Business Models point of view in Innovation Management · ©IMI 2 9.00 Start of the Day –...

16/04/2016 © IMI 1

Business Models point of view

in Innovation Management

TU-E5050

Collaborative Innovation Management

COINNO

(5 cr)

14.4.2016

Pekka Berg

Hani Tarabichi

Innovation Management Institute

Aalto University

© IMI 2

9.00 Start of the Day

– Learnings from your Homework

– Lecture 1: Offering/ Lusch and Vargo´s service dominant logic

– Analysis of the pre-readings in the teams

– Outcome of the team discussions

– Lecture 2: Gassmann´s Business Models

– Analysis of the pre-readings in the teams

– Outcome of the team discussions

12.00 Lunch

13.00 Afternoon of the Day

– Lecture 3: LEGO Serious Play

– Intro for the Homework

– Working for the COINNO corporate project dealing with the topic

today

15.30 Wrap-Up of the day

16.00 End of the Day

TOPICS OF THE DAY

© IMI 3

PreReadings

1. (Shafer et.al., 2005, The power of business models, Business

Horizons 48, 199-207.)

2. O Gassmann, K Frankenberger, M Csik – 2013, The St. Gallen

Business Model Navigator, Working paper, bmi-lab.ch

© IMI 4

Readings (Voluntary)

1. Sundbo, J., 1997. Management of Innovation in Services.

2. Edvardsson, B. et.al. 2012. Customer integration within service development—A review

of methods and an analysis of insitu and exsitu contributions. Technovation 32 (2012)

419–429.

3. Osterwalder, A. & Pigneur, Y. 2005. Clarifying Business Models: Origins, Present, and

Future of the Concept.

4. Chesbrough, 2007, Business model innovation: it’s not just about technology anymore,

Strategy & leadership , vol. 35 no. 6 2007, pp. 12-17, Q Emerald Group Publishing

Limited, ISSN 1087-8572

5. Amit, Zott, 2012, Creating Value Through Business Model Innovation, MIT Sloan

Management Review.

6. Mabogunje, A., Kyvsgaard Hansen, P., Berg, P. 2013. Exploring Innovation – A Language

Approach. CO-CREATE Conference, Espoo, 16-19 June 2013.

7. Snowden et.al., 2007, A Leader´s Framework for Decision Making, Harward Business

Review, November 2007

Contents

1. Business Model approach

1. Introduction

2. Business Model by Shafer

3. Business Model by Gassmann

2. Teamwork

3. Homework

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Business Model between Offering and Impacts

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Souce: Yrjö Neuvo, TEKES Seminar 8.3.2006

Components of Business Model (Osterwalder)

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Partner

Network

Value

Configuration

Core

Capabilities

Value

Proposition

Distribution

Channel

Customer

Segment

Customer

Relationship

Cost

Structure

Revenue

StreamsSuccess/Failure

Product

Financial aspects

Infrastructure management Customer interface

What other

business model frames

do you know beyond

Osterwalder?

11

TU-E5000 - Innovation and Project Management

Business Models, Offerings and Impact

Hani Tarabichi

https://mycourses.aalto.fi/course/view.php?id=9330

• Create Value

• Build New Business

• Improve and transforms organizations

• Innovative way of thinking

• Visionary – Game changer

• Challenge driven

Business….What is the SPIRIT for it!!??

A?!”

• Feb 2014• Revenues $20

Millions

• Acquired by Facebook $19 Billions

• WhatsApp with that!!?

WhatsApp!!

http://www.statista.com/statistics/260819/number-of-monthly-active-whatsapp-users/

• Many firms continuously introduce innovations to their products and processes.

• Yet, many companies will not survive in the long term despite their product innovation capabilities

• ???!!

• These companies has failed to adapt their BM to the changing environment

• The future is for competitions between business models, Not between technologies and products.

Why companies fail to develop a breakthrough strategies?• Cultural inertia and unwillingness to change a ‘winning formula’

• Contentment and complacency

• Processes and structures that become rigid and unyielding

• Strong and unquestioned beliefs and corporate sacred cows

• Conservatism and fear of losing the current profit stream

• Strong vested interests and politicking

• Managerial overconfidence or arrogance

• Unyielding habits and company norms

• Overreliance on what has worked in the past

• Passive and uncritical thinking and quick dismissal of information that conflicts with current view

• Stubbornness and a passionate but unreflective reliance on past processes, habits, and values

19

So….What’s up with business models??

• Business models have surged into the management vocabulary

• It has become quite fashionable to discuss business models

• Business models can serve a positive and powerful role in corporate

management

• Interest in the BM concept from a wide range of disciplines


• Business models can be powerful tools for:

– Analyzing

– Implementing

– communicating strategic choices

• In the mid-1990s, dot-com firms pitched business models to attract funding

• 27% of Fortune 500 firms used the term BM in their 2001 annual reports

• Media have certainly gotten on board also. Within major magazines and

journals, only one article in 1990 used the term business model three times

or more; by 2000, well over 500 articles fell into that category.

• Business model can be defined as a unit of analysis to describe how the

business of a firm works.

• Business model is often depicted as an overarching concept that takes

notice of the different components a business is constituted of and puts

them together as a whole (Demil and Lecocq 2010; Osterwalder and

Pigneur, 2010).

• In other words, business models describe how the magic of a business

works based on its individual bits and pieces.


A Business Model describes the rationale how

an organization creates, delivers and captures

value.

Source: Alexander Osterwalder and Yves Pigneur, 2010

What is a Business Model

What is a Business Model

• Business concept must be:

– Simple

– Relevant

– Understandable

• A business model is built on 9/?? blocks covering 4 areas:

– Customer

– Offers

– Infrastructure

– Financial viability

Rationale behind the Business Model Canvas (BMC)

• There is a need for a shared concept that everybody understands

enabling description and commensurate discussion about business

model(s)

– Model must be simple, relevant & intuitively understandable, but not over-

simplifying the complexities of how an enterprise function.

– Differentiating business model from other concepts, such as a revenue model,

strategy etc.

Rationale behind the Business Model Canvas (BMC)

• BMC tool describes any business model with “9/?? building blocks”

indicating the logic how company intends to make money (Value)

– Covers four main areas of business: Customers, offering, infrastructure, and

financial viability

– To describe, analyze, design and validate any business model

– A blueprint for a strategy to be implemented through organizational structures,

processes, and systems

So a quick recap

• 5 + 5 = ?

• OK??

• 5 + 5 = 10

• X + Y = 10

• What are the possibilities?

• 1 + 1 = ?

• 1 + 1 > 3 now that’s innovation management , be radical

27

• Business is fundamentally concerned with creating value and capturing

returns from that value, and a model is simply a representation of reality

• a firm’s underlying core logic and strategic choices for creating and

capturing value within a value network

– core logic: suggests that a properly crafted business model helps articulate and make

explicit key assumptions about cause-and-effect relationships and the internal

consistency of strategic choices

– business model reflects the strategic choices that have been made

– Successful firms create substantial value by doing things in ways that differentiate them

from the competition

Value!!

• G-D Logic vs S-D Logic

• Value in exchange (G-D): Value is created in firm and distributed in market

through exchange of goods for money. Roles of producers and consumers

are distinct, value creation is a series of activities formed by the firm

• Value in use (S-D): roles of producer and consumer are not distinct. Value is

co-created jointly and reciprocally. Value is created through interaction

among providers and beneficiaries through integration of resources and

application of competencies

Value Creation, Value Capture

• Can Value creation occurs alone!!!?

• Can value capture occurs alone!!?

• Hamel 2001, argues:

– neither value creation, nor value captures occurs in a vacuum!

– Both occur within a VALUE NETWORK

• Suppliers

• Partners

• Distribution channels

• Coalitions

– The role a firm chooses to play within its value network is an important element of BM

30

Value Creation, Value Capture

Components of BM according to Shafer et .al. 2004

Strategic

• Customer

• Value proposition

• Capabilities/competencies

• Revenue/Pricing

• Competitors

• Output (offering)

• Strategy

• Branding

• Differentiation

• Mission

Create Value

• Resource/Assets

• Processes/ Activities

Value Network

• Suppliers

• Customer information

• Customer relationship

• Information flows

• Product/Service flow

Capture Value

• Cost

• Financial aspects

• Profits

Adopted from: The power of business models, Scott M. Shafer, H. Jeff Smith, Jane C. Linder

Business Model .vs. Strategy!!

• A Business model is not a strategy

• Strategy can be viewed as a pattern of choices made over time!

• Strategy is a forward looking plan (Mintzberg), pattern, position, or

perspective.

• Strategy is a position (Porter), choices about which products or services are

offered in which markets based on differentiation features

• Strategy is a perspective (Drucker), choices about how business is

conceptualized

33

• A business model facilitates:

– Analysis

– Testing

– Validating firm’s strategic choices

34

Business Model .vs. Strategy!!

Problems of Business Models

• Misusing the business model concept can lead to problems

• Four common problems associated with creation and use of BMs:

– Flawed assumptions underlying the core logic

– Limitations in the strategic choices considered

– Misunderstandings about value creation and value capture

– Relying on flawed assumptions about the value network

35

Problems of Business Models 1/4

• Flawed assumptions underlying the core logic:

– A firm moves into a danger zone if its business model’s core logic is based on flawed or

untested assumptions about the future

– Don’t confuse assumptions with reality

– once a set of strategic choices has been made, the resulting business model be

checked to ensure that implicit and explicit cause-and-effect relationships are well-

grounded as well as logical.

36


• Limitations in the strategic choices considered:

– A business model should address all of the firm’s core logic for creating and capturing

value, not just a portion of that logic

– Customer acquisition .vs. fulfilling orders (eToys)

37


• Misunderstandings about value creation and value capture:

– Tendency to focus so much on the value creation

– Organizations are unable to capture corresponding economic returns in relation to the

value they create. (Yahoo!)

• Searches of the Web, e-mail accounts, stock quotes and other financial information, greeting

cards, maps, driving direction….Where is the money?????

– Executives confuse potential value with actual value

38


• Relying on flawed assumptions about the value network:

– A model mistakenly assumes that the existing value network will continue unchanged

into the future

– Gas stations and supermarkets

39

Contents


1. Introduction



2. Teamwork

3. Homework

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© IMI 41

PreReadings:

O Gassmann, K Frankenberger, M Csik – 2013,

The St. Gallen Business Model Navigator, Working paper, bmi-lab.ch

Discuss in your team about topics as follows of the paper:

1. Business model´s four central dimensions: the Who, the

What, the How, and the Value?

2. Research methodology? How they did this study?

3. Three steps pave the road to a new business model?

Business Model, Source: Gassmann et.al. 2013



















O Gassmann, K Frankenberger, M Csik - 2013 The St. Gallen business model navigator- bmi-lab.ch


Business model definition – the magic triangle


Who?: The target customerEvery business model serves a certain

customer group. Thus, it should answer

the question ‘Who is the customer?’

Drawing on the argument that the “failure

to adequately define the market is a key

factor associated with venture failure”, we

identify the definition of the target

customer as one central dimension in

designing a new business model.

What?: The value proposition towards the customerThe second dimension describes what is offered to the target

customer, or put differently, what the customer values.

This notion is commonly referred to as the customer value

proposition, or more simply, the value proposition. It can be

defined as a holistic view of a company’s bundle of products and

services that are of value to the customer

How?: The value chain behind the creation

of this valueTo build and distribute the value proposition, a firm

has to master several processes and activities. These

processes and activities, along with the relevant

resources and capabilities, plus their orchestration in

the focal firm’s internal value chain form the third

dimension within the design of a new business model.

Value?: The revenue model that

captures the valueThe fourth dimension explains why the

business model is financially viable; thus it

relates to the revenue model. In essence, it

unifies aspects such as, for example, the

cost structure and the applied revenue

mechanisms, and points to the elementary

question of any firm, namely how to

generate value

Barriers to innovation

• Why doesn't more companies just come up with a new business model and

move into a ‘blue ocean’?

• It is because thinking outside the box is hard to do

• Mental barriers block the road towards innovative ideas

49

Oliver Gassmann, Karolin Frankenberger, Michaela Csik

• Identified 55 patterns of business models after studying hundreds of

companies’ models from different industries applied in the past 25 years

• Only few phenomena are really new

• Often, innovations are slight variations of something that has existed

elsewhere, in other industries, or in other geographical areas

• about 90 % of the innovations turned out to be such re-combinations of

previously existing concepts

50

51

The St Gallen Business Model Navigator

• Transforms the main concept – creating business model ideas by utilizing

the power of recombination – into a ready-to-use methodology, which has

proven its usefulness in countless workshops and other formats

• 3 steps for a new business model:

– Initiation – preparing the journey

– Ideation – moving into new directions

– Integration – completing the picture

52


Initiation – preparing the journey 1/3

• Before embarking on the journey towards new business models, it is

important to define a starting point and rough direction.

• Describing the current business model, its value logic, and its interactions

with the outside world is a good exercise for getting into the logic of

business model thinking.

• It also builds a common understanding of why the current business model

will need an overhaul, which factors endanger its future, or which

opportunities cannot be exploited in the current business model.

• Investigating these woes and the predominant industry logic provides a

rough direction according to which the generic business model patterns

should be interpreted in step 2.

53


Ideation – moving into new directions 2/3

• Re-combining existing concepts is a powerful tool to break out of the box

and generate ideas for new business models.

• To ease this process, we have condensed the 55 patterns of successful

business models into a handy set of pattern cards. Each pattern card (see

Fig. 28) contains the essential information that is needed to understand the

concept behind the pattern: a title, a description of the general logic, and a

concrete example of a company implementing the pattern in its business

model. During the ideation stage, the level of information on the card is just

right to trigger the creation of innovative ideas.

54


Integration – completing the picture 3/3

• There is no idea that is clear enough to be immediately implemented in a

company.

• On the contrary, promising ideas need to be gradually elaborated into full-

blown business models that describe all four dimensions (who? what? how?

why?) and also consider stakeholders, new partners, and consequences for

the market.

55

Remarks about BM

• An organization’s business model is never complete as the process of

making strategic choices and testing business models should be ongoing

and iterative

• The probability of long-term success increases with the rigor and formality

with which an organization tests its strategic options through business

models

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57

Contents


1. Introduction



2. Teamwork

3. Homework

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Homework 1 for 14.4.2016/ Corporate Case

Illustrate Objectives of Your Case by

Logical Areas and Logical Frame (see next two slides)

1. What is the vision of your industry project?

2. What is the nature of your project?

3. What are the hoped for impacts of your project?

4. What are the hoped for results of your project?

5. What are the next activities of your project?

© IMI69

Logical areas of the of a project

© Jussi Pihlajamaa, Pekka Berg / 9.1.2001/ IMI

NATURE

OF

PROJECTVISION

IMPACTS

FOCUS AREAS/

RESULTS

ACTIONS

Strategies

Resources

Business

Intelligence

Input Analysis Goal setting

Logical Frame

Priority 1 Priority 2 Priority 3 Priority 4


Desired industry impacts

of the project (WHY?)

Focus areas/

Results of the project

(subprojects)

(WHAT?)

Desired results by focus areas

New knowledge, wisdom, products, services and methods

Planned actions for realizing

the outputs of project

(HOW?)

LOGICAL FRAME: OBJECTIVES OF THE PROJECT

Focus 1 Focus 2 Focus 4Focus 3

Jussi Pihlajamaa, Pekka Berg / 9.1.2001/ IMI


Desired immediate impacts

of the project

for the company (WHY?)

Target groupTarget group Target group Target group

Users of the outputs

of the project (TO WHOM?)

Homework 2 for 21.4.2016:

Offering and Business Model (see the next two slides)

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1. Describe the (d)evolution (=innovation process) of your corporate case offering and

business model based on this day learnings

– Your model in the starting point today

• What is the value proposition of your model?

• How do you create value in your model?

• How do you capture value in your model?

– Development of your model

• Utilise Radical Innovation Approach, if relevant

• Use Future Users thinking

• Use Service Dominant Logic thinking.

• Use the Gassmann´s three-step “imitation and re-combination”-method and consider

if some elements or ideas of the described 55 business models could be useful in

your case.

– Extra, not mandatory

• How does your Offering and Business Model reflect the strategic choices and their

operating implications of your Case company?

• Think also the change of the business model in next, 3? – 5? – 10 years?

– Be ready to present the status of your work in the beginning of the next lecture

Good-Dominant logic versus Service-Dominant logic:

A change of perspective

Lusch R. and Vargo S., Toward a conceptual foundation for

service science: Contributions from service-dominant logic, IBM

SYSTEMS JOURNAL, VOL 47, NO 1, 2008



Homework

1. Don`t forget your Logical Frame Homework

2. Continue with your Offering and Business Model Homework.

3. Read the Pre-readings for the next lecture

4. Bring with you the background material supporting your team in the

next lecture dealing with the more detailed conceptualisation and

scenario building of your case (documents, information, thoughts,…)

© IMI75

If something unclear – don´t hesitate to ask.

Thank you !

[email protected]

040-5455560

www.imi.aalto.fi

16/04/2016 © IMI 76

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