can value capture occurs alone!!?
• Hamel 2001, argues:
– neither value creation, nor value captures occurs in a vacuum!
– Both occur within a VALUE NETWORK
• Suppliers
• Partners
• Distribution channels
• Coalitions
– The role a firm chooses to play within its value network is an important element of BM
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Value Creation, Value Capture
Components of BM according to Shafer et .al. 2004
Strategic
• Customer
• Value proposition
• Capabilities/competencies
• Revenue/Pricing
• Competitors
• Output (offering)
• Strategy
• Branding
• Differentiation
• Mission
Create Value
• Resource/Assets
• Processes/ Activities
Value Network
• Suppliers
• Customer information
• Customer relationship
• Information flows
• Product/Service flow
Capture Value
• Cost
• Financial aspects
• Profits
Adopted from: The power of business models, Scott M. Shafer, H. Jeff Smith, Jane C. Linder
Business Model .vs. Strategy!!
• A Business model is not a strategy
• Strategy can be viewed as a pattern of choices made over time!
• Strategy is a forward looking plan (Mintzberg), pattern, position, or
perspective.
• Strategy is a position (Porter), choices about which products or services are
offered in which markets based on differentiation features
• Strategy is a perspective (Drucker), choices about how business is
conceptualized
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• A business model facilitates:
– Analysis
– Testing
– Validating firm’s strategic choices
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Business Model .vs. Strategy!!
Problems of Business Models
• Misusing the business model concept can lead to problems
• Four common problems associated with creation and use of BMs:
– Flawed assumptions underlying the core logic
– Limitations in the strategic choices considered
– Misunderstandings about value creation and value capture
– Relying on flawed assumptions about the value network
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Problems of Business Models 1/4
• Flawed assumptions underlying the core logic:
– A firm moves into a danger zone if its business model’s core logic is based on flawed or
untested assumptions about the future
– Don’t confuse assumptions with reality
– once a set of strategic choices has been made, the resulting business model be
checked to ensure that implicit and explicit cause-and-effect relationships are well-
grounded as well as logical.
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Problems of Business Models 2/4
• Limitations in the strategic choices considered:
– A business model should address all of the firm’s core logic for creating and capturing
value, not just a portion of that logic
– Customer acquisition .vs. fulfilling orders (eToys)
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Problems of Business Models 3/4
• Misunderstandings about value creation and value capture:
– Tendency to focus so much on the value creation
– Organizations are unable to capture corresponding economic returns in relation to the
value they create. (Yahoo!)
• Searches of the Web, e-mail accounts, stock quotes and other financial information, greeting
cards, maps, driving direction….Where is the money?????
– Executives confuse potential value with actual value
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Problems of Business Models 4/4
• Relying on flawed assumptions about the value network:
– A model mistakenly assumes that the existing value network will continue unchanged
into the future
– Gas stations and supermarkets
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Contents
1. Business Model approach
1. Introduction
2. Business Model by Shafer
3. Business Model by Gassmann
2. Teamwork
3. Homework
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PreReadings:
O Gassmann, K Frankenberger, M Csik – 2013,
The St. Gallen Business Model Navigator, Working paper, bmi-lab.ch
Discuss in your team about topics as follows of the paper:
1. Business model´s four central dimensions: the Who, the
What, the How, and the Value?
2. Research methodology? How they did this study?
3. Three steps pave the road to a new business model?
Business Model, Source: Gassmann et.al. 2013
Discuss in your team about topics as follows of the paper:
1. Business model´s four central dimensions: the Who, the
What, the How, and the Value?
2. Research methodology? How they did this study?
3. Three steps pave the road to a new business model?
Business Model, Source: Gassmann et.al. 2013
Discuss in your team about topics as follows of the paper:
1. Business model´s four central dimensions: the Who, the
What, the How, and the Value?
2. Research methodology? How they did this study?
3. Three steps pave the road to a new business model?
Business Model, Source: Gassmann et.al. 2013
Discuss in your team about topics as follows of the paper:
1. Business model´s four central dimensions: the Who, the
What, the How, and the Value?
2. Research methodology? How they did this study?
3. Three steps pave the road to a new business model?
Business Model, Source: Gassmann et.al. 2013
O Gassmann, K Frankenberger, M Csik - 2013 The St. Gallen business model navigator- bmi-lab.ch
Business Model, Source: Gassmann et.al. 2013
Business model definition – the magic triangle
O Gassmann, K Frankenberger, M Csik - 2013 The St. Gallen business model navigator- bmi-lab.ch
Who?: The target customerEvery business model serves a certain
customer group. Thus, it should answer
the question ‘Who is the customer?’
Drawing on the argument that the “failure
to adequately define the market is a key
factor associated with venture failure”, we
identify the definition of the target
customer as one central dimension in
designing a new business model.
What?: The value proposition towards the customerThe second dimension describes what is offered to the target
customer, or put differently, what the customer values.
This notion is commonly referred to as the customer value
proposition, or more simply, the value proposition. It can be
defined as a holistic view of a company’s bundle of products and
services that are of value to the customer
How?: The value chain behind the creation
of this valueTo build and distribute the value proposition, a firm
has to master several processes and activities. These
processes and activities, along with the relevant
resources and capabilities, plus their orchestration in
the focal firm’s internal value chain form the third
dimension within the design of a new business model.
Value?: The revenue model that
captures the valueThe fourth dimension explains why the
business model is financially viable; thus it
relates to the revenue model. In essence, it
unifies aspects such as, for example, the
cost structure and the applied revenue
mechanisms, and points to the elementary
question of any firm, namely how to
generate value
Barriers to innovation
• Why doesn't more companies just come up with a new business model and
move into a ‘blue ocean’?
• It is because thinking outside the box is hard to do
• Mental barriers block the road towards innovative ideas
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Oliver Gassmann, Karolin Frankenberger, Michaela Csik
• Identified 55 patterns of business models after studying hundreds of
companies’ models from different industries applied in the past 25 years
• Only few phenomena are really new
• Often, innovations are slight variations of something that has existed
elsewhere, in other industries, or in other geographical areas
• about 90 % of the innovations turned out to be such re-combinations of
previously existing concepts
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The St Gallen Business Model Navigator
• Transforms the main concept – creating business model ideas by utilizing
the power of recombination – into a ready-to-use methodology, which has
proven its usefulness in countless workshops and other formats
• 3 steps for a new business model:
– Initiation – preparing the journey
– Ideation – moving into new directions
– Integration – completing the picture
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The St Gallen Business Model Navigator
Initiation – preparing the journey 1/3
• Before embarking on the journey towards new business models, it is
important to define a starting point and rough direction.
• Describing the current business model, its value logic, and its interactions
with the outside world is a good exercise for getting into the logic of
business model thinking.
• It also builds a common understanding of why the current business model
will need an overhaul, which factors endanger its future, or which
opportunities cannot be exploited in the current business model.
• Investigating these woes and the predominant industry logic provides a
rough direction according to which the generic business model patterns
should be interpreted in step 2.
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The St Gallen Business Model Navigator
Ideation – moving into new directions 2/3
• Re-combining existing concepts is a powerful tool to break out of the box
and generate ideas for new business models.
• To ease this process, we have condensed the 55 patterns of successful
business models into a handy set of pattern cards. Each pattern card (see
Fig. 28) contains the essential information that is needed to understand the
concept behind the pattern: a title, a description of the general logic, and a
concrete example of a company implementing the pattern in its business
model. During the ideation stage, the level of information on the card is just
right to trigger the creation of innovative ideas.
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The St Gallen Business Model Navigator
Integration – completing the picture 3/3
• There is no idea that is clear enough to be immediately implemented in a
company.
• On the contrary, promising ideas need to be gradually elaborated into full-
blown business models that describe all four dimensions (who? what? how?
why?) and also consider stakeholders, new partners, and consequences for
the market.
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Remarks about BM
• An organization’s business model is never complete as the process of
making strategic choices and testing business models should be ongoing
and iterative
• The probability of long-term success increases with the rigor and formality
with which an organization tests its strategic options through business
models
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Contents
1. Business Model approach
1. Introduction
2. Business Model by Shafer
3. Business Model by Gassmann
2. Teamwork
3. Homework
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Homework 1 for 14.4.2016/ Corporate Case
Illustrate Objectives of Your Case by
Logical Areas and Logical Frame (see next two slides)
1. What is the vision of your industry project?
2. What is the nature of your project?
3. What are the hoped for impacts of your project?
4. What are the hoped for results of your project?
5. What are the next activities of your project?
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Logical areas of the of a project
© Jussi Pihlajamaa, Pekka Berg / 9.1.2001/ IMI
NATURE
OF
PROJECTVISION
IMPACTS
FOCUS AREAS/
RESULTS
ACTIONS
Strategies
Resources
Business
Intelligence
Input Analysis Goal setting
Logical Frame
Priority 1 Priority 2 Priority 3 Priority 4
Priority 1 Priority 2 Priority 3 Priority 4
Desired industry impacts
of the project (WHY?)
Focus areas/
Results of the project
(subprojects)
(WHAT?)
Desired results by focus areas
New knowledge, wisdom, products, services and methods
Planned actions for realizing
the outputs of project
(HOW?)
LOGICAL FRAME: OBJECTIVES OF THE PROJECT
Focus 1 Focus 2 Focus 4Focus 3
Jussi Pihlajamaa, Pekka Berg / 9.1.2001/ IMI
Priority 1 Priority 2 Priority 3 Priority 4
Desired immediate impacts
of the project
for the company (WHY?)
Target groupTarget group Target group Target group
Users of the outputs
of the project (TO WHOM?)
Homework 2 for 21.4.2016:
Offering and Business Model (see the next two slides)
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1. Describe the (d)evolution (=innovation process) of your corporate case offering and
business model based on this day learnings
– Your model in the starting point today
• What is the value proposition of your model?
• How do you create value in your model?
• How do you capture value in your model?
– Development of your model
• Utilise Radical Innovation Approach, if relevant
• Use Future Users thinking
• Use Service Dominant Logic thinking.
• Use the Gassmann´s three-step “imitation and re-combination”-method and consider
if some elements or ideas of the described 55 business models could be useful in
your case.
– Extra, not mandatory
• How does your Offering and Business Model reflect the strategic choices and their
operating implications of your Case company?
• Think also the change of the business model in next, 3? – 5? – 10 years?
– Be ready to present the status of your work in the beginning of the next lecture
Good-Dominant logic versus Service-Dominant logic:
A change of perspective
Lusch R. and Vargo S., Toward a conceptual foundation for
service science: Contributions from service-dominant logic, IBM
SYSTEMS JOURNAL, VOL 47, NO 1, 2008
O Gassmann, K Frankenberger, M Csik - 2013 The St. Gallen business model navigator- bmi-lab.ch
Business Model, Source: Gassmann et.al. 2013
Homework
1. Don`t forget your Logical Frame Homework
2. Continue with your Offering and Business Model Homework.
3. Read the Pre-readings for the next lecture
4. Bring with you the background material supporting your team in the
next lecture dealing with the more detailed conceptualisation and
scenario building of your case (documents, information, thoughts,…)
© IMI75
If something unclear – don´t hesitate to ask.
Thank you !
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www.imi.aalto.fi
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