A discussion of the importance of business model innovation.

1. Business Model Innovation 25 May 2010 Enterprise Connect Forum 2010 Dr Tim Kastelle

2. Definition A business model articulates the logic and provides data and other evidence that demonstrates how a business creates and delivers value to customers. David Teece, Long Range Planning (forthcoming)

3. Business Model Innovation – Critical but Overlooked Source: Open Innovation by Henry Chesbrough

4. http://blog.business-model-innovation.com/wp-content/uploads/2009/06/business-model-canvas-patrick-staehler.jpg

5. Source: Alex Osterwalder, www.businessmodelgeneration.com

6. Source: Johnson, Christensen & Kagermann, Harvard Business Review, December 2008

7. Source: Boston Consulting Group: Business Model Innovation: When the Game Gets Tough, Change the Game

8. Business Model Issues Every organisation/product has a business model, even if it’s not articulated The same innovation will perform differently within different business models The success of business models determines the dominant logic of the firm This dominant logic can constrain future innovative possibilities – firms usually re-use a successful business model

9. Business Model Innovations in Copying 1950s – copies made by mimeograph or dry thermal processes – very poor quality, hard to archive Equipment was inexpensive, money was made on supplies 90% of machines made < 100 copies per month

11. The Arrival of Xerox Invention of xerography – much higher quality, longer lasting (Chester Carlson files patent in 1937) Haloid Corp buys patent, sells first Xerox machine in 1950 Problem: Xerox machines six times more expensive than competitive technology, cost per copy about the same Kodak, GE, IBM and Arthur D. Little Consultants all concluded there was no market for Xerox machines

13. The New Business Model High volume users Lease machines instead of selling them, includes 2000 copies per month, customers pay extra for all further copies Improved quality and convenience led to average user making 2000 copies per day! The more copies made, the more money Xerox makes

14. Dominant Logic of Xerox More copies are better New product innovations must lead to higher volume Duplexing Collating Stapling Copies per minute

15. The State of Play by the1970s Xerox and Kodak dominate the market, selling nothing but high volume machines Sales are made by internal sales force, service performed by internal service teams Cost of equipment very high (no more leasing) Small volume users either use older methods or go to copy centres

16. Another New Business Model Cheap copiers, no features Very high cost per copy, mediocre technology Copiers sold through office supply stores Sales and service outsourced

17. Competing Business Models

18. New Business Models for Disruptive Innovation Choose a market segment whose needs are not being met Focus on this segment, build competencies, increase skills Use new competencies to expand into more profitable parts of the value chain or better market segments Compete against large incumbents by changing the experience curve Photocopiers - Xerox Market Share: 1975: 75% 1980: 42% 1985: 35% Who has the big market share now? Canon and Ricoh

25. Summary Everyone has a business model We often don’t give them much thought Business models are the key method for articulating value creation (and profit!) Business model innovation is an option for everyone

26. Resources Open Innovation and Open Business Models by Henry Chesbrough Seizing the White Space by Mark Johnson http://www.seizingthewhitespace.com/ http://www.businessmodelalchemist.com/ http://tbmdb.blogspot.com/ http://blog.business-model-innovation.com/ Upcoming Issue of Long Range Planning

27. Thank you! timkastelle.org/blog/