Business model innovation new value

1. Workshop: How to Create New Value in Your Business Through Business Model Innovation Prepared and Presented by Marcus Tarrant Managing Director Mission HQ Pty. Ltd. ATF the Innovate Trust Bryce Steele Managing Director Enterprise Accelerators

2. A thought Starter The competition of today is between business models, not just products or solutions. • FujiFilm Vs Kodak • Skype Vs Telstra • Mailchimp Vs Vertical Response • Toner Vs Printer2

3. Enterprise Connect Introduction

4. Mission HQ Introduction

5. About Mission HQ Pty. Ltd.Marcus Tarrant, BEc MEIPast Roles • Senior Consultant - Strategy at Deloitte Consulting • Head of Professional Services – Offspring Ventures/ipernicaCurrent • Managing Director Mission HQ • Chargantt.com • Business Planning HQ .com • HyperQuestion.com 5

6. Enterprise Accelerators

7. Workshop AgendaAgenda Item TimeIntroduction 15 minsAbout Innovation 30 MinsWhat is a Business Model? 30 MinsDoes it apply to me? 5 MinsKodak/Fuji Film Case Study 10 MinsMorning Tea 20 MinsThe Business Model Framework 30 MinsWorkshop Exercise – Ballast Blaster 45 MinsAssessing Business Models 10 MinsImplementing Business Model Innovation 5 MinsHow you could use Business Model Innovation in your organisation 5 MinsFeedback Forms and Close 10 Mins7

8. What is it all about?

9. There are three kinds of companies, those that make new things happen, those that watch new things happen, and those that wonder what happened Anonymous9

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36. About Innovation What is innovation and how is it used?

37. So Who Cares About Innovation Anyhow?37

38. Mini-Workshop – What is Innovation?• How have you seen it applied in your organisation?• Is it core to your business?• What type of innovation have you done?• Has it contributed value to your business?• Can you identify a direct bottom line impact?• What effect has it had on your customers and suppliers?• What’s hard about doing innovation?38

39. What is Innovation?39

40. Forms of Innovation• Radical – significant change that simultaneously affects both the business model and the technology of the company. If the radical innovation also shifts an industry into another direction and brings out fundamental changes to the competitive landscape, it can also be called as disruptive innovation.• Semi-Radical – From a company’s perspective, semi-radical innovation involves substantial change in either technology of an organization or its business model- but not to both.• Incremental – The most prevalent form of innovation, receiving more than 80% of a company’s total innovation investment. The goal is of course, to get as much as possible from an already existing innovation without making major changes in investment, or dislodging existing products or services.40

41. Types of Innovation 1. Product 2. Process 3. Business Model

42. 1. Product and Service Innovation “the creation of new products and services or the improvement of existing products to meet user needs”• New product design• New functionality• Completely new products• New ways of product delivery• Product/Service Packaging• Contract for service vs transactional sales• Consumables vs the unit itself• Customisation

43. 1. Product and Service InnovationWhen to Apply Product and Service Innovation• Differentiate• Re-Position• Market Entry• Increase Margins• Diversify into new markets• To survive “Product and service can be a means of executing on business model innovation.”43

44. Example of Product/Service Innovation resulting from business model innovation 44

45. 2. Process Innovation“improving the sequencing of work routinesand information flow to achieve businessimprovement.”Results achieved through ProcessInnovation • Faster • Cheaper • More flexible • Simpler • Improved communication • Greater levels of customisation

46. 2. Process InnovationWhen and Why?• Better meet customer needs• Improve cost efficiency• Enable greater organisational flexibility• Enhanced consistency• Improved delivery of “Brand Promise”• Focus on “Core Business” – Process Outsourcing

47. An Example of Process Innovation47

48. 3. Business Model Innovation“a conceptual framework for identifying how company creates, delivers andextracts value”• Identifies a market segment and defines the customer• Articulates the value of the proposed offering• Focuses on the key attributes of the offering"• Defines the value chain to deliver that offering• Creates a way to get paid• Establishes a value network that is needed to make the model self sustaining

49. 3. Business Model InnovationWhen and Why? • Underpin the business planning process • Provide an absolutely IDEAL starting point for the creation of a financial model. • Create a deeper understanding of you plans with collaborators, partners and suppliers • Provide a clear picture of a planned business to investors or internal stakeholders • Develop business cases for market entry • Optimise the value obtainable for a given business concept • Assist in evaluating alignment with organisational strategy

50. The context of Innovation Innovation Program Product Business and Service Model Innovation Innovation Process Innovation50

51. Bringing the elements together Traditional Innovation Product and Service Innovation Process Innovation51

52. What To Do When Strategy Operational Domain Domain Product Business and Service Model Innovation Innovation Process Innovation52

53. So where does business model innovation fit exactly?• Business Model Renovation [BMR] is presented as the highest level of a strategy for managing change that usually cannot be handled by continuous improvement and re- engineering methods or organizational restructuring (Kovacic, 2001).53

54. Return on Investment for Business Model Innovation (BMI)• Boston Consulting Group Innovation Research – BMI delivered returns that were more sustainable, even after 10 years – BMI innovators continued to outperform product and process innovators – BMI earned innovators a 4 times greater return on investment than product or process54

55. What is a business model?

56. White-Board Discussion• What is a business model – Characteristics of a business model – Relevance to my organisation – Have you heard the term before? – What do people mean when they talk about a business model?56

57. White-Board Discussion – Word Cloud57

58. Business Model DefinitionA business model describes the rationale of howan organization creates, delivers, and capturesvalue (economic, social, or other forms of value).The process of business model construction is part of business strategy.58

59. The context of the business modelwhat are intangible assets? Strategy Business Financial Model Implications (Value) Operating Environment

60. How often should you renovate your business model?Business Model Renovation Lifecycle 6 Months 50-100 Years1900 202060

61. Why is Business Model Innovation Relevant Today?• Business Model innovation is particularly valuable in times of instability – Provides a mechanism to break out of intense competition – Address disruptive environmental changes • Regulatory • Exchange rates and cost structure • New technologies • Customer capabilities and or expectations61

62. Does it apply to me?

63. Does Business Model Innovation Apply to Me?• Manufacturing• Services• Retail• Mining Need• Engineering Sustainable• Infrastructure Revenue to• Finance• Online Survive• Not for profit• Government Agencies63

64. For how long will you be able to keep charging what you are for what you do?• Exchange Rate – Aust Red Wine Example• Rise of Asia• Disruptive technology• New products and services• New ways of doing business• New delivery systems• Virtualisation• Freemium• International Barriers in Communications• Customer problem evolution• Service Automation• ...even the Ipod! Nano 4gb 2007 - $364 Today $149 64

65. Discussion on Kodak/Fuji Film Case Study

66. Discussion Points• Digital photographys impact on the Kodak Business Model• Who invented digital photography?• What was the Kodak business model?• What should the Kodak business model take into account?• How did Fuji Film handle the same issues differently?• Does the business model support the same skills and number of resources?• Does having a great business model today mean that you will also have one in the future?66

67. Morning Tea – 20 Minute Break

68. The Business Model Framework

69. The business model Framework1. Value Proposition – What are you offering?2. Capabilities/Resources – What skills and capacity do you require?3. Partnership – Who do you need to work with?4. Activities – What will you do?5. Costs – What are your significant costs likely to be?6. Relationship – What formal and informal relationships are required7. Channel – What are our channels to market?8. Revenues – What will our customers pay for?9. Customers – Who are our customers?69

70. Traditional business model Matrix70

71. High Level Business Model Framework Innocatalyst™ Customer Value Financial Delivery External71

72. InnoCatalyst™ Business Model Framework Capabilities Customer Value Revenue Value Who Proposition Financial Purchaser Delivery Activities User Costs Influencer Partner External Channels to Market Relationships Partnerships72

73. A real world example – 4-5 Items73

74. 1. The Value Proposition• Value can occur at any of the following stages of the customer engagement and deliver process. Evaluation Process Value Co- Creation Purchase Process Set-up/ Installation Use/ Operation Complement .product/ services Maintenanc e & After sales Ending Value and Value Transfer74

75. Mapping out your value proposition Evaluation Value Co- Purchase Set-up/ Use/ Complem. Maint./ Ending/ Process Creation Process Installation Operation products after sales Value transferIncreasingcustomerproductivitySimplicity forcustomerConveniencefor customerReducingCustomerRiskImpact onCustomer’sImage -75-

76. Evaluation Process• Simplify a customer’s evaluation process• Example: ISELECT -76-

77. Value Co-Creation• Through various technological advances the integration and participation of the customer in the value creation process is increasingly possible.• Together with the knowledge and networks of customers additional value can be created and facilitated.• Examples: Ebay & Amazon -77-

78. Purchasing Process• Customers highly value an efficient, simple and convenient purchase process. Example: Creative Mobile Technologies back-seat swipe and entertainment for Taxi Cabs -78-

79. Set-Up/Installation• In some cases set-up or installation is necessary. The simplification of this process is of enormous value to the customer.• Example: Dick Smith: Mobile Techxphert Services -79-

80. Use/Operation• In many cases most of the value in a value proposition comes from the use or operation of an actual product or service. However, to differentiate themselves companies try to create value beyond a simple product or service.• Salesforce is carefully creating additional value by offering continuous updating "behind the scenes" and providing easy access to complementary products by third party vendors. -80-

81. Maintenance & aftersales support• Value is often created during the maintenance and after-sales phase. This can be either by offering high quality service or by offering a value proposition that minimizes the need for maintenance & after-sales.• Example: The attractiveness of salesforce.com’s value proposition essentially comes from the fact that the hosted software model (application service provider - ASP) minimizes the need of software maintenance by the customer. -81-

82. Ending and value transfer• In many cases once a customer does not need a product or service anymore he has to terminate the service or dispose of the product. Example: BMW Recycling Programme -82-

83. 2. Capabilities/Resources• What physical assets does our business model require? – Factory – Machinery – Etc.• Intellectual Assets – Trademarks (licensed or owned) – Patents – Processes – Systems• Human Resources – Skills – Team structures• Financial – Access to finance83

84. 3. Partnerships• Describes the network of suppliers and partners that will make the business model work – Joint Ventures – Strategic Alliances – License agreements – Service agreements – Outsourcing arrangements84 © Mission HQ Pty. Ltd. All Rights Reserved

85. 4. Activities• The activities outline the most important things that the organisation will do. – Production – Problem Solving – Platform management – License management85

86. 5. Costs• Outlines the primary areas of cost under the business model – Fixed Costs – Variable Costs – Economies of scale – Key cost ratchet points86

87. 6. Relationships• What relationships other than partnerships may be required. – Affiliations (E.g. affiliated companies) – Government Agencies (E.g. CSIRO) – Brand cross licensing (E.g. Australian Made) – Embedded licensing (E.g. Intel Inside, Windows 7) – Accreditations (E.g. CPA)87

89. 8. Revenue• What element of our value proposition will our customers actually pay for? – Asset Sales – Usage fees – Subscription – Advertising revenue – Renting or leasing – Licensing – Financing89

90. 9. Customers• The different groups of people or organisations that the organisation hopes to reach and serve.• Forms of Segmentation: – Geographic – Demographic - Gender, age, income, housing type, and education level are common demographic variables – Channel – Media – Price90

91. The Power of ConstraintsTo be To Have – Biggest – More market share – Best – Profitable customers – Fastest growing – Greater access to capital – Most profitable – More business relationships – Most flexible – Greater revenue To Create – New products/services – New markets Innovation91 Catalyst™ Seminar

92. Workshop Exercise: Ballast Blaster

93. Workshop – Ballast Blaster• We have a new technology that we are seeking to build a new business model for.• What is it? – An ultrasonic device that removes microbes from the ballast water carried on ships. – Can be mounted either ship-side or shore-side – It is more effective than other approaches to microbe removal93

94. Ballast Blaster Rules and Constraints • Workshop Rules – Each table must appoint a team leader – All ideas are worthy of consideration – Write down your ideas on the post-it notes – Add them to the model – Use only the constraint your table is provided – Work together as a team – Develop a holistic, logically consistent model – You may be asked to present your model • Constraints – You will be allocated one only! 1. Largest 5 Year Exit 2. Fastest to Market 3. Minimum Start-Up Cost94

95. Creating an Ideal Model for Ballast Blaster News Flash! New information has come to light regarding Ballast Blaster. ISO standard 100434 has just been ratified requiring all ballast water purified by 2014 to a purity of 99.58% The founders have just completed a $16m Capital Raising, however the venture capitalist that has backed the project needs to exit in 3 years rather than the usual 5. He has also demanded that the founders re-locate to Fiji so that he can keep an eye on them from his mansion just out of Nadi. The directors reluctantly agreed. He has requested the founders re-cut their Business Model prior to the first tranche being paid. His core objective is to build value in the business very rapidly. 95

96. Assessing Business Models

97. An Sample Business Model Evaluation Framework Level of Investment Required 200k 20m Time to revenue Short Long R&D spend to achieve development Low High Access to technical expertise Low High Level of risk Low High Organisations Profile if successful Low High Financial return if successful Low High 97

98. One Model is not enough!98

99. Implementing Business Model Innovation

101. Use Business Model Innovation To – Underpin the business planning process – Provide an absolutely IDEAL starting point for the creation of a financial model. – Create a deeper understanding of you plans with collaborators, partners and suppliers – Provide a clear picture of a planned business to investors or internal stakeholders – Develop business cases for market entry – Optimise the value obtainable for a given business concept – Assist in evaluating alignment with organisational strategy101

102. Pivoting Your Business Model• The pivot can be applied to any element of the business model, without changing the underlying vision. Here are some of the most common pivot elements that Eric and others have noted:• Customer problem pivot. Use essentially the same product to solve a different problem for the same customer segment. Starbucks famously did this pivot when they went from selling coffee beans and espresso makers to brewing drinks in-house.• Market segment pivot. This means you take your existing product and use it to solve a similar problem for a different set of customers.• Technology pivot. Engineers always fight to take advantage of what they have built so far. So the most obvious pivot for them is to repurpose the technology platform.• Product feature pivot. Here especially, you need to pay close attention to what real customers are doing, rather than your projections of what they should do.• Revenue model pivot. One pivot is to change your focus from a premium price, customized solution, to a low price commoditized solution.• Sales channel pivot. Leverages existing sales channels.• Product versus services pivot. Sometimes products are too different or too complex to be sold effectively to the customer with the problem. Now is the time for bundling support services.• Major competitor pivot. What do you do when a major new player or competitor jumps into your space?102

103. Key Questions to Consider• What compromises does our current business model force our customers to make?• Why are nonusers or defectors dissatisfied with our offering?• Do we offer customers a better value proposition than that of our competition?• What alternative models are gaining share at the edges of our industry?• If we were an industry outsider, what would we do to take advantage of the gaps or weaknesses in our business model?• Do we have a plan for identifying potential business models, implementing them, and embedding Business model capabilities within the organisation?• What do we need to change in our organisation and operations to implement a new business model?• What information would we need to make a commitment to a new business model?• How urgent is the perceived need for a change in our organisation?103

104. Discussion: How this could be applied in your company?

105. Services, Process and Special Event Pricing

106. Products and Services• Business Model Renovation Service – Ensure you create new value in your business with this unique service offering – 30% Event Discount for first 5 customers only – must book first month within 48hrs of the event.• Business Planning HQ – Totally revolutionary business planning tool that puts the Business Model at the heart of the business planning process. – Create a 40pg Business Plan, Slide Deck and Business Overview document in as little as 4 hours. – 20% Discount for first 5 customers only – must book within 48 hours of event• Chartgantt – Excel based gantt chart and project planning solution built by Mission HQ for NASA – 20% Discount106

107. Questions

108. Feedback forms

109. More EventsPlease recommend to colleagues in the following areas, orcome again yourself!Geelong – Thursday 8th MarchDandenong – Tuesday 20th MarchBendigo – Thursday 22nd MarchCross Venue – Best Business Model Prize109

110. Event Materials and NetworkingWe have a linkedin Group (Invitation Only).All materials and links will be posted in this group. We willsend out a link following the event so please join up.110

111. Summary / Wrap-Up

112. Some Ideas• Perhaps you already have a great business model buried inside your business – pull it out, polish it up and put all your resources into it.• Start with current or desired capability of your organisation and assess this against market requirements. If there is a fit – design around this.112

113. Contact DetailsMarcus Tarrant Managing Director Mission HQ Pty. Ltd. ATF the Innovate Trust Marcus.tarrant@missionhq.com.au +61 3 9005 9710 www.missionhq.com.au113 © Mission HQ Pty. Ltd. All Rights Reserved