Business Model Innovation

Morten Hejlesen, May 24 2012

Business Development Forum

Mail: moh@implement.dk

Phone: 4138 0012

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A challenging test of your observation skills…

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Through single-minded focus on rigid measurement and data, we will

only be able to imagine the future as an extrapolation of the past

25 May 2012 3

”The potential market for

wireless phones could be

900.000 phones by 2000”

McKinsey & Company, 1980

”If I had asked people what

they wanted, they would

have said faster horses.”

Henry Ford, 1923

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Close the growth gap through exploiting the core and exploring

adjacencies as well as transformational growth options

Source: Kim & Mauborgne (2004): Value Innovation, HBR

86%

62%

14%

14%

38%

86%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Market launches Total revenues Total profits

Incremental innovation Radical innovation

70%

10%

20%

20%

10%

70%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Allocation of resources Total returns

Core growth Adjacent growth Transformational growth

Risk-taking and big bets are rewarded... ...but only when balancing your innovation efforts

Source: Nagji & Tuff (2012): Managing Your Innovation Portfolio

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The prerequisite for sustained high performance is the capability to

continuously identify and develop new opportunities

Source: David Teece (2009)

Sensing

Seizing

Transforming

Analytical systems and individual

capacities to learn and to sense,

filter, shape and calibrate

opportunities.

Enterprise structures, procedures,

processes and incentives for

seizing opportunities

Continuous alignment and

realignment of specific tangible

and intangible assets through

strategic agility

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A challenging Innovation Intent pushed Grundfos to move beyond

conventional wisdom and to explore new paths to growth

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Danish pumps on an African adventure makes clean

drinking water a sustainable business opportunity

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Rethink the scope of innovation to move beyond new product

development and to seize sustainable competitive advantage

”Strategic fit among many

activities is fundamental not only

to competitive advantage but also

to the sustainability of that

advantage. Positions built on

systems of activities are far more

sustainable than those build on

individual activities.”

Micheal Porter, 1996, What is Strategy?

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Innovation must be informed by a deep dive into multiple knowledge

perspectives and exploring all business model components

Value proposition

Customer

relationships

Customer

segments

Channels

Partner network

Key processes

Key resources

Revenue streams Cost drivers

Internal perspective Value perspective External perspective

Financial perspective

Ca

pa

bil

ity:

Ca

pa

bili

tie

s a

nd

re

so

urc

es

Cu

sto

mers

: Users

and m

ark

ets

Context: Trends and technologies

Competitors: Industry structure and value chain

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Leverage innovation across all the components of the business

model to explore and exploit new growth options

Expand the market Create new market

Rethink existing

market

Disrupt existing

market

Cu

sto

me

rs

Business model change

Incremental Radical

Exis

ting

N

ew

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Exploring the business model offers a range of growth opportunities

• Improve performance along

‘traditional attributes’ to target the

‘high end’ or rethink the value

proposition to turn products into

solutions

• Competition: Existing

incumbents

• Risks: Existing incumbents

Rethink existing market

• Develop ‘good enough’ solutions

for the ‘low end’ of overserviced

customers or create a new niché

• Competition: Existing

incumbents

• Risks: Existing incumbents or

niché strategy fails

Disrupt existing market

• Target non-consumers through

low performance along ‘traditional

attributes’ and rethinking all

components of the business

model

• Competition: Non-consumption

• Risks: Market adoption

Create new market

• Rethink industry segmentation

variables, geographic focus or

dominant logics of the industry to

create new market

• Competition: Existing

incumbents and non-consumption

• Risks: Existing incumbents and

market adoption

Expand the market

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The Segway was intended to revolutionize human transportation - but

turned out to be an excellent case of failing and learning slowly

“I would stake my reputation, my money and my time on the fact that 10 years from now, this will be the way many people in many places get around. If all we end up with are a few billion-dollar niche markets, that would be a disappointment. It’s not like our goal was just to put the golf-cart industry out of business”

Dean Kamen, CEO and Founder, Segway

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To reduce risk, we need to accelerate and strengthen learning in the

early phases of the innovation process

Time

Knowledge

Significance

of decision

Level

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Development of new business models is based on an iterative front

end innovation process and a comprehensive toolbox

Discover Collect data and knowledge

Develop Test and feedback

Design Create ideas and solutions

Direct Generate insights

Abstract

Real

Analysis Synthesis

Define

Frame the challenge

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A shared set of working principles for cross-functional and

multidisciplinary business model innovation teams

Foster co-creation & collaboration

Work creatively & knowledge-based

Be iterative & learning-oriented

Assume a prototyping & high touch mindset

Stretch goals & challenge conventions

Apply lean development principles

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Discovery Driven Innovation is about investing a little to learn a lot -

in orden to get to ’plan B’

No business plan survives first contact with

customers - so search for a business model

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An innovation is fundamentally a set of “untested hypotheses” that

should be implemented assumption-based and learning-oriented

Assumption N

Assumption N-1

Assumption …

Assumption 3

Assumption 2

Assumption 1

Adjustment

Adjustment

Adjustment

Adjustment

Adjustment

Exit 1

Exit 2

Rapid prototyping and

customer co-creation

Pilots and in-market

learning launches

Evolutionary entry and

expansion strategies

Risk reducing exit

strategies

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Leadership

& organisation

People

& skills

Processes

& tools

Culture

& values

Build a disciplined innovation engine into your organisation to

support innovation on all levels and across all business areas

Leaders and organisational structures aligned around a

shared innovation intent and innovation strategy

Collaborative, open and

explorative culture supported by

incentives that reward innovation

and new ideas

A critical mass of people across the organisation proficient in

innovation approaches and tools

Portfolio and project processes that

facilitate innovation supported by

tools and efficient work practices

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Hypotheses about the high performance corporate business

development units of the future

1. Must drive the creation of a company-wide innovation intent and establish firm resource

allocation structures that balance core, adjacent and transformational innovation

2. Should develop strong competences for integrative thinking combining both traditional

analytical tools and innovation tools based on intuitive ways of thinking

3. Be a driving force in all transformational innovation initiatives across business units that

require unique business development skills and high risk tolerance

4. Act as innovation leaders on all levels in order to facilitate cross-functional collaboration

and to unleash the potential of innovating across all business model components

5. Build capabilities for spotting opportunities across the operating units and become designers

of ‘smart experiments’ to test and learn fast about growth opportunities

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Industry does not matter when it comes to performance

– even the most obscure industries can be insanely profitable...

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Inspiration for your work on creating new business models and turbo-

charging innovation in your organisation