Innovatieacademie ism Voka Mechelen

2. Business Model
Innovation
Frameworks, patterns, theory and practice
Koen Pellegrims

3. Three butchers

4. Bully your way out...

5. Redefining the business
What does your company do exactly? How do you make money?
Are there others offering the same product or service differently?
Switch the
strategic goal
• From “beating the competition” to “being different”
• Create awareness in the oranisation – communicate, communicate, communicate!
Challenge
industry
assumptions
• Look across substitute industries and strategic groups
• Look at completely different industries, countries,...
• Blur industry boundaries
Challenge
assets and
capabilities
• Use what you have or start anew?
• Mobilize hidden assets
• Turn liabilities into assets

6. Achieving strategic balance
1. Manage the present
2. Selectively forget
the past
3. Create the future!
Competition for the
present
Performance gap
Restructuring
Competition for the future
Opportunity gap
Renewal

7. The journey ahead
Business Model Canvas
Strategic Disciplines
Value Proposition Canvas
Strategy Map (goals)
Annual
review and
sanity check
Balanced scorecard (KPIs)
GRPI (goals, roles and responsibilities, process, and interpersonal skills)
Day-to-day
operations
Financial dashboards
Project profitability
CRM pipelines
Employee performance review
…
Vision
and
strategy
Goals
and
monitoring

8. Question your model regularly
Like scientists with their
theories and hypotheses,
managers too must regularly
reflect on their business model.
If there is no way to discuss it,
there is no way to falsify it and
there is no sense of direction...
Managers and entrepeneurs need at least a semi-formal way to talk and
think about their business model.

9. What is a business model?

10. A business model
describes the rationale
of how an organisation
creates, delivers and
captures value

11. Same product, different
model

12. The business model canvas

13. Customer Segments
Customer segments are justified only if
Their needs require a distinct offer
They are reached through different channels
They require different types of relationships
They have substantially different profitabilities
They are willing to pay for different aspects of the offer
For whom are we creating value?
Who are our most important customers?

14. Value Proposition
A Value Proposition creates value
for a specific Customer Segment
through a distinct mix of elements
catering to that segment’s needs
Elements of a Value Proposition
Price
Newness
Performance
Customisation
Design
Cost reduction
Risk reduction
Accessibility
Convenience
Brand/status
What value do we deliver to the customers?
Which one of our customer’s problem are we helping to solve?
What bundles of products and services are we offering to each segment?

15. Value Proposition Canvas
Flow Pilots Customers
What we offer What our customer needs

16. Channels
Channels have five distinct phases:
Awareness Evaluation Purchase Delivery After sales
Own
Direct
Own people
Web sales
Indirect
Own stores
Partner
Partner stores
Wholesaler
Through which channels do our Customer Segments want to be reached?
How are we reaching them now? Are our channels integrated?
Which ones work best? Which ones are most cost-efficient?

17. Customer Relationships
Customer relationships are
mainly driven by the need for
customer acquisition
customer retention or
up- and cross-selling
What type of relationship does each of our Customer Segments expect us to
establish and maintain with them?
Which ones have we established? How costly are they?
How are they integrated with the rest of the business model?
Types of relationships
Personal assistance
Dedicated personal assistance
Self-service
Automated services
Communities
Co-creation

18. Revenue Streams
A business model can involve
different types of revenue streams
Transaction revenues
Recurring revenues
Possible revenue streams
Asset sale
Usage fee
Subscription fees
Lending/Renting/Leasing
Licensing
Brokerage fees
Advertising (3rd party)
Non-monetary rewards
For what are our customers really willing to pay?
For what do they currently pay? Are we capturing all value?
How much does each Revenue Stream contribute to overall revenues?

19. Key Resources
Key resources can be
physical,
intellectual or
human
What Key Resources do our Value Propositions require?
Our Distribution Channels? Customer Relationships? Revenue Streams?
Examples of key resources
Intellectual property
CRM system
Infrastructure
Shops or retailers
Workforce
Capital

20. Key Activities
Key activities are the most
important actions a company
must take to operate successfully
What Key Activities do our Value Propositions require?
Our Distribution Channels? Customer Relationships? Revenue Streams?
Key Activities
Production/Development
Problem Solving
Infrastructure management
Partner management
…

21. Key Partnerships
We can distinguish four types
of partnerships:
Strategic alliances between non-competitors
Coopetition – alliances between competitors
Joint ventures to develop new business
Long term buyer-supplier relationships
Who are our Key Partners? Who are our Key Suppliers?
Which Key Resources or Key Activities are we sourcing from our partners?
Motivation for partnerships
Optimisation and economies of scale
Reduction of risk and uncertainty
Acquisition of particular resources or activities

22. Cost Structure
Cost is important for any company,
but there is a clear distinction between
cost-driven and
value-driven business models
Key cost parameters
Fixed costs
Variable costs
Economies of scale
Economies of scope
What are the most important costs in our business model?
Which Key Resources and Key Activities are most expensive?

23. efficiency value

24. Our company Myself

25. What is your customer’s model?
Why do your
customers buy
from you?
Why do you buy
from your key
partners/suppliers?
Why do you
oursource some
activities?
Why do external
channels sell your
product or service?

26. What is innovation?

27. Innovation can be...

28. Innovation can be...
High-tech

29. Innovation can be...
High-tech
Product improvement

30. Innovation can be...
High-tech
Product improvement
Service improvement

31. Innovation can be...
High-tech
Product improvement
Service improvement
Deliberate

32. Innovation can be...
High-tech
Product improvement
Service improvement
Deliberate
Accidental

33. Innovation can be...
High-tech
Product improvement
Service improvement
Deliberate
Accidental
Forced

34. Innovation can be...
High-tech
Product improvement
Service improvement
Deliberate
Accidental
Forced
Missed

35. Innovation can be...
High-tech
Product improvement
Service improvement
Deliberate
Accidental
Forced
Missed
A question of timing

36. Innovation can be...
High-tech
Product improvement
Service improvement
Deliberate
Accidental
Forced
Missed
A question of timing
An illusion

37. Innovation
Is about
Creating or discovering a new way of doing things
Recognising the potential
Capturing the value

38. Business Model Innovation

39. What invention could make your
business model obsolete?
And what will you do
when this happens?

40. Innovation epicenters
Inside-out
(resource or capability-driven)
Outside-in
(customer or market-driven)
Offer-driven
Finance-driven
(new cost or revenue model)

41. Innovation epicenters (I)
Inside-out
(resource or capability-driven)

42. Growth websites
Sites with peak
loads
Inside-out: Amazon EC2
Online
(webstore)
Datacenter
operations
Datacenter
Flexible on-demand
computing
infrastructure
Usage-based pricing

43. Successful companies choose one discipline and fully commit to it.
An inside-out strategic option.
The discipline of market leaders
Customer intimacy
Operational excellence Product leadership

44. Choose your discipline
Operational excellence Customer intimacy Product leadership
Rules Process- and product focused
“One size fits all” attitude
Uniformity
Customer focused
“Have it your way” attitude
Variation
Concept- and future-oriented
“Out-of-the-box” attitude
Experimentation
Processes End-to-end supply chain
optimisation
Efficiency and reliability
Just-in-time
Customer service
Flexibility
Accessibility
Product development
Time-to-market and marcom
Emphasis on “breakthroughs”
Organisation Central management
Few delegated responsabilties
Professionalism within
Decision power with customer
contact
Professionalism on the outside
Ad-hoc, organic, cellular
Professionalism throught the
organisation
Limited structures
Management “Command and control”
Standard procedures
Cost control
Customer comes first
“Lifetime value”
Result-driven management
Individual innovation is
rewarded
Risk management
Exposure management
Internal systems Integrated and “low cost”
Transaction-oriented
System equals process
Professional CRM
Tight links between intenal and
external information
Analytics
People-centric communication
Collaborative tools
Pick one. Be committed. Be relentless!

45. Innovation epicenters (II)
Offer-driven

46. Blue Ocean Strategy
Critically evaluate the reigning
assumptions and derived models.
What can you do differently to create
uncontested market space?
An offer-driven strategic option.
Key questions to ask:
What part of your offering should you raise above par?
What part kan you lower below par?
What can you eliminate alltogether?
What can you add that does not exist in the current offer?

47. Nintendo’s Blue Ocean
Nintendo ended the game console’s “arm race” by redefining the
warzone
Powerfulconsole
Advancedgame
design
Accessibility
Socialexperience
Motioncontroller

48. Innovation epicenters (III)
Finance-driven
(new cost or revenue model)

49. Telco vs Skype
Voice calls
Mainly national
market
(+interconnections)
Global market
Network
infrastructure
Mainly CAPEX +
personnel
Small OPEX +
software
development
Network
maintenance
Online
Direct sales
Retailers
Own shops
Mass market
Automated mass
customisation
Software
development
Subscription Freemium

50. Innovation epicenters (IV)
Outside-in
(customer or market-driven)

51. “Put simply, the right way
to define a good customer
is to pick a definition that
suits you better than it
does your competitors”
Costas Markides, Professor London Business School

52. Which customers to target?
existing
most profitable
most satisfied
specific buyer
focus on differences
focus on finer segmentation
focus on attributes
noncustomers
less profitable
less satisfied
chain of buyers
focus on commonalities
focus on de-segmentation
focus on circumstances

53. The music industry
Invested
stakes
No more
willingness to
pay!
Lawsuits
Government
interference
Illegal “value
propositions”
New business
models!

54. Patterns
Bait & hook
Long-tail
Multi-sided markets
Freemium
Co-creation
Open models
Free
B24b
Unbundling
Brokerage

55. The €1 cell phone!
Where Gilette pioneered, mobile operators and
printer manufacturers followed.
An attractive (or free) initial offering
triggers a profitable stream of future
revenues through related products or
services
Key factors to consider are:
The average cost of serving a free user
The conversion rate to paying customers

56. “Bait & hook” pattern
“Bait”
product or service
Single customer
segment for “bait”
and “hook”
“Hook”
product or service
Recurring purchases
of “hook” products
or services
Cost of subsidising
“bait” product
Lock in
One-off purchase
of “bait” product
Substitutes often
protected by
patents

57. Lego: building a new model
Lego was confronted with patent expiration and the consequential increased
competition
Beyond mass-customisation
into long-tail territory
LEGO core products
+ User-designed sets and webshop
= LEGO Factory
+ Users can post and sell designs online
= LEGO Users Catalog

58. Long-tail models
A large number of
micromarkets
or
low-margin
customers
Platform
management
&
Logistics
Generate small
revenues on a large
number of items
Content production
tools
Large scope
of
niche contentNiche content
providers
(often users)
Cost effective
distribution
(usually online)
Co-creation

59. XBox: Multiplayer mode
Microsoft needs to sell twice to make its business model work
Game consoles are only successful if
there are compelling games...
... but developers only write games for
successful consoles
Consoles are heavily subsidised for consumers
Microsoft creates and sells its own titles
Third-party rights to develop are licensed

60. Multi-sided markets
Distinct value
propositions for
different customer
segments
Partner
&
platform
management Distinct customer
segments
One segment
cannot live without
the other!
Distinct revenue
flows;
one often
subsidises the
other

61. Wii: A two-sided model with a twist
High-performance
console
Hardcore gamers
Game developers
Avid gaming
audience
Game royalties
Console sales
at a loss

62. Flickr: “Freemium” in the picture
In the free model at least one substantial Customer Segment is able
to continuously benefit from a free-of-charge offer.
Key to free business models is the
low marginal cost of
serving additional free users
Key factors to consider are:
The average cost of serving a free user
The conversion rate to paying customers

63. Freemium pattern
Free basic
value proposition
Large base of free
users
Small base of
paying users
Paid
Premium
service
Paid premium
services
Cost of serving
paying users
Cost of serving
free users
Long-term
relationship
Focused on
conversion

64. Mollom: “Free” as a key resource
Mollom uses advanced machine learning techniques to filter ham
from spam on blogs, websites and online communities.
Key activities of the mollom algorithm:
Comment classification &
Learning
Scorecard (on 2/4/’10)
Protecting 18,743 websites
Caught 204,000,150 spam messages to date
Filters 4 million messages per day for Netlog

65. The model of Mollom
Spam filtering
(no SLA and
limited volumes)
Personal blog, small
community
website, non-profit
Corporate website,
professional blog,
large community
site, Fortune
5000 site
Spam filtering
(High-availability
and large volumes)
Paying users
(monthly or annual
subscription)
Hosting
infrastructure and
services
Long-term
relationship
Online direct sales
Wide range of
plugins & libraries
for CMSs and web
platforms
R&D
(keeping the
filtering algorithms
sharp)
Large database of
reputation info
Large user-base,
populating the
reference database
Mollom uses the free users as a
key resource to increase the
quality of its service

66. The social aspect of free
“Ultimately, I can't help but think the freemium business model is the business
model of the future for the sole reason that it puts the customer first.”
There are a number of things that attract
me to the freemium business model.
First, and certainly foremost, is the
opportunity to do “good” and “well” at
the same time.
Dries Buytaert

67. Turning strategy into action

68. Balanced Scorecard
The balanced scorecard is
a strategic planning and management system […]
to align business activities to the vision and strategy
of the organization,
improve internal and external communications,
and monitor organization performance against strategic goals.

69. The journey ahead
Business Model Canvas
Strategic Disciplines
Value Proposition Canvas
Strategy Map (goals)
Balanced scorecard (KPIs)
GRPI (goals, roles and responsibilities, process, and interpersonal skills)
Financial dashboards
Project profitability
CRM pipelines
Employee performance review
…
Vision
and
strategy
Goals
and
monitoring

70. Critical Success Factors
enable the Mission
Mission
Strategic
goal
Critical
Success
Factor
Strategic
goal
Critical
Success
Factor
Critical
Success
Factor
Critical
Success
Factor
Strategic
goal
Critical
Success
Factor
Critical
Success
Factor
To be the #1 retailer the
Belgian market, by bringing
people their products as
cheaply as possible
Efficiency Market coverage
Limit
product
range
Efficient
processes
National
presence
Online
presence
Low-cost
stores
Market share
Share of mind

71. Are the CSFs balanced?
Financial
Customers
Processes
People CSF1
CSF9
CSF2
CSF8 CSF3
CSF7 CSF10
CSF4
CSF6CSF5

72. Are the CSFs consistent (with our strategy)?
Financial
Customers
Processes
People CSF1
CSF9
CSF2
CSF8 CSF3
CSF7 CSF10
CSF4
CSF6CSF5

73. Breakthrough CSFs are behaviour-changing
Financial
Customers
Processes
People CSF1
CSF9
CSF2
CSF8 CSF3
CSF7 CSF10
CSF4
CSF6CSF5

74. Translation into KPIs
1. A KPI is the translation of a CSF into one or more
measurable parameters
2. There should be a causal connection between
the CSF and KPI
3. A KPI typically has a present value, a target
value and a trend
4. The actual value is (usually) of less importance,
the range and trend are key (green/orange/red)

75. Pay attention where it
matters
Continuity CSF
Management by exception
take action with negative trends
CSF
KPI
Norm
(deviation)
Breakthrough CSF
Management by objectives
take permanent action
to meet objectives
CSF
KPI
Norm
(deviation)
Action

76. Acknowledgements
• Alex Osterwalder, www.alexosterwalder.com
• Marc Sniukas, www.sniukas.com
• Vijay Govindarajan, “10 rules for strategic innovators”
• Clayton Christensen, “The Innovator’s Dilemma”
• Treacy & Wiersema, “The Discipline of Market Leaders”
• Kim & Mauborgne, “Blue Ocean Strategy”
• Dries Buytaert & Benjamin Schrauwen, www.mollom.com
• Doug Savage, www.savagechickens.com

77. Thank you
for joining the journey