SERGUEI NETESSINE
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BUSINESS MODEL INNOVATION
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WHAT WAS EDISON’S KEY INVENTION THAT CHANGED THE WORLD?
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THE REAL INVENTION OF THOMAS EDISON: THE BUSINESS MODEL OF ELECTRICITY
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THE TECHNOLOGY HAS CHANGED…
BUT EDISON’S BUSINESS MODEL IS SUSTAINABLE…
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APPLE VS. XIAOMI
• Huge R&D budget • Complete secrecy • Infrequent product releases • Minimal user feedback • Many middlemen • Huge production quantity
Steve Jobs and Product/Technology Innovation
• Minimal expenditures on innovation • Constant feature updates (every Friday) • Ability to configure OS by user • Direct to consumer, online only • Small batch to test the market • Users invent new features, translate OS
Lei Jun and Business Model Innovation
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BUSINESS MODEL INNOVATION: A DIFFERENT APPROACH TO INNOVATION EXISTING PRODUCTS/TECHNOLOGY
SUPERIOR BUSINESS MODELS TO PROVISION PRODUCTS OR SERVICES TO MARKETS
EXISTING MARKET NEEDS
Business Model Innovation
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BUSINESS MODEL INNOVATIONS HIDING IN PLAIN SIGHT
MORE EXAMPLES ON HTTP://WWW.RENAISSANCEINNOVATOR.COM
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► When companies attempt business model innovation, they often focus too much on innovating cost and revenue models.
► But a greater danger to existing business models often comes from risks in demand and supply.
► Key to sustainable business model innovation lies in systemizing risk management opportunities.
Revenue Model
Price
Volume (market Size)
Ancillary Sales
Cost Structure
Direct, Indirect costs
Economies of scale and scope
Resource Velocity
Rate of value output
Lead times, turns, throughput, utilization
Riskiness of Revenues, Costs and Resource Velocity
Sensitivity of profits to changes in price, volume, costs, resource utilization, incentives
HOW TO APPROACH BUSINESS MODEL INNOVATION
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EXAMPLE: THE FAST FASHION BUSINESS MODEL OF INDITEX
Speeding up the timeline from 12 months to 2 weeks.
Design Sourcing Mfg. Distribution Sales Discount
http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/
http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/
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Everyone: Build To Forecast Timbuk2: Build To Order, Mass Customize
EXAMPLE: DELL OF TRAVEL ACCESSORIES
Manufacture Demand Demand Manufacture
http://renaissanceinnovator.com/2011/04/03/timbuk2/ Source: Case “Where in the World Is Timbuk2? Outsourcing, Offshoring, and Mass Customization” by Cachon, Cattani and Netessine.
http://renaissanceinnovator.com/2011/04/03/timbuk2/http://renaissanceinnovator.com/2011/04/03/timbuk2/
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EXAMPLE: NETAFIM AND THE IRRIGATION DILEMMA
0
100
200
300
400
Revenues (Millions $)
600 Manufacturing efficiency
to be “best drip irrigation
equipment company”
Difficulty with technology
adoption, inability of
customer to pay
Solution provider,
“Helping The World
Grow More With Less”
500
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
2
00
7
20
08
Contracting based on crop yields to transfer risk from customers to the supplier.
Source: Case “Netafim: Migrating from Products to Solutions” by Hau Lee and Guy Michlin.
http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/
http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/
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KEY TAKE-AWAYS ► The Blind Spot of Innovation – Innovation
through Business Models
► Business Model Innovation is game changing, widely applicable, systematic innovation approach requiring minimal investments
► The cost-revenue tradeoff can be misleading: improving productivity often precludes innovation. The risk-return tradeoff is paramount to thinking about sources of sustainable innovation.
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SUMMARY: DIFFERENCES IN INNOVATION APPROACHES
Choose for yourself!
Business Model Innovation Product and Technology
Innovation
Transferable between industries Industry-specific
Possibility to describe/learn the method
Depends on specific individuals/teams
Sustainable/hard to copy Many imitators
Minimal R&D expenditures Large R&D expenditures
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A SUPERIOR WAY TO INNOVATE: BUSINESS MODEL INNOVATION
“How to build risk into your business model”, Girotra and Netessine, Harvard Business Review, May 2011.
Karan Girotra and Serguei Netessine “The risk-driven business model: four questions that will define your company”. Harvard Business Press 2014.
“Four Paths to Business Model Innovation”, Girotra and Netessine, Harvard Business Review, July 2014.
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http://hbr.org/2011/05/how-to-build-risk-into-your-business-model/ar/1http://www.amazon.com/Risk-Driven-Business-Model-Questions-Company/dp/1422191532/http://www.amazon.com/Risk-Driven-Business-Model-Questions-Company/dp/1422191532/http://www.amazon.com/Risk-Driven-Business-Model-Questions-Company/dp/1422191532/http://www.amazon.com/Risk-Driven-Business-Model-Questions-Company/dp/1422191532/http://www.amazon.com/Risk-Driven-Business-Model-Questions-Company/dp/1422191532/http://hbr.org/2014/07/four-paths-to-business-model-innovation/ar/1https://twitter.com/snetesinhttps://twitter.com/snetesinhttps://twitter.com/snetesinhttp://www.linkedin.com/pub/serguei-netessine/2/533/304http://www.linkedin.com/pub/serguei-netessine/2/533/304http://www.linkedin.com/pub/serguei-netessine/2/533/304http://www.linkedin.com/pub/serguei-netessine/2/533/304http://www.renaissanceinnovator.com/