Module 6 - Services innovation Business Model Innovation
Step One : Check your OPPORTUNITY <ul><ul><li>To what degree can service provide a competitive advantage to the firm’s ove...
Step Two :  Check your MATURITY <ul><ul><li>How aligned is service’s value proposition with the core enterprise business s...
Top-line learnings about business model innovation 1 Business Model Innovation improves margins 2 Three distinct types of ...
Business Model Innovation improves  margins Operating Margin Growth in Excess of Peers (Compound annual growth rate over 5...
Three distinct types of business model innovation have been identified Business  Model Innovation Enterprise model Innovat...
Each type of business model innovation, alone or together,  can lead to financial success -20% 0% 20% 40% 60% 80% 100% 120...
Enterprise model innovation through collaborative innovation is the most prominent model # of  Business Model Innovators f...
Approaches to  industry  model Innovation Transforming the industry value chain Companies are changing the “rules of the g...
Approaches to  revenue  model innovation Competing through new pricing and revenue models Industry “rules of the game” are...
Approaches to  enterprise  model innovation Integration / specialization continuum   Integration   requires execution of a...
Action step 1 Understanding context and parameters Age of Company Industry Financial Performance <ul><li>Depending on  age...
Defining a company’s overall strategic intent for service determines the overall service business model  <ul><li>Take thes...
Action step 2 Assessing current and desired positions to create path High Low Revenue Model  Industry Model Enterprise Mod...
Leaders manage the services offering portfolio with the same degree of rigor as the product development portfolio New Prod...
Action step 3 Building capabilities <ul><li>Industry models </li></ul><ul><ul><li>Do you have a systematic way to envision...
Existing organizational and governance structures must be updated to reflect the new business model and management discipl...
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Topic 4 business model innovation

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ACPS 2010 Module 6
Topic 4 Business Model Innovation
3 Types of Business Model Innovation
Action Steps

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Topic 4 business model innovation

  1. 1. Module 6 - Services innovation Business Model Innovation
  2. 2. Step One : Check your OPPORTUNITY <ul><ul><li>To what degree can service provide a competitive advantage to the firm’s overall success? </li></ul></ul><ul><ul><li>To what degree would improvements in the service chain enable improvement across the enterprise? </li></ul></ul>Strategic Importance <ul><ul><li>To what extent is there an opportunity to materially impact top line growth with new services? </li></ul></ul><ul><ul><li>Are customers demanding these services or sourcing them from competition? </li></ul></ul>Services Growth Opportunity <ul><ul><li>How competitive is your company’s total spend on the “Cost of Quality” relative to peers? </li></ul></ul><ul><ul><li>To what extent is there untapped opportunity in the after-market? </li></ul></ul>After-Market Opportunity Questions Category
  3. 3. Step Two : Check your MATURITY <ul><ul><li>How aligned is service’s value proposition with the core enterprise business strategy? </li></ul></ul><ul><ul><li>How well does the current service operational model support the direction service is headed? </li></ul></ul>Business Model Clarity <ul><ul><li>How well do the firm’s service offerings match up with its customers shifting priorities? </li></ul></ul><ul><ul><li>How well do the firm’s service offerings align with core product offerings? </li></ul></ul>Service Offering Maturity <ul><ul><li>How integrated are the processes, data, tools, and management of the entire service chain? </li></ul></ul><ul><ul><li>How integrated is the service chain with sales, marketing and product development? </li></ul></ul>Operational Maturity Questions Category
  4. 4. Top-line learnings about business model innovation 1 Business Model Innovation improves margins 2 Three distinct types of Business Model Innovation have been identified 3 All three types of Business Model Innovation can lead to financial success -- the right strategy and execution are key. 4 Enterprise model innovation through collaborative innovation is the most predominant model.
  5. 5. Business Model Innovation improves margins Operating Margin Growth in Excess of Peers (Compound annual growth rate over 5 years) Operations Innovators Products/ Services/Markets Innovators Business Model Innovators Source: The Global CEO Study 2008: Expanding the Innovation Horizon 1 -1% 0% 1% 2% 3% 4% 5% 6%
  6. 6. Three distinct types of business model innovation have been identified Business Model Innovation Enterprise model Innovation INTEGRATION <ul><li>Zara’s Fast Fashion model is supported by a highly integrated business model along its value chain </li></ul>SPECIALIZATION <ul><li>Bharti created a highly specialized Telco business model by focusing only on its key differentiators – marketing, sales and distribution – and partnering for everything else </li></ul>EXTERNAL COLLABORATION <ul><li>P&G’s innovative R&D collaboration model “connect & develop”, sourcing over 50% of ideas externally </li></ul>2 Revenue model Innovation <ul><li>Gillette innovated the pricing model by giving away razors and making money on the blades </li></ul><ul><li>Netflix shifted the revenue model from product / rental based to a subscription based annuity model </li></ul>PRICING / REVENUE MODEL VALUE PROPOSITION <ul><li>Cirque du Soleil reconfigured offering and value elements to transform the circus experience </li></ul>Industry model Innovation INDUSTRY TRANSFORMATION <ul><li>Moving from one value chain to another, leveraging its brand across industries including airline, media and telecoms </li></ul>HORIZONTAL MOVES <ul><li>Apple transformed the music industry through a new way of connecting hardware with software to download music with iPods/iTunes product & service combination </li></ul><ul><li>Dell redefined the PC value chain and industry model by using a direct to customer sales model </li></ul>
  7. 7. Each type of business model innovation, alone or together, can lead to financial success -20% 0% 20% 40% 60% 80% 100% 120% Southwest Microsoft Starbucks Google Napster ING Direct POSCO Target Coca-Cola IBM Nokia Apple Netflix eBay Amazon.com Progressive Capital One Eli Lilly P&G Goldcorp Li & Fung Bharti Telecom Infosys Dell 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 Model Revenue Model Enterprise Model Industry Model 10 year Stock CAGR 10-year Stock CAGR versus Type of Business Model Innovation 3
  8. 8. Enterprise model innovation through collaborative innovation is the most prominent 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
  9. 9. Approaches to industry model Innovation Transforming the industry value chain Companies are changing the “rules of the game” by challenging traditional value chains through disintermediation. Example: the “Dell Direct” model. Transforming industries through horizontal moves Differentiating expertise, experience and assets are moved aggressively to another industry value chain. Example: Virgin move from music industry to airline company.
  10. 10. 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.
  11. 11. 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
  12. 12. Action step 1 Understanding context and parameters Age of Company Industry Financial Performance <ul><li>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 </li></ul><ul><li>Understanding implications will set the framework for decisions on both type and degree of business model innovation </li></ul><ul><li>Nature of business model innovation opportunities vary by industry, depending on unique characteristics and maturity in each industry </li></ul><ul><li>Understanding the nature of opportunities within – and across – industries allows identification of incremental or radical innovations </li></ul><ul><li>Benchmark performance against industry peers, especially financial opportunities created through business model innovation </li></ul>
  13. 13. Defining a company’s overall strategic intent for service determines the overall service business model <ul><li>Take these steps to define strategic intent: </li></ul><ul><ul><li>Map all the activities the customer performs in using and maintaining the product throughout its lifecycle </li></ul></ul><ul><ul><li>Understand the customer’s expectations for support and service throughout this lifecycle </li></ul></ul><ul><ul><li>Identify a unique value proposition to customers and the enterprise </li></ul></ul><ul><ul><li>Align the overall service strategy with the enterprise strategy </li></ul></ul><ul><ul><li>Identify and prioritize opportunities for services revenue growth and cost reduction </li></ul></ul><ul><li>The outcome of this assessment is a strategic intent that is: </li></ul><ul><ul><li>Clearly defined and actionable </li></ul></ul><ul><ul><li>Aligned with competitive and market context </li></ul></ul><ul><ul><li>Able to be effectively communicated to stakeholders </li></ul></ul>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 Service Model Strategic Intent Degree of Services Led Growth Degree of Optimization
  14. 14. Action step 2 Assessing current and desired positions to create path High Low Revenue Model Industry Model Enterprise Model Moving from current to target position <ul><li>Are there ways to reconfigure / re-allocated sources of revenue in your business? </li></ul><ul><li>How can you sell elements of your services / offerings differently? </li></ul><ul><li>How can you reconfigure value elements in your business? </li></ul><ul><li>How can you select and leverage unique assets & capabilities in your business that provide competitive differentiation? </li></ul><ul><li>What should you do vs where should you partner for optimal value? </li></ul><ul><li>How can you leverage new / emerging business models in your industries? From other industries? </li></ul><ul><li>How does new/emerging technology change the parameters? </li></ul><ul><li>Are you a leader of follower when it comes to industry change? </li></ul>Current Position Target Position <ul><li>Degree of Innovation </li></ul><ul><li>How does the degree of innovation relate to your industry? How will it change in the future? </li></ul><ul><li>Do you have the right balance? </li></ul><ul><li>Timing of Innovation </li></ul><ul><li>Do you drive change in the industry, or is it imposed on you? Lead vs follow? </li></ul><ul><li>What are the disruptive technologies or models emerging today? </li></ul><ul><li>BMI Path </li></ul><ul><li>Which business model innovation paths are we / should you explore? </li></ul><ul><li>Which ones are most aligned with our industry, capabilities, vision? </li></ul>
  15. 15. Leaders manage the services offering portfolio with the same degree of rigor as the product development portfolio New Product Development Strategy and Delivery Framework <ul><li>How Does This Apply To Services? </li></ul><ul><li>Strategy & Portfolio </li></ul><ul><li>Do the offerings support the our business strategy & objectives? </li></ul><ul><li>Are the services aligned to our customers’ needs & expectations? </li></ul><ul><li>Service Offering Development Process </li></ul><ul><li>Are our services well-defined? How quickly do they gain traction in the marketplace? </li></ul><ul><li>Do we have a process to sunset underperforming services? </li></ul><ul><li>Project Execution </li></ul><ul><li>Are we launching services in a timely and efficient manner? </li></ul><ul><li>Is there an appropriate sequence & timing for services’ launch? </li></ul><ul><li>Metrics </li></ul><ul><li>Are we using the right metrics to measure team and process performance? </li></ul><ul><li>Do these metrics alert us to potential project pitfalls and process improvements? </li></ul><ul><li>Systems & Infrastructure </li></ul><ul><li>Do we have the right systems in place to enable our services sales & delivery? </li></ul><ul><li>Do other stakeholders have access to these systems? </li></ul><ul><li>Teams & Organization </li></ul><ul><li>What are unique skills and capabilities required to execute successfully? </li></ul><ul><li>Is our organization and team structure consistent with services delivery needs? </li></ul>Strategy & Portfolio Product Development Process Project Execution Metrics Systems & Infrastructure Teams & Organization Select A Model Identify & Address Gaps Manage Like Product Development
  16. 16. Action step 3 Building capabilities <ul><li>Industry models </li></ul><ul><ul><li>Do you have a systematic way to envision future industry scenarios and implications for your innovation strategy? </li></ul></ul><ul><li>Revenue models </li></ul><ul><ul><li>How can you exploit new / emerging revenue models as well as new value offerings, and manage the implications for your business and competitive positioning? </li></ul></ul><ul><ul><li>Do you have a structured approach to thinking through revenue implications? </li></ul></ul><ul><li>Enterprise models </li></ul><ul><ul><li>Do you understand - and leverage - your unique capabilities and assets? </li></ul></ul><ul><ul><li>What capabilities and processes do you have in place to develop, maintain, evaluate and terminate external collaboration for innovation? </li></ul></ul>
  17. 17. Existing organizational and governance structures must be updated to reflect the new business model and management discipline Key Questions about Organization <ul><li>What are the correct metrics to measure operational achievement against future state goals? </li></ul><ul><li>Are these performance metrics aligned to our business plan for the global organization </li></ul><ul><li>Are other internal and external stakeholders aligned with our business objectives? </li></ul><ul><li>How often will we collect these measurements and make necessary adjustments to the business? </li></ul>Metrics and Measurements <ul><li>What are the new skills and capabilities required to execute the new business model? </li></ul><ul><li>What capability gaps exist between the current and future state? </li></ul><ul><li>How will we acquire these new capabilities (i.e. training, new hires, etc.)? Can we leverage partners to fill these gaps? </li></ul><ul><li>Is new headcount required for the transition to the new model and the subsequent steady state? </li></ul>Roles and Responsibilities <ul><li>How is our organization structured today and what changes are required to support our new business model? </li></ul><ul><li>How can we balance the needs and interests of the global organization and geographies/business units? </li></ul><ul><li>What degree of services sales and delivery is currently performed by partners? </li></ul><ul><li>What governance framework is required to enforce accountability and improve the timeliness and effectiveness of decision-making? </li></ul>Organization Structure

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