business model innovation

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The views expressed in this presentation are the views of the author/s and do not necessarily reflect the views or policies of the Asian Development Bank, or its Board of Governors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this presentation and accepts no responsibility for any consequence of their use. The countries listed in this presentation do not imply any view on ADB's part as to sovereignty or independent status or necessarily conform to ADB's terminology. Business Model Innovation Olivier Serrat 2015

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The views expressed in this presentation are the views of the author/s and do not necessarily reflect the views or policies of the Asian Development Bank, or its Board of Governors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this presentation and accepts no responsibility for any consequence of their use. The countries listed in this presentation do not imply any view on ADB's part as to sovereignty or independent status or necessarily conform to ADB's terminology.

Business Model Innovation

Olivier Serrat2015

Sri Kalika DeviAlmost 80 years ago, Joseph Schumpeter, the prophet of innovation, distinguished five types: (i) a new good, (ii) a new method of production, (iii) a new market, (iv) a new source of supply of raw materials, and (v) (the carrying out of) a new organization of any industry (or market). The body of knowledge he engendered then lay dormant until the end of the 20th century, with precious few other insights. In modern parlance, the five cases were reinterpreted as product, process, market, input, and organizational innovations; references to a sixth, innovation in services—a sector that did not exist in his time—began to show up in the mid-1990s.

On Business Model Innovation

Business model innovation is now the rage. This kind of innovation is often more valuable and transformative than the other types: it reduces risks and, conversely, allows more risks to be taken. It has also, perforce, encouraged organizational innovation; for instance, internet-sped innovative processes and structures include peer-to-peer and open-source organization, collaborative mechanisms that would have been inconceivable to our parents, let alone Joseph Schumpeter.

Innovation is the successful exploitation of new ideas. Then again, if it is deemed a competence and not just a process, innovation is the ability to deliver new value to clients, audiences, and partners.

The Theory of the BusinessThe concept of value and the differentiation it rests on are integral to business, and therefore to business model innovation. For consumption or use, every organization strives to sell products and services that customers value.

Value added is what a customer expects. It follows that the notion of value should dominate any discussion of business models. A business model is not an explanation of how a company hopes to make money; it is not strategy either. A business model is the core design, the logic, that enables an organization to capture, create, and deliver value to meet explicit or latent needs (and in so doing derive some form of profit itself).

Possible Innovation Targets

Business Structure

Capital Formation

Alliances

Organization

Structure Type

Decision-Making

ProcessesProcess to Improve ProcessesFacilities Infrastruct

ureFacilities Effectivene

ssInformation Technology Infrastruct

ureEmployee and

Contractor Mix

Employee Experience

Supply Chain

Manufacturing

Communication

Distribution System

Products and

Services

Product OfferingProduct

AvailabilityTechnology (Evident)Technology (Hidden)

Research and Development

Manufacturing

Sales Model

DistributionUser

InterfacePackaging

FunctionalityLifecycle

ModelSustainabilit

yAfter-Sales Service

Customer Service

Communication

Service Process

Customer Experience

Brand and Image

Advertising

Communication Process

Feedback

Customer Relationshi

p Management

Administration

Information Stocks and

Flows

Automation

Insourcing and

Outsourcing of Services

Examples of Business ModelsAuction Bait and Hook Bricks and

ClicksBricks and

Mortar

Chemical Leasing Collective Direct Sales Disintermediat

ion

Fee In Fee Out Franchise FreemiumIndustrializat

ion of Services

Low-Cost Carrier Loyalty Monopoly Multi-Level

Marketing

Network Effects Online Content Online

Delivery Open Source

Service Servitization of Products Subscription Traffic and

Advertizing

Other Business Models

Key Elements of a Business Model

Chesbrough

Value Proposition

Market Segment

Value Chain

Cost Structure and

Target Margins

Value Network

Competitive Strategy

Hamel

Core Strategy

Strategic Resources

Customer Interface

Value Network

Johnson

Customer Value

Proposition

Profit Formula

Key Resources

Key Processes

Mullins and

Komisar

Revenue Model

Gross Margin Model

Operating Model

Working Capital Model

Investment Model

Osterwalder and

Pigneur

Customer Segments

Value Propositions

Channels

Customer Relationships

Revenue Streams

Key Resources

Key Activities

Key Partnerships

Cost Structures

Skarzynski and Gibson

Who Do We Serve?

What Do We Provide?

How Do We Provide It?

How Do We Make Money?

How Do We Differentiate and Sustain an Advantage?

Further Reading• Chesbrough, Henry. 2003. Open Innovation: The

New Imperative for Creating and Profiting from Technology. Harvard Business School Press.

• Hamel, Gary. 2002. Leading the Revolution: How to Thrive in Turbulent Times by Making Innovation a Way of Life. Harvard Business School Press.

• Johnson, Mark. 2010. Seizing the White Space: Business Model Innovation for Growth and Renewal. Harvard Business School Press.

• Morris, Langdon. 2003. Business Model Warfare: The Strategy of Business Breakthroughs. InnovationLabs.

Further Reading• Mullins, John and Randy Komisar. 2009.

Getting to Plan B: Breaking Through to a Better Business Model. Harvard Business School Press.

• Osterwalder, Alexander and Yves Pigneur. 2010. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. Wiley.

• Skarzynski, Peter and Rowan Gibson. 2008. Innovation to the Core: A Blueprint for Transforming the Way Your Company Innovates. Harvard Business School Press.

Further Reading• Serrat, Olivier. 2009. Value Cycles for

Development Outcomes. Manila: Asian Development Bank. www.adb.org/publications/value-cycles-development-outcomes

• ――. 2009. Harnessing Creativity and Innovation in the Workplace. Manila: Asian Development Bank. www.adb.org/publications/harnessing-creativity-and-innovation-workplace

• ――. 2010. Sparking Innovations in Management. Manila: Asian Development Bank. www.adb.org/publications/sparking-innovations-management

Further Reading• ――. 2010. Design Thinking. Manila: Asian Development Bank. www.adb.org/publications/design-thinking

• ――. 2011. A Primer on Intellectual Capital. Manila: Asian Development Bank. www.adb.org/publications/primer-intellectual-capital

• ――. 2012. Business Model Innovation. Manila: Asian Development Bank. www.adb.org/publications/business-model-innovation

Olivier SerratPrincipal Knowledge Management Specialist

Sustainable Developmentand Climate Change Department

Asian Development Bank

[email protected]/knowledge-managementwww.facebook.com/adbknowledgesolutionswww.scribd.com/knowledge_solutions

www.twitter.com/adbknowledge