BUS479 Exam 2

Culture: Infrastructure Management

Battle for scale; rapid consolidation; a few big players dominate

Culture: Customer Relationship Management

Battle for scope; rapid consolidation; a few big players

Culture: Product Innovation

Battle for talent; low barriers to entry; many small players thrive

Value Innovation - Blue Ocean

Cost decrease Value increase Rejects trade off between differentiation and low cost

Unbundled Corporations

Customer relationship businesses Draw the canvas patterns Product innovation businesses Draw the canvas patterns Infrastructure business Draw the canvas patterns

Customer segments

Customer segments - an organization services one or several customer segments Building block defines different groups of people or organiations an enterprise aims to reach and service Heart of business model Business model may define one or several large or small customer segments For whom are we creating value? Who are our most important customers? Diff types customer segs Mass market Niche market Segmented Diversified Multi sided platform

Product Innovation

Early market entry enables charging premium prices and acquiring large market share; speed is key

Competition: Product Innovation

Employee centered; coddling the creative stars

Open source - freemium with a twist

Fee product based on a non-free product No-cost product development Ex: red hat linux, skype

Revenue Streams Questions

For what value are our customers really willing to pay? For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each revenue stream contribute to overall revenue?

Multiple Epicenter Driver

Innovations driven by multiple epicenters can have significant impact on several other building blocks. Innovations driven by multiple epicenters can have significant impact on several other building blocks.

Team Composition

Key question: Is our team sufficiently diverse to generate fresh business model ideas? Assembling the right team is essential to generating effective new business model ideas. Members should be diverse in terms of seniority, age, experience level, business unit represented, customer knowledge, and professional expertise

Key Resources

Most important assets required to make a business model work Examples Physical Intellectual Human

BOE (back of envelope) your company on a canvas

Not what is, but what you think it should be

Def Pattern No 5

Refer to opening up a company's research processes to outside parties Monetizing intellectual property Licensing, joint venture, spin off Outside-in Bringing in external ideas, technologies, or IP Inside-out Licensing or selling IP - utilizing "unused assets"

Four Epicenters

Resource driven offer driven customer driven finance driven

Ideation

The creative process needed for generation a large number of business model ideas and successful isolating the best ones

Value Innovation

increasing value for customers by creating new benefits and services, while simultaneously reducing costs by eliminating less valuable features or services. Notice how this approach rejects the traditionally accepted trade-off between differentiation and lower cost.

value proposition

- seeks to solve customer problems and satisfy customer needs with value proposition Why customers turn to one company over another Satisfies customer problem or need Different mix of values Newness Performance Customization Getting the job do

9 building blocks of business model

1. Customer Segments 2. Value Propositions 3. Channels 4. Customer Relationships 5. Revenue Streams 6. Key Resources 7. Key Activities 8. Key Partnerships 9. Cost Structure

Business Model Canvas

A shared language for describing, visualizing, assessing, and changing business models A business model describes the rationale of how an organization creates, delivers, and captures value

Cost Structure

All costs incurred to operate a business model Examples Cost driven Value driven Fixed costs Variable costs Economies of scale

Blue Ocean Strategy

Blue Ocean Strategy is a potent method for questioning Value Propositions and business models and exploring new Customer Segments. The Business Model Canvas complements Blue Ocean by providing a visual "big picture" that helps us understand how changing one part of a business model impacts other components. In a nutshell, Blue Ocean Strategy is about creating completely new industries through fundamental differentiation as opposed to competing in existing industries by tweaking established models

Patterns

Business models with similar characteristics, similar arrangement of business model Building Blocks or similar behaviors Ie patterns A single business model can incorporate several of these patterns

Principles of Innovation - closed

Closed Profit from R&D Conduct most of best research industry Create most of the best ideas Smart people Control innovation process so that competitors don't profit from our ideas Ex: Lockheed Martin

Def_pattern No.1 - Unbundled

Concept of the "unbundled" corporation holds that there are three fundamentally different types of businesses: customer relationship businesses, product innovation business, and infracture businesses Examples: mobile telecom industry, private banking industry

Competition: Infrastructure Management

Cost focused; stresses standardization; predictability, and efficiency

Customer Segment Questions

For whom are we creating value? Who are our most important customers?

Four Action Framework Example

Four action framework Netflix - highchurn rates and longtailing Eliminate Which of the factors that the industry takes for granted should be eliminated? Stores Raise Which factors should be raised above the industry standard? Selection Reduce Which factors should be reduced well below the industry standard? Time to market with new releases Create Which factors should be created that the industry has never offered? Home Delivery

Def_pattern No.4 Free offer based on multi-sided platforms (advertising-based)

Free offer based on multi-sided platforms (advertising-based) Particular form of multi-sided platform pattern Metro example Paper is free Distributed in high traffic commuter zones - public transportation Cut editorial costs - "just good enough" Focus on young readers

Customer Relationship Management

High cost of customer acquisition makes it imperative to gain large wallet share; economies of scope are key

Infrastructure Management

High fixed costs make large volumes essential to achieve low unit costs; economies of scale are key

Competition: Customer Relationship Management

Highly service oriented; customer comes first mentality

Epicenters

Ideas for business model innovations, each business model building block can be a starting point

Key Activities

Important things a company must do to make its business model work Examples Production Problem solving platform/network

Epicenter: Finance Driven

Innovations driven by new revenue streams, pricing mechanisms, or reduced Cost structures that affect other business model building blocks. When Xerox invented the Xerox 914 in 1958— one of the fi rst plain paper copiers—it was priced too high for the market. So Xerox developed a new business model. It leased the machines at $95 per month, including 2,000 free copies, plus five cents per additional copy. Clients acquired the new machines and started making thousands of copies each month.

Criteria Selection

Key question: What are the most important criteria for prioritizing our business model ideas? After expanding the range of possible solutions, the team should define criteria for reducing the number of ideas to a manageable few. The criteria will be specific to the context of your business, but could include things such as estimated implementation time, revenue potential, possible customer resistance, and impact on competitive advantage.

Prototyping

Key question: What does the complete business model for each shortlisted idea look like? With criteria defined, the team should be able to reduce the number of ideas to a prioritized shortlist of three to five potential business model innovations. Use the Business Model Canvas to sketch out and discuss each idea as a business model prototype (see p. 160)

Expanding

Key question: What innovations can we imagine for each business model building block? During this phase the team expands the range of possible solutions, aiming to generate as many ideas as possible. Each of the nine business model building blocks can serve as a starting point. The goal of this phase is quantity, not quality. Enforcing brainstorming rules will keep people focused on generating ideas rather than on critiquing too early in the process (see p. 144)

Immersion

Key question: Which elements must we study before generating business model ideas? Ideally the team should go through an immersion phase. which could include general research, studying customers or prospects, scrutinizing new technologies, or assessing existing business models. Immersion could last several weeks or could be as short as a couple of workshop exercises (e.g. the Empathy Map).

Free basic services with optional premium services (freemium)

Large user base using free service Small portion subscribe Based on low marginal cost for free service Key metrics Cost of supporting free users Conversion rate to premium usage

Def_pattern No.2 Long Tail Business Model

Long Tail BUsiness Model are about selling less of more: they focus on offering a large number of niche products, each of which sells relatively infrequently... Long tail business models require low inventory costs and strong platforms Ex: netflix, eBay, youtube, facebook

Def_pattern No.3 Multi-sided platforms

Multi-sided platforms bring together two or more distinct but interdependent groups of customers Such platforms are of value to one group of customers only if the other groups of customers are also present The platform creates value by facilitating interactions between different groups Multi-sided platform grows in value to the extent that it attracts more uses, a phenomenon known as network effect Examples: VISA, Google, Ebay, Microsoft Windows

Principles of Innovation - Open

Need to work with smart people both inside and outside the company External R&D We don't have to originate the research to benefit from it Profit from others' use of our innovations, and we should buy others IP whenever it advances our own interests

Key partnerships

Network of suppliers and partner that make the business model work Examples Optimization and economy of scale Reduction of risk and uncertainty Acquisition of particular resources and activities

3 Core Business Types

Product Innovation Customer Relationship Management Infrastructure Management

What is prototyping

Prototyping is a powerful tool for developing new, innovative business models Makes abstract concepts tangible and facilitates the exploration of new ideas A thinking tool to explore directions to take the business model?

Channel Questions

Through which channels do our customer segments want to be reached? How are we reaching them now? How are our channels integrated? Which channels work best? Which channels are most cost-efficient? How are we integrating them with customer routines?

Cost Structure Questions

What are the most important costs inherent in our business model? Which key resources are most expensive? Which key activities are most expensive?

Key Activities Questions

What key activities do our value propositions require? Our distribution channels? Customer relationships? Revenue streams?

Key Resources Questions

What key resources do our value propositions require? Our distribution channels? Customer Relationships? Revenue Streams?

Customer Relationships

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 our business model?

Value Prop Questions

What value do we deliver to the customer? Which one of our customer's problems are we helping to solve? Which customer needs are we satisfying? What bundles of products and services are we offering to each customer segment?

Four Actions Framework Question 4

Which factors should be created that the industry has never offered?

Four Actions Framework Question 3

Which factors should be raised well above the industry standard?

Four Actions Framework Question 2

Which factors should be reduced well below the industry standard?

Four Actions Framework Question 1

Which of the factors that the industry takes for granted should be eliminated?

Key Partnership Questions

Who are our key partners? Who are our key suppliers? Which key resources are we acquiring from partners? Which key activities do partners perform?

Revenue stream

a source of revenue flowing into a firm Represents the cash a company generates from each customer segment EXAMPLES Asset sale Usage fee Subscription fee

Business Case Examine

business case examine the viability of the idea turn the detailed canvas into a spreadsheet to estimate your model's earning potential. • Create a full Canvas • Include key data • Calculate costs and revenues • Estimate profit potential • Run financial scenarios based on different assumptions

Epicenter: Customer Driven

customer-driven innovations are based on customer needs, facilitated access, or increased convenience. Like all innovations emerging from a single epicenter, they affect other business model building blocks 23andMe brought personalized DNA testing to individual clients—an offer previously available exclusively to health professionals and researchers, This had substantial implications for both the Value Proposition and the delivery of test results, which 23andMe accomplishes through mass-customized Web profi les

Elaborated Canvas Expore

elaborated canvas explore what it would take to make the idea work develop a more elaborate canvas to explore all the elements needed to make the business model work. • Develop a full Canvas • Think through your business logic • Estimate the market potential • Understand the relationships between Building Blocks • Do some basic fact-checking

Customer relationship

established and maintained with each customer segment Describe types of relationships a company established with specific customer segments Examples Personal assistance Dedicated personal assistance

Field-test investigate

field-test investigate customer acceptance and feasibility, you've decided on a potential new business model, and now want to field test some aspects. • Prepare a well-justified business case for the new model • Include prospective or actual customers in the field test • Test the Value Proposition, Channels, pricing mechanism, and/or other elements in the marketplace

Four Action Framework

four key questions challenge an industry's strategic logic and established business model

Bait & Hook

free initial offers leading to repeat purchases Also known as "loss leader" or "razor & blades" Examples: free cell phones; inexpensive printers

Napkin Sketch

napkin sketch outline and pitch a rough idea draw a simple business model canvas. describe the idea using only key elements. • Outline the idea • Include the Value Proposition • Include the main Revenue Streams

Epicenter: Offer Driven

offer-driven innovations create new value propositions that affect other business model building blocks. example: When Cemex, a Mexican cement maker, promised to deliver poured cement to job sites within four hours rather than the 48 hour industry standard, it had to transform its business model. This innovation helped change Cemex from a regional Mexican player into the world's second largest cement producer.

Epicenter: Resource Driven

resource-driven innovations originate from an organization's existing infrastructure or partnerships to expand or transform the business model. example: Amazon Web Services was built on top of Amazon.com's retail infrastructure to offer server capacity and data storage space to other companies.

Channels

value propositions are delivered to customers through communication, distribution, and sales channels What channels do customers want to be served in Channel types - own, partner, direct, indirect Channel phases - awareness, evaluation, purchase, delivery, after sales