growth by business model innovation, a lecture at leuphana university, 2nd part
DESCRIPTION
This is the second part of a lecture I gave at Leuphana University Lüneburg in spring 2009TRANSCRIPT
Managing Growth by Business Model Innovation2nd-4th Session, Dr. oec. (HSG) Patrick Stähler
May 8-9th, 2009
Agenda
Dr. Patrick Stähler. Leuphana University Lüneburg
▪ The deep fall of the music industry
▪ The Pandesic Case or why elephants can’t dance
▪ Some theory on
▪ Financial measurements and strategy, the resource allocation process
▪ Hidden flaws in strategy making
▪ Starting points for business model innovation or is everything already invented?
▪ Customer insights
▪ Case: The undergarment industry
▪ Value vs. architectural vs. revenue model innovation
▪ Beware of the customer
▪ What makes up a good strategy?
1
The deep fall of the music(medium) industry
The bigger the capacity of the carrier medium becam e…
45 min 74 min
1000 min
Longplay record Music CD iPod Shuffle
Dr. Patrick Stähler. Leuphana University Lüneburg 3
…the worse the situation for the music industry got
41 40 4037
34 35 3332
30
0
10
20
30
40
1999 2000 2001 2002 2003 2004 2005 2006 2007
Sales Music Media Industry globalin Bn. $ (1999-2007)
Dr. Patrick Stähler. Leuphana University Lüneburg 4Source: www.musikindustrie.de
Guilty for the decline of the music industry were a lways the others, in particular their best customers
Dr. Patrick Stähler. Leuphana University Lüneburg 5
The industry did what they knew best: More of the Same: More offeringsand fighting music lovers
Dr. Patrick Stähler. Leuphana University Lüneburg 6
Business model innovation come from outside the indus try
Dr. Patrick Stähler. Leuphana University Lüneburg 7
The Pandesic Case: Analyze the case and give answer s to the following questions
▪ Would you have invested in Pandesic at the beginning?
▪ How were the market conditions for the new venture?
▪ Were the right competencies at work at Pandesic? Were Intel & SAP the right partners?
▪ Make a short SWOT analysis of Pandesic
▪ What did go wrong at Pandesic?
Dr. Patrick Stähler. Leuphana University Lüneburg 8
How did Pandesic end up like this? The internet was seen as a sustaining technology. They used well tested management techniques from their successful multinational mother companies for a startup company and failed miserably
Ok, let’s do an autopsy and find out what went wrong? - channels- product development- executive team
OK, let’s do some analytics and theory
40% gross profit
1
23% gross profit
2
*You are in the same industry under the same rules of competition
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Think more about ROI not just sales margin, but be aware of what the total assets are
Dr. Patrick Stähler. Leuphana University Lüneburg
verAssetTurnoinProfitMarg ×=ROI
sTotalAsset
Sales
Sales
NetIncomeROI ×=
sTotalAsset
Profit=ROI
13
Both cases have approx. the same profitability
Dr. Patrick Stähler. Leuphana University Lüneburg
1 2= Department stores = discounters
sTotalAsset
Sales
Sales
NetIncomeROI ×=
%1203%401 =×=ROCII %5.1265.5%232 =×=ROCII
Figures are taken from Christensen, Raynor (2003), The innovator‘s solution, p. 106 14
Dr. Patrick Stähler. Leuphana University Lüneburg
Ok, let’s assume we are this turkey here. Let’s call him Joey
15
Dr. Patrick Stähler. Leuphana University Lüneburg
Joey is a good student. He learned that analytics will help him to become a better turkey.
16
So he introduces his well-being index that increase s by the day since his owner treats him so well…..
Dr. Patrick Stähler. Leuphana University Lüneburg
0
1
2
3
4
5
6
7
8
Joey’s confidence level that he lives in paradise
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18Dr. Patrick Stähler. Leuphana University Lüneburg
Ok, I understand, Ok, I understand, Ok, I understand, Ok, I understand, you think he is just you think he is just you think he is just you think he is just a turkey.a turkey.a turkey.a turkey.But think what you But think what you But think what you But think what you usually do in usually do in usually do in usually do in market analysis!market analysis!market analysis!market analysis!
19Dr. Patrick Stähler. Leuphana University Lüneburg
Dr. Patrick Stähler. Leuphana University Lüneburg
We have a view of the world of what made us and our firm successful
These assumptions help us in normal circumstances very well!
Most assumptions are tacit and unspoken
20
Our mental model our perception of our world. In a firm a dominant logic of how things ought to be done exist
The world according to our firm
Competitor Analysis
Customer Feedback
Market reports
21Dr. Patrick Stähler. Leuphana University Lüneburg
Domiant logic of the firm▪ resides in the people▪ gets stronger with success▪ filters information▪ helps to get things done with out too
much coordination▪ gets strengthens by knowledge
management, best practice and benchmarking
▪ is extremly important in a world of sustaining innovations, but an impediment to disruptive innovations
Hidden flaws in strategy making
Dr. Patrick Stähler. Leuphana University Lüneburg
Hidden flaws in strategy makingWe believe that with analytical tools of the past we can foresee the future! For a sustaining world we have the right tools! 22
Hidden flaws in strategy making
Our successful human rationality
▪ Our decision process is well suited for normal environments
▪ Bounded rationality: impossible to analyse all facts
▪ Ecological rationality Mental shortcuts to reach a quick decision that are good enough in normal situations
▪ Preference to be exactly wrong to vaguely right
Dr. Patrick Stähler. Leuphana University Lüneburg
Typical flaws▪ Overconfindence in our our
capabilities and in our ability to judge the future
▪ The status quo bias: What we know can we analyze better and we love the present
▪ Ancoring: ▪ The double-sided sunk-cost problem▪ The herding instinct: What the
others do can‘t be wrong! One reason for Me-too Strategies.
▪ False consensus: confirmation bias, selective recall, group thinking
23
Financial tools are great but be aware of the limitation s of the tools
Better management leads to disaster in disruptive times:The better a company is managed for sustaining innovations the less capable it is to confront disruptive innovations.
Disruptive technologies are disruptive because in f irst sight they look so innocent
▪ Initially, disruptive technologies do not attempt to bring better products to established customers in existing markets.
▪ They disrupt and redefine trajectories by introducing products and services that are not as good as currently available products ,
▪ but have additional features that appeal to different market segment such as reduced size, weight, complexity and lower power consumption.
▪ Disruptive technologies emerge and progress on their own, uniquely defined trajectories.
▪ Particularly low-end disruption become better over time so they can serve the most demanding customers as well and thereby replace the traditional technology as well
Dr. Patrick Stähler. Leuphana University Lüneburg
based on: provenmodels.com and the Innovator's dilemma by Clayton M. Christensen and the innovators solution by Clayton M. Christensen and Michael E. Raynor
25
Is EVERY THING already
invented?
Well, let‘s start with something very mature – the t ea bag
▪ 50 years old and mature
▪ Competition via the form of the bag to provide better taste
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Is everything already invented? – Nope, even mature things can be optimized when looking through the customers‘ ey es at the job to be done
▪ Tetley invented the drip-less tea bag
▪ It solved easily the everyday problem of dripping
▪ Result: premium of 13% over regular tea (at Migros)
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That’s how the firms see their products
And that is reality
Dr. Patrick Stähler. Leuphana University Lüneburg 30
Again some theory
Disruption can come from the low end of the market or from nonconsumption
based on: the Innovator's dilemma by Clayton M. Christensen and the innovators solution by Clayton M. Christensen and Michael E. Raynor, slide taken from provenmodels.com
diffe
rent
mea
sure
of p
erfo
rman
ce
time
new market disruptioncompete against nonconsumption
perf
orm
ance
time
low end disruptionaddressing overserved customers with a low cost business model
sustaining technologybringing a better product intoan established market
most demanding customers
least demanding customers
32Dr. Patrick Stähler. Leuphana University Lüneburg
If you are in a marketfor giants...
.. and you play withtheir rules you will getnowhere…
Dr. Patrick Stähler. Leuphana University Lüneburg
„…but if you can create your own rules of engagement than you can compete even in a market for giants. “
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There is not just one strategy at a corporation
Dr. Patrick Stähler. Leuphana University Lüneburg
owner strategy
corporate strategy
business strategy business strategy
category strategy category strategy
product strategy … …
Questions:
▪ Which companies should I own?
▪ In what businesses / markets should I invest inside the corporation?
▪ What is the right business model to succeed?
▪ How should I structure my offering?
▪ How should I manage this product?
Capital m
arket
Custom
ers
That‘sThat‘sThat‘sThat‘s wherewherewherewhere businessbusinessbusinessbusinessmodel model model model innovationinnovationinnovationinnovation startstartstartstart!!!!
36
Dr. Patrick Stähler. Leuphana University Lüneburg
What value do we createfor our customers and for other stakeholders?
Value Proposition
How do we create the value?Value Architecture
How do we earn money?Revenue Model
The definition of a business model
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Business model innovation1. Value Innovation
(We offer a better value proposition for an existing or new problem)
2. Architectural innovation (We reconfigure the value chain so that a better value proposition emerges)
3. Revenue model innovation (We change the revenue mix and thereby creating a better value proposition)
Where do we get a Value Innovation from? Let‘s find new customer insights as a starting point
Business model innovation
New value proposition
Customers’ insight
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„How can we find customer insights? “
40Dr. Patrick Stähler. Leuphana University Lüneburg
„How about focus groups?“
41Dr. Patrick Stähler. Leuphana University Lüneburg
BuyBuy Delivery/ AssemblyDelivery/ Assembly UsageUsage Comple-
mentsComple-ments ServiceService DisposalDisposal
How can we find systematically new customer insight s?
Source: cp. Kim, W.C., Mauborgne, R., Knowing a Winning Business Idea when you see one, HBR Sep-Oct. 2000
Buyer Utility Map
▪ Understand how the customers are buying, using and disposing the product
▪ Understand the whole lifecycle of customers‘ utility
▪ How can we improve the buyer‘s utility cycle?
▪ Can we do more for the customer?▪ Can we leave something to the
customer?
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Where can I start in the buyer utility map? –The Dyson Vacuum Cleaner
DisposalServiceComplementsUseDeliveryBuy
CustomerProductivity
Simplicity
Usability
Risk
Image & fun
Enviromental friendlyness
++
StartingPoints
43Dr. Patrick Stähler. Leuphana University Lüneburg
Blacksocks – We solve the world from its socks proble ms
10'00012'000
25'000
40'000
0
10'000
20'000
30'000
40'000
2001 2002 2005 2008
Socks subscription(2001-2008) Customer Insight
� Buying socks is no fun� Putting socks in pairs even less
fun� Good socks are a sign of „Being
well dressed“
Value Proposition� Blacksocks subscription solves
all problems� Always enough new socks � No pairing needed since all
socks are identical
Revenue Model� Upfront payment � Easy planning and negative
working capital
20% market sharein Switzerland*
•* premium segment starting at 9CHFDr. Patrick Stähler. Leuphana University Lüneburg 44
Blacksocks – we save the world from socks problems
DisposalPuttingin pairs
WashingUseDeliveryBuy
CustomerProductivity
Simplicity
Usability
Risk
Image & fun
Enviromental friendlyness
StartingPoints
45Dr. Patrick Stähler. Leuphana University Lüneburg
Dell – the classical business model innovator
46Dr. Patrick Stähler. Leuphana University Lüneburg
IKEA – democratic design
▪ IKEA outsourced two value activities (assembly and transport) to its customers
▪ Thereby, it can offer substantially lower prices for good design
Is this everything?Is this everything?Is this everything?Is this everything?Think about the value Think about the value Think about the value Think about the value proposition and the proposition and the proposition and the proposition and the production economics!production economics!production economics!production economics!
47Dr. Patrick Stähler. Leuphana University Lüneburg
Revenue model innovation – the forgotten business mo del innovation type
▪ Find new sources of revenue (Gratis-Zeitungen are financed by advertising, always the prime source of income for newspapers)
▪ Let the same customer pay but differently (postpaid vs. prepaid, bring the financing of the deal along (GE Capital), single sale vs. subscription (blacksocks)
▪ Revenue model innovation change the economics of a business. With an upfront subscription payment the working capital is negative. Your customer finances you
48Dr. Patrick Stähler. Leuphana University Lüneburg
The strategy canvas of Bosch IXO: A clear profile o f the value innovation
-1
0
1
2
3
4
5
6 Traditional brands No-Name Bosch
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Where does the value innovation of Bosch start?
Eliminate� technology talk
Reduce• performance• heavy duty• men, muscle & sweat
Raise• price• home decoration
Create• easy of use• fun• inspiring people
cost
red
uctio
n
Diff
eren
tiatio
n
Eliminate – Reduce – Create – Raise Matrix
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Very business model innovation must have in the end a higher customer utility
Customerutility
price
costs
company profit
customervalue+
+
51Dr. Patrick Stähler. Leuphana University Lüneburg
Dr. Patrick Stähler. Leuphana University Lüneburg
Beware of your existing customers. They want More-of-the-Same-for-Less!
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But also it takes time to find new customers and teach them the advantages of your solution
Dr. Patrick Stähler. Leuphana University Lüneburg
Even innovations that are self-evident & have no co mpetition do not diffuse easily. The example of lemon juice and the British Navy
Discovery that lemon juice preventsscurvy in 1601
Confirmation of the results 1747
Introduction to the Navy 1795
Introduction to the Merchant navy 1865
146 years
48 years
70 years
Source: Mosteller, 1981 cited in Rogers, 1995 54
Business model innovation demands often new consume r behavior. Learning takes TIME and a GOOD REASON to do so!
▪ Have you ever thought of, how much knowledge consumer have about the consumption process?
▪ Most consumer knowledge is learned via from other peers
▪ To implement a new business model in the heads of the consumer takes time!
55Dr. Patrick Stähler. Leuphana University Lüneburg
What are the variables determining the rate of adop tion of a business model innovation?
1. Perceived Attributes of Innovations• Relative advantage• Compatability with existing knowledge• Complexity• Consumer Knowledge• Trialability• Observability
2. Type of Innovation-Decision• Optional• Collective• Authority
3. Communication Channels• Mass media• Interpersonal (Word-of-Mouth)
4. Nature of the Social System• Degree of network interconnectedness• Norms
Rate of Adoption of Business model innovation
Source: cp. Rogers,(1995), The Diffusion of Innovation, p.207 56Dr. Patrick Stähler. Leuphana University Lüneburg
The adoption of a business model innovation is a lo ng and cumbersome process. Each customer has to go through all five p hases
Knowledge
•Do I know about the innovation
Perception
•What is my perception?
•Positive? Negative?
Decision
•Shall I decide to buy it?
Implementation
•Shall I use it?
Confirmation
•Does the product fulfill the value proposition?
Dr. Patrick Stähler. Leuphana University Lüneburg
failure failure failure failure failure
57
The S-curve is just the curve for successful innova tions, but most fail
time
diffu
sion
58Dr. Patrick Stähler. Leuphana University Lüneburg
Could you build up Tchibos business model from scra tch? Probably not!
Source: Tchibo Website
Coffee
• 1950
Coffee plus
• 15 years
Non-foodproducts
• 9 years
14 days program
• 12 years
Weekly world of goods
• 9 years
59Dr. Patrick Stähler. Leuphana University Lüneburg
Beware of your customer!
▪ Customers can seldom image products that they do not know▪ Normal customers if asked want More for Less of what the industry is
already offering▪ Most demanding customers are great for finding sustaining
innovations but a threat for disruptive innovations▪ Traditional market research does not discover new demands. Market
research is a reason for strategy convergence▪ Most business model innovation come from the supplier side. ▪ Thinking in Jobs-to-be-done helps to find new not solved customer
insights
60Dr. Patrick Stähler. Leuphana University Lüneburg
What makes up a good business model innovation or a ny good strategy?
Dr. Patrick Stähler. Leuphana University Lüneburg
Focus
Trend
Differentiation
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It’s about finding the right trend to surf!
Dr. Patrick Stähler. Leuphana University Lüneburg
It is about differentiation63
„Business model innovation is
about being
DIFFERENT!“
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NO, REALLY DIFFERENT!
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