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First Global Leadership Seminar with Dr Alexander Osterwalder

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The world’s leading companies compete beyond new technologies, product innovation, and price alone. These so-called Invincible Companies invest in superior business models, transcend industry boundaries, and constantly re-invent themselves.

Dr Alexander (Alex) Osterwalder is one of the world’s most influential innovation experts, a leading author, entrepreneur, and in-demand speaker whose work has changed the way established companies do business and how new ventures get started.

Ranked No. 4 of the top 50 management thinkers worldwide, Osterwalder is known for simplifying the strategy development process and turning complex concepts into digestible visual models. Together with Yves Pigneur, he invented the Business Model Canvas, Value Proposition Canvas, and Business Portfolio Map – practical tools that are trusted by leading global companies.

Strategyzer, Osterwalder's company, provides online courses, applications, and technology-enabled services to help organizations effectively and systematically manage strategy, growth, and transformation.

In this highly interactive talk, Dr Alex Osterwalder outlines practical tools to help corporate leaders and entrepreneurs unleash the growth potential of their organizations. He outlines how to decrease the risk and uncertainty of new ideas, how to invest in new corporate ventures, and how to create a true culture of innovation followed by a 30-minute fireside chat between Dr Osterwalder and industry leaders.

The seminar and fireside chat will be moderated by technology journalist and iSPIRT volunteer, Venkatesh Hariharan.

The program is organized by the Indian Software Product Industry Round Table (iSPIRT), in partnership with CII and CII-Suresh Neotia Center of Excellence, IIM Ahmedabad Entrepreneurial Ecosystem SIG, CIIE.CO, NSRCEL at IIM Bangalore, and Mahindra Leadership University.

For more, Please checkout Growth Portfolio offer to build Invincible Companies:
https://www.strategyzer.com/growth-solutions/growth-portfolio-corporate-innovation-program and Alex's full 3-day virtual masterclass to go deeper on the topic of Invincible Companies: https://www.strategyzer.com/training/virtual-masterclass-building-invincible-companies

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First Global Leadership Seminar with Dr Alexander Osterwalder

  1. 1. Insights into The Invincible Company @Strategyzer @AlexOsterwalder @YPigneur blog.strategyzer.com
  2. 2. Co-founder Strategyzer Alex Osterwalder @AlexOsterwalder Professor University of Lausanne Yves Pigneur @YPigneur #4
  3. 3. 1 If you like this presentation, please, feel free to share it but keep these copyright restrictions in mind: • The Strategyzer logo should always fully appear on any slide that contains our illustrations and/or content. • This content should not be published on any other online or offline channels other than Strategyzer’s, unless this has been previously agreed upon by Strategyzer AG and formalized in a written agreement. • This content cannot be resold or integrated into any physical or software product. The Business Model Canvas is licensed as creative commons. Enjoy it and adapt it freely, as long as you reference with citation “Strategyzer.com” and share your work under the same license. The Value Proposition Canvas is copyrighted Strategyzer AG and is not to be modified or used in software or other commercial products. Feel free to use the Business Model Canvas and Value Proposition Canvas in meetings or for consulting services under the condition of referencing and citing “Strategyzer.com” and fully displaying the Strategyzer logo. You can find additional information on businessmodelgeneration.com/canvas/bmc under “Legal Info”. 
 Please contact support@strategyzer.com for any inquiry. These slides are copyright of Strategyzer AG and are intended for personal use only. For other uses please inquire about licensing fees with Natasha at sales@strategyzer.com. The following applies to any content you intend to reuse: These slides are copyright of Strategyzer AG and are intended for personal use only. For uses please inquire about licensing fees with our sales team at sales@strategyzer.com The following applies to any content you intend to reuse:
  4. 4. 1. Constantly Reinvent itself 2. Compete on Superior Business Models 3. Transcend Industry Boundaries CompanyInvincibleThe Resilient “— Vinod Khosla, founder of Sun Microsystem All interesting things happen at the edges of the system.
  5. 5. Transcend Industry Boundaries Ping An Finance Center; Shenzhen, China / KPF. Image Courtesy of CTBUH
  6. 6. 1. Managing an Innovation Portfolio 2. Designing & Testing Business Models 3. Establishing an Innovation Culture AGENDA FOR TODAY 1 Managing an Innovation Portfolio 13 Challenges in existing companies THE EXPLORE/EXPLOIT CONTINUUM High uncertainty Low uncertainty
  7. 7. Focus Search and breakthrough: create the NEW Efficiency and growth: manage the EXISTING UncertaintyHigh Low Financial Philosophy Venture-capital style risk taking, expecting few outsized winners Safe haven with steady returns and dividends Culture & Processes iterative experimentation, speed, failure, learning, and rapid adaptation Linear execution, planning, predictability, and minimal failure People & Skills Explorers who excel in uncertainty, who recognize patterns, and navigate between big picture and details Managers who organize and plan and design efficient processes to deliver on time and budget High uncertainty Low uncertainty (1) both (2) (3) risk reduction (f) financial targets (e) dividends (b) predictability (c) innovation (g) iterative processes (d) rapid decision making (h) embracing failure (a) linear processes (i) classify the stickies in the three categories portfolio targets quarterly targets High uncertainty Low uncertainty (1) both (2) (3) financial targets (e) High uncertainty Low uncertainty (1) both (2) (3) financial targets (e) portfolio targets quarterly targets dividends (b)rapid decision making (h)
  8. 8. efficiency innovation transformativ e innovation High uncertainty Low uncertainty (1) both (2) (3) financial targets (e) portfolio targets quarterly targets dividends (b)rapid decision making (h) innovation (g) High uncertainty Low uncertainty (1) both (2) (3) financial targets (e) portfolio targets quarterly targets dividends (b)rapid decision making (h) innovation (g)transformativ e innovation efficiency innovation embracing failure (a) predictability (c) inno/bad idea risk disruption risk High uncertainty Low uncertainty (1) both (2) (3) financial targets (e) portfolio targets quarterly targets dividends (b) innovation (g)transformativ e innovation efficiency innovation embracing failure (a) predictability (c) risk reduction (f) rapid decision making (h) High uncertainty Low uncertainty (1) both (2) (3) financial targets (e) portfolio targets quarterly targets dividends (b)rapid decision making (h) innovation (g)transformativ e innovation efficiency innovation embracing failure (a) predictability (c) risk reduction (f)inno/bad idea risk disruption risk linear processes (i) iterative processes (d)
  9. 9. 3 types of innovation +transformative sustaining +efficiency High uncertainty Low uncertainty improve processes & existing business model, refine value propositions replace and extend value propositions, new channels, new geographies new business models, value propositions, and entirely new growth engines High uncertainty Low uncertainty +transformative sustaining +efficiency 3 types of innovation +transformative sustaining +efficiency High uncertainty Low uncertainty THE EXPLORE/EXPLOIT CONTINUUM High uncertainty Low uncertainty +transformative sustaining +efficiency fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno
  10. 10. THE EXPLORE/EXPLOIT CONTINUUM High uncertainty Low uncertainty +transformative sustaining +efficiency fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno THE EXPLORE/EXPLOIT CONTINUUM High uncertainty Low uncertainty +transformative sustaining +efficiency fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno fave inno THE EXPLORE/EXPLOIT CONTINUUM High uncertainty Low uncertainty +transformative sustaining +efficiency INNOVATION IS VALUE CREATION NOT TECH OR R&D MANAGING A PORTFOLIO High uncertainty Low uncertainty
  11. 11. 3’ VIDEO to add outside iCloud - EXPLOIT EXPLORE + SEARCH GROW SEARCH GROWEXPLORE PORTFOLIO Question for You How many $100k innovation projects does it take to produce a mega success? How many $100k innovation projects does it take to produce a mega success? 10 25 50 100 250 500 1’000 PollIn Zoom: single choice
  12. 12. EXPLOIT EXPLORE ExpectedReturn + ExpectedReturn Innovation Risk Death & Disruption Risk Return Exploit Explore 13 Innovation Risk The risk that a (convincing) business idea is going to fail. Risk is high when there is little evidence beyond slides and spreadsheets to support the success chances of an idea. Risk decreases with the amount of evidence that supports the desir- ability, feasibility, viability, and adaptability of a business idea. Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Death & Disruption Risk The risk that a business is going to die or get disrupted. Risk is high when a business is either emerging and still vulnerable, or when a business is under threat of disruption from technology, competition, regulatory changes, or other trends. Risk decreases with the moats protecting your business. Return How lucrative a business area is for the company. - ation Risk Death & Disruption Risk Return Exploit plore 13 Innovation Risk The risk that a (convincing) business idea is going to fail. Risk is high when there is little evidence beyond slides and spreadsheets to support the success chances of an idea. Risk decreases with the amount of evidence that supports the desir- ability, feasibility, viability, and adaptability of a business idea. Death & Disruption Risk The risk that a business is going to die or get disrupted. Risk is high when a business is either emerging and still vulnerable, or when a business is under threat of disruption from technology, competition, regulatory changes, or other trends. Risk decreases with the moats protecting your business. urn lucrative a business area r the company. Innovation Risk ?250 162 projects somewhat successful failures 87 1 Mega Success IDEATE/PIVOT/KILL Explore Portfolio 5.9% 2.5% 1.1% 0.4% 25.3% 64.8% Return Distribution in U.S. Venture Capital (2004 - 2013) Source: Correlation Ventures (data from VentureSource and other) 0 - 1.0x 1.0 - 5.0x 5.0 - 10.0x 10.0 - 20.0x 20.0 - 50.0x 50.0x + Return Groupings 70% 60% 50% 40% 30% 20% 10% 0% %ofFinancings 6 out of 10 investments lose money 4 out of 1000 are home runs 3 out of 10 makes some money 1 162 87 Sum = 250 Illustration — Bosch The Bosch Accelerator Program has allowed Bosch to implement a fast, structured, and capital-efficient process for validating business models at scale and has led to the establishment of a Bosch-wide innovation portfolio DR. UWE KIRSCHNER VP Business Model Innovation, Bosch Management Consulting “
  13. 13. EXPLOIT EXPLORE ExpectedReturn + ExpectedReturn Innovation Risk Death & Disruption Risk Return Exploit Explore 13 Innovation Risk The risk that a (convincing) business idea is going to fail. Risk is high when there is little evidence beyond slides and spreadsheets to support the success chances of an idea. Risk decreases with the amount of evidence that supports the desir- ability, feasibility, viability, and adaptability of a business idea. Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Death & Disruption Risk The risk that a business is going to die or get disrupted. Risk is high when a business is either emerging and still vulnerable, or when a business is under threat of disruption from technology, competition, regulatory changes, or other trends. Risk decreases with the moats protecting your business. Return How lucrative a business area is for the company. - ation Risk Death & Disruption Risk Return Exploit plore 13 Innovation Risk The risk that a (convincing) business idea is going to fail. Risk is high when there is little evidence beyond slides and spreadsheets to support the success chances of an idea. Risk decreases with the amount of evidence that supports the desir- ability, feasibility, viability, and adaptability of a business idea. Death & Disruption Risk The risk that a business is going to die or get disrupted. Risk is high when a business is either emerging and still vulnerable, or when a business is under threat of disruption from technology, competition, regulatory changes, or other trends. Risk decreases with the moats protecting your business. urn lucrative a business area r the company. Innovation Risk Accelerator Program PHASE 1 200 teams (3 months, €120’000) PHASE 2 60 teams (€300’000) 70% fail 75% fail 15 businesses IDEATE/PIVOT/KILL Explore Portfolio Death & Disruption Risk Innovation Risk ExpectedReturn Return - - + + Exploit Portfolio Explore Portfolio You can’t pick the winner without investing in the losers!!! EXPLORE/EXPLOIT Portfolio Funnel Illustration - Laurastar
  14. 14. Death & Disruption Risk Innovation Risk ExpectedReturn Return - - + + Exploit Portfolio Explore Portfolio EXPLORE/EXPLOIT Portfolio Funnel 86 ALL YOU TOUCH WILL NOT TURN TO GOLD. YOU CAN'T PICK THE WINNERS. EMBRACE SMALL FAILURES, OR YOU’RE AVOID BIG FAILURES, OR YOU’RE DEAD AVOID BIG FAILURES, OR YOU’RE DEAD EMBRACE SMALL FAILURES, OR YOU’RE DEAD
  15. 15. EXPLOIT EXPLORE Death & Disruption Risk Innovation Risk ExpectedReturn Return - - + + Exploit Portfolio Explore Portfolio You can’t pick the winner without investing in the losers!!! EXPLORE/EXPLOIT Portfolio Funnel 2 Designing and Testing Business Models 8 9 The Iterative Process Business Concept Design Design is the activity of turning vague ideas, market insights, and evidence into con- crete value propositions and solid business models. Good design involves the use of strong business model patterns to maximize returns and compete beyond product, price, and technology. The risk that a business can’t get access to key resources (technology, IP, brand, etc.), can’t develop capabilities to perform key activities or can’t find key partners to build and scale the value proposition. Testing and reducing risk To test a big business idea you break it down into smaller chunks of testable hypotheses. These hypotheses cover three types of risk. Firstly, that customers aren’t interested in your idea (desirability). Secondly, that you can’t build and deliver your idea (feasibility). Thirdly, that you can’t earn enough money from your idea (viability). You test your most important hypotheses with appropriate experiments. Each experi- ment generates evidence and insights that allow you to learn and decide. Based on the evidence and your insights you either adapt your idea if you learn you were on the wrong path or continue testing other aspects of your idea if the evidence supports your direction. Desirability risk Customers aren’t interested The risk that the market a business is targeting is too small, that too few customers want the value proposition, or that the company can’t reach, acquire, and retain targeted customers. Feasibility risk We can’t build and deliver The risk that a business can’t get access to key resources (technology, IP, brand, etc.), can’t develop capabilities to perform key activities or can’t find key partners to build and scale the value proposition. Viability risk We can’t earn enough money The risk that a business can’t generate successful revenue streams, that customers are unwilling to pay (enough), or that the costs are too high to make a sustainable profit. Reducing Uncertainty and Risk TEST BUSINESS DESIGN Ideate Business Prototype Assess Learn D ecide Hypothesize Experiment Idea Key Hypotheses Business Model Experiments Value Proposition Key Insights EXPLOIT EXPLORE 12 13 1 2 3 4Design Design the Team p. 207 Shape the Idea p. 207 Experiments Select an Experiment p. 207 Discovery p. 207 Validation p. 207 Test Hypothesize p. 207 Experiment p. 207 Learn p. 207 Decide p. 207 Manage p. 207 Mindset Avoid Pitfalls p. 207 Lead through Experimentation p. 207 Organize for Experiments p. 207 AFTERWORD p. 207 TEST DESIGN Ideate Prototype Assess Learn D ecide Hypothesize Experiment Discovery Business Design Increase Expected Return Test Reduce Innovation Risk Ideate Prototype Assess Hypothesize ExperimentLearn EXPLORE PORTFOLIO Design & Test EXPLOIT EXPLORE Innovation Risk - ExpectedReturn Innovation Risk Death & Disruption Risk Return Exploit Explore Innovation Risk The risk that a (convincing) business idea is going to fail. Risk is high when there is little evidence beyond slides and spreadsheets to support the success chances of an idea. Risk decreases with the amount of evidence that supports the desir- ability, feasibility, viability, and adaptability of a business idea. Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Death & Disruption Ri The risk that a business is going to die or get disrupte Risk is high when a busines is either emerging and still vulnerable, or when a busin is under threat of disruptio from technology, competit regulatory changes, or oth trends. Risk decreases with moats protecting your bus Return How lucrative a business area is for the company. ExpectedReturn Innovation Risk Death & Disruption Risk Return Exploit Explore Innovation Risk The risk that a (convincing) business idea is going to fail. Risk is high when there is little evidence beyond slides and spreadsheets to support the success chances of an idea. Risk decreases with the amount of evidence that supports the desir- ability, feasibility, viability, and adaptability of a business idea. Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Death & Disruption The risk that a busines going to die or get disr Risk is high when a bus is either emerging and vulnerable, or when a b is under threat of disru from technology, comp regulatory changes, or trends. Risk decreases moats protecting your Return How lucrative a business area is for the company. ExpectedReturn Innovation Risk Death & Disruption Risk Return Exploit Explore ap sly mod- ture sting. folio ation s mod- tions, vices, ms of Exploit Portfolio Your portfolio of existing businesses, value proposi- tions, products and services, all mapped out in terms of Return and Death and Disruption Risk. Innovation Risk The risk that a (convincing) business idea is going to fail. Risk is high when there is little evidence beyond slides and spreadsheets to support the success chances of an idea. Risk decreases with the amount of evidence that supports the desir- ability, feasibility, viability, and adaptability of a business idea. Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Death & D The risk that going to die Risk is high w is either eme vulnerable, o is under thre from technol regulatory ch trends. Risk d moats protec Return How lucrative a business area is for the company. ExpectedReturn Innovation Risk Death & Disruption Risk Return Exploit Explore DEFINITION The Portfolio Map A strategic management tool to simultaneously visualize, analyze, and manage the business mod- els you are improving and growing and the future business models you are searching for and testing. Explore Portfolio Your portfolio of innovation projects, new business mod- els, new value propositions, new products and services, all mapped out in terms of Expected Return and Innovation Risk. Exploit Portfolio Your portfolio of existing businesses, value proposi- tions, products and services, all mapped out in terms of Return and Death and Disruption Risk. Innovation Risk The risk that a (convincing) business idea is going to fail. Risk is high when there is little evidence beyond slides and spreadsheets to support the success chances of an idea. Risk decreases with the amount of evidence that supports the desir- ability, feasibility, viability, and adaptability of a business idea. Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Death & Disrup The risk that a bus going to die or get Risk is high when a is either emerging vulnerable, or whe is under threat of from technology, c regulatory change trends. Risk decre moats protecting Return How lucrative a business area is for the company. ExpectedReturn Innovation Risk Death & Disruption Risk Return Exploit Explore rtfolio xisting proposi- d services, terms ath and Innovation Risk The risk that a (convincing) business idea is going to fail. Risk is high when there is little evidence beyond slides and spreadsheets to support the success chances of an idea. Risk decreases with the amount of evidence that supports the desir- ability, feasibility, viability, and adaptability of a business idea. Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Death & Disruptio The risk that a busine going to die or get dis Risk is high when a bu is either emerging and vulnerable, or when a is under threat of disru from technology, com regulatory changes, o trends. Risk decreases moats protecting your Return How lucrative a business area is for the company. Death & Disruption Risk Return Exploit DEFINITION The Portfolio Map A strategic management tool to simultaneously visualize, analyze, and manage the business mod- els you are improving and growing and the future business models you are searching for and testing. Explore Portfolio Exploit Portfolio Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Return How lucrative a business area is for the company. p y od- re ing. olio Exploit Portfolio Expected Retu How lucrative a b could be for the c turned out to be s Return folio Map t tool to simultaneously manage the business mod- nd growing and the future e searching for and testing. Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Return How lucrative a business area is for the company. p y od- re ing. Expected Return How lucrative a business idea could be for the company if it turned out to be successful. ap usly s mod- uture testing. Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Return How lucrative is for the comp TESTING Experiment Reducing the Risk of Your Ideas with Experiments TEST Learn Hypothesize Experiment There are a multitude of experiments to test your ideas. We describe 44 different Funding Uncertainty & Risk PROGRESS Idea BusinessSearch & Testing Discovery Validation Acceleration Execution First evidence of customer understanding, context, and willingness to pay. Strong evidence of interest and indications of profitability. Proven model at limited scale. Move your idea to the execu- tion portfolio to implement and Transfer TESTING Experiment Reducing the Risk of Your Ideas with Experiments To avoid building something nobody wants you need to test your ideas thoroughly with business experiments. Test your most Definition • a procedure to reduce the risk and TEST Learn Hypothesize Experiment There are a multitude of experiments to test your ideas. We describe 44 different business experiments at length in our book Testing Business Ideas [url]. Experiments can range from simple interviews over discussion prototypes, all the way to simulated sales, Funding Uncertainty & Risk PROGRESS Idea BusinessSearch & Testing Discovery Validation Acceleration Execution 4. Reduce uncertainty as much as you can before First evidence of customer understanding, context, and willingness to pay. Strong evidence of interest and indications of profitability. Proven model at limited scale. Move your idea to the execu- tion portfolio to implement and scale. Transfer Here are four rules of 1. Go cheap and fast at the beginning. 2. Increase the strength of evidence with multiple 3. Always pick the experi- ment that produces the SEARCH & TEST EXECUTE PROGRESS Test Reduce Innovation Risk DESIGN & TEST Risk Reduction & Funding
  16. 16. @davidjbland Run experiments from idea to business. Question for You Does Your Organization Perform Business Experiments (not pilots)? $1.75 billion
  17. 17. SCORING Project Scorecard Which innovation metrics do you track at your organization today? PollIn Zoom: multiple choice EXPLOIT EXPLORE Innovation Risk - Death & Disruption Risk Return Exploit Innovation Risk The risk that a (convincing) business idea is going to fail. Risk is high when there is little evidence beyond slides and spreadsheets to support the success chances of an idea. Risk decreases with the amount of evidence that supports the desir- ability, feasibility, viability, and adaptability of a business idea. Death & Disruption Risk The risk that a business is going to die or get disrupted. Risk is high when a business is either emerging and still vulnerable, or when a business is under threat of disruption from technology, competition, regulatory changes, or other trends. Risk decreases with the moats protecting your business. k Death & Disruption Risk Return Exploit Innovation Risk The risk that a (convincing) business idea is going to fail. Risk is high when there is little evidence beyond slides and spreadsheets to support the success chances of an idea. Risk decreases with the amount of evidence that supports the desir- ability, feasibility, viability, and adaptability of a business idea. Death & Disruption Risk The risk that a business is going to die or get disrupted. Risk is high when a business is either emerging and still vulnerable, or when a business is under threat of disruption from technology, competition, regulatory changes, or other trends. Risk decreases with the moats protecting your business. business area any. ExpectedReturn Innovation Risk Death & Disruption Risk Return Exploit Explore Innovation Risk The risk that a (convincing) business idea is going to fail. Risk is high when there is little evidence beyond slides and spreadsheets to support the success chances of an idea. Risk decreases with the amount of evidence that supports the desir- ability, feasibility, viability, and adaptability of a business idea. Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Death & Disruption Risk The risk that a business is going to die or get disrupted. Risk is high when a business is either emerging and still vulnerable, or when a business is under threat of disruption from technology, competition, regulatory changes, or other trends. Risk decreases with the moats protecting your business. Return How lucrative a business area is for the company. ExpectedReturn Innovation Risk Death & Disruption Risk Return Exploit Explore lio g si- ices, d Innovation Risk The risk that a (convincing) business idea is going to fail. Risk is high when there is little evidence beyond slides and spreadsheets to support the success chances of an idea. Risk decreases with the amount of evidence that supports the desir- ability, feasibility, viability, and adaptability of a business idea. Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Death & Disruption Risk The risk that a business is going to die or get disrupted. Risk is high when a business is either emerging and still vulnerable, or when a business is under threat of disruption from technology, competition, regulatory changes, or other trends. Risk decreases with the moats protecting your business. Return How lucrative a business area is for the company. Innovation Risk Death & Disruption Risk Return Exploit Explore Innovation Risk The risk that a (convincing) business idea is going to fail. Risk is high when there is little evidence beyond slides and spreadsheets to support the success chances of an idea. Risk decreases with the amount of evidence that supports the desir- ability, feasibility, viability, and adaptability of a business idea. ss idea ny if it ssful. Death & Disruption Risk The risk that a business is going to die or get disrupted. Risk is high when a business is either emerging and still vulnerable, or when a business is under threat of disruption from technology, competition, regulatory changes, or other trends. Risk decreases with the moats protecting your business. Return How lucrative a business area is for the company. Death & Disruption Risk Return Exploit Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Return How lucrative a business area is for the company. Return Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Return How lucrative a business area is for the company. Return Exploit Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Return How lucrative a business area is for the company. Return Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Return How lucrative a business area is for the company. Return Exploit Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Return How lucrative a business area is for the company. of experiments to scribe 44 different Funding Uncertainty & Risk PROGRESS Idea BusinessSearch & Testing Discovery Validation Acceleration Execution First evidence of customer understanding, context, and willingness to pay. Strong evidence of interest and indications of profitability. Proven model at limited scale. Move your idea to the execu- tion portfolio to implement and Transfer There are a multitude of experiments to test your ideas. We describe 44 different business experiments at length in our book Testing Business Ideas [url]. Experiments can range from simple interviews over discussion prototypes, all the way to simulated sales, Funding Uncertainty & Risk PROGRESS Idea BusinessSearch & Testing Discovery Validation Acceleration Execution 4. Reduce uncertainty as much as you can before First evidence of customer understanding, context, and willingness to pay. Strong evidence of interest and indications of profitability. Proven model at limited scale. Move your idea to the execu- tion portfolio to implement and scale. Transfer Here are four rules of 1. Go cheap and fast at the beginning. 2. Increase the strength of evidence with multiple 3. Always pick the experi- ment that produces the SEARCH & TEST EXECUTE PROGRESS Test Reduce Innovation Risk DESIGN & TEST Risk Reduction & Funding 3 types of innovation +transformative sustaining +efficiency High uncertainty Low uncertainty
  18. 18. PROGRESS Pasche BusinessIdea Search & Testing Execution Risk & Uncertainty TYPES OF INNOVATION Levels of Uncertainty feasibility viability desirability adaptability The Business Model Canvas Revenue Streams Channels Customer SegmentsValue PropositionsKey ActivitiesKey Partners Key Resources Cost Structure Customer Relationships Designed by: Date: Version:Designed for: designed by: Business Model Foundry GmbH, Switzerland www.businessmodelgeneration.com This work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License. To view a copy of this license, visit: http://creativecommons.org/licenses/by-sa/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. strategyzer.com 94 MANAGE 95 MANAGE Exploit Explore ExpectedReturn Innovation Risk INNOVATION METRICS Portfolio Level You can visualize the state of your explore portfolio once you get your teams to track the KPIs of their individual explore project. This gives you a powerful overview of the financial potential of your ideas in explora- tion and their current risk level. Equipped with this data and overview you can make better investment decisions and decide which projects to fund and support and which projects to retire. Business Model Portfolio (EXPLORE) PROJECT Expected revenues Testing costs / Time running PROJECT C $205 million $180 thousand / 4 months PROJECT H $780 million $1 million / 12 monthsPROJECT E $500 million $150 thousand /1 months PROJECT A $750 million $5,800 / 8 weeks PROJECT D $440 million $120 thousand /3 months PROJECT B $150 million $500 thousand / 9 months LEGEND: 93 MANAGE HYPOTHESIS 1 10% HYPOTHESIS 2 7.5% HYPOTHESIS 3 7.5% HYPOTHESIS 4 15% HYPOTHESIS 5 10% HYPOTHESIS 6 15% HYPOTHESIS 9 10% HYPOTHESIS 7 15% HYPOTHESIS 8 10% EXP. 1 $0.2K EXP. 2 $0.5K EXP. 3, EXP. 4 $1.2K EXP. 5 $1.3K EXP. 6, EXP. 7 $0.5K EXP. 8 $0.2K EXP. 12 $0.7K EXP. 9, EXP. 10 $0.2K EXP. 11 $1K $5,800 70% v/ X v/ X v/ ? v/ v/ ? 0.75 1 1 1 0.5 0.25 0.5 10% x 0.75 = 7.5% 0% 7.5% x 1 = 7.5% Persevere Pivot Persevere Pivot Persevere Re-test Persevere Persevere Re-test $1 billion $250 million 0% 10% x 0.5 = 5% 0% 10% x 0.25 = 2.5% 15% x 0.5 = 7.5% 0% PROJECT A 9/12/2020 8 weeks Learning Log Actions Expected Return Experiment LogHypotheses Log Project Metrics Name Name Start Date Project Duration Name Cost $ Overall Cost $ Innovation Risk Level % Insight Confidence #0 –1 Risk Reduction = Risk x Confidence Revenue Potential Expected Return $ Cost Structure Re-test, Shelve, Perservere, Pivot Risk % Desirability Viability Adaptability Feasibility $750 million PROJECT F $100 million $10 thousand / 3 weeks PROJECT G $400 million $20 thousand / 1week INNOVATION RISK INNOVATION METRICS Project Scorecard 50 51 Risk Reduction · Feasibility Evidence KEY RESOURCES We have the right technologies and resources to create our value proposition. KEY ACTIVITIES We have the right capabilities to handle the most critical activities for creating our value proposition. KEY PARTNERS We have found the right key partners who are willing to work with us to create and deliver our value proposition. Risk Reduction · Viability Evidence REVENUES We know how much our customers are willing to pay us and how they will pay. COSTS We know our costs for creating and delivering the value proposition. Risk Reduction · Adaptability Evidence INDUSTRY FORCES Our idea/project is well positioned to succeed against established competitors and new emerg- ing players. MARKET FORCES Our idea/project takes known and emerging mar- ket shifts into account. KEY TRENDS Our idea/project is well positioned to benefit from key technology, regulatory, cultural and societal trends. MACRO-ECONOMIC FORCES Our idea/project is adapted to known and emerg- ing macro-economic and infrastructure trends. Opportunity Value We understand the financial potential of our idea. EXPLORE Project Scorecard Strategic Fit Alignment CORPORATE IDENTITY Our idea/project is aligned with our corporate identity (strategic direction, organizational culture, brand image). INNOVATION GUIDANCE Our idea/project is aligned with our company’s innovation guidance. LEADERSHIP SUPPORT Our idea/project has support from at least one key sponsor who can help it become reality. Risk Reduction · Desirability Evidence CUSTOMER SEGMENT Our critical customer segments have the jobs, pains, and gains relevant for selling our value proposition. VALUE PROPOSITION Our value proposition resonates with our critical customer segments. CHANNELS We have found the best channel(s) to reach and acquire our critical customer segments. CUSTOMER RELATIONSHIP We have developed the right relationships to retain customers and repeatedly earn from them. none unclear little poor to little good strong strong very strong potential some good unclear unclear unclear <$100K poor to little poor to little poor to little $3M+ strong strong strong $50M+ very strong very strong very strong $100M+ some good some good some good $10M+ Icon? 50 51 Risk Reduction · Feasibility Evidence KEY RESOURCES We have the right technologies and resources to create our value proposition. KEY ACTIVITIES We have the right capabilities to handle the most critical activities for creating our value proposition. KEY PARTNERS We have found the right key partners who are willing to work with us to create and deliver our value proposition. Risk Reduction · Viability Evidence REVENUES We know how much our customers are willing to pay us and how they will pay. COSTS We know our costs for creating and delivering the value proposition. Risk Reduction · Adaptability Evidence INDUSTRY FORCES Our idea/project is well positioned to succeed against established competitors and new emerg- ing players. MARKET FORCES Our idea/project takes known and emerging mar- ket shifts into account. KEY TRENDS Our idea/project is well positioned to benefit from key technology, regulatory, cultural and societal trends. MACRO-ECONOMIC FORCES Our idea/project is adapted to known and emerg- ing macro-economic and infrastructure trends. Opportunity Value We understand the financial potential of our idea. EXPLORE Project Scorecard Strategic Fit Alignment CORPORATE IDENTITY Our idea/project is aligned with our corporate identity (strategic direction, organizational culture, brand image). INNOVATION GUIDANCE Our idea/project is aligned with our company’s innovation guidance. LEADERSHIP SUPPORT Our idea/project has support from at least one key sponsor who can help it become reality. Risk Reduction · Desirability Evidence CUSTOMER SEGMENT Our critical customer segments have the jobs, pains, and gains relevant for selling our value proposition. VALUE PROPOSITION Our value proposition resonates with our critical customer segments. CHANNELS We have found the best channel(s) to reach and acquire our critical customer segments. CUSTOMER RELATIONSHIP We have developed the right relationships to retain customers and repeatedly earn from them. none unclear little poor to little good strong strong very strong potential some good unclear unclear unclear <$100K poor to little poor to little poor to little $3M+ strong strong strong $50M+ very strong very strong very strong $100M+ some good some good some good $10M+ Icon? Desirability? Feasibility? Viability? Adaptability? The Business Model Canvas Revenue Streams Channels Customer SegmentsValue PropositionsKey ActivitiesKey Partners Key Resources Cost Structure Customer Relationships Designed by: Date: Version:Designed for: designed by: Business Model Foundry GmbH, Switzerland www.businessmodelgeneration.com This work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License. To view a copy of this license, visit: http://creativecommons.org/licenses/by-sa/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. strategyzer.com The Business Model Canvas Revenue Streams Channels Customer SegmentsValue PropositionsKey ActivitiesKey Partners Key Resources Cost Structure Customer Relationships Designed by: Date: Version:Designed for: designed by: Business Model Foundry GmbH, Switzerland www.businessmodelgeneration.com This work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License. To view a copy of this license, visit: http://creativecommons.org/licenses/by-sa/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. strategyzer.com 95 MANAGE Exploit Explore ExpectedReturn Innovation Risk ur explore ms to track e project. ew of the in explora- Equipped can make decide ort and Business Model Portfolio (EXPLORE) PROJECT Expected revenues Testing costs / Time running PROJECT C $205 million $180 thousand / 4 months PROJECT H $780 million $1 million / 12 monthsPROJECT E $500 million $150 thousand /1 months PROJECT A $750 million $5,800 / 8 weeks PROJECT D $440 million $120 thousand /3 months PROJECT B $150 million $500 thousand / 9 months LEGEND: 93 MANAGE HYPOTHESIS 1 10% HYPOTHESIS 2 7.5% HYPOTHESIS 3 7.5% HYPOTHESIS 4 15% HYPOTHESIS 5 10% HYPOTHESIS 6 15% HYPOTHESIS 9 10% HYPOTHESIS 7 15% HYPOTHESIS 8 10% EXP. 1 $0.2K EXP. 2 $0.5K EXP. 3, EXP. 4 $1.2K EXP. 5 $1.3K EXP. 6, EXP. 7 $0.5K EXP. 8 $0.2K EXP. 12 $0.7K EXP. 9, EXP. 10 $0.2K EXP. 11 $1K $5,800 70% v/ X v/ X v/ ? v/ v/ ? 0.75 1 1 1 0.5 0.25 0.5 10% x 0.75 = 7.5% 0% 7.5% x 1 = 7.5% Persevere Pivot Persevere Pivot Persevere Re-test Persevere Persevere Re-test $1 billion $250 million 0% 10% x 0.5 = 5% 0% 10% x 0.25 = 2.5% 15% x 0.5 = 7.5% 0% PROJECT A 9/12/2020 8 weeks Learning Log Actions Expected Return Experiment LogHypotheses Log Project Metrics Name Name Start Date Project Duration Name Cost $ Overall Cost $ Innovation Risk Level % Insight Confidence #0 –1 Risk Reduction = Risk x Confidence Revenue Potential Expected Return $ Cost Structure Re-test, Shelve, Perservere, Pivot Risk % Desirability Viability Adaptability Feasibility $750 million PROJECT F $100 million $10 thousand / 3 weeks PROJECT G $400 million $20 thousand / 1week DECISIONS Project Scorecard 50 51 Risk Reduction · Feasibility Evidence KEY RESOURCES We have the right technologies and resources to create our value proposition. KEY ACTIVITIES We have the right capabilities to handle the most critical activities for creating our value proposition. KEY PARTNERS We have found the right key partners who are willing to work with us to create and deliver our value proposition. Risk Reduction · Viability Evidence REVENUES We know how much our customers are willing to pay us and how they will pay. COSTS We know our costs for creating and delivering the value proposition. Risk Reduction · Adaptability Evidence INDUSTRY FORCES Our idea/project is well positioned to succeed against established competitors and new emerg- ing players. MARKET FORCES Our idea/project takes known and emerging mar- ket shifts into account. KEY TRENDS Our idea/project is well positioned to benefit from key technology, regulatory, cultural and societal trends. MACRO-ECONOMIC FORCES Our idea/project is adapted to known and emerg- ing macro-economic and infrastructure trends. Opportunity Value We understand the financial potential of our idea. EXPLORE Project Scorecard Strategic Fit Alignment CORPORATE IDENTITY Our idea/project is aligned with our corporate identity (strategic direction, organizational culture, brand image). INNOVATION GUIDANCE Our idea/project is aligned with our company’s innovation guidance. LEADERSHIP SUPPORT Our idea/project has support from at least one key sponsor who can help it become reality. Risk Reduction · Desirability Evidence CUSTOMER SEGMENT Our critical customer segments have the jobs, pains, and gains relevant for selling our value proposition. VALUE PROPOSITION Our value proposition resonates with our critical customer segments. CHANNELS We have found the best channel(s) to reach and acquire our critical customer segments. CUSTOMER RELATIONSHIP We have developed the right relationships to retain customers and repeatedly earn from them. none unclear little poor to little good strong strong very strong potential some good unclear unclear unclear <$100K poor to little poor to little poor to little $3M+ strong strong strong $50M+ very strong very strong very strong $100M+ some good some good some good $10M+ Icon? 51 Risk Reduction · Feasibility Evidence KEY RESOURCES We have the right technologies and resources to create our value proposition. KEY ACTIVITIES We have the right capabilities to handle the most critical activities for creating our value proposition. KEY PARTNERS We have found the right key partners who are willing to work with us to create and deliver our value proposition. Risk Reduction · Viability Evidence REVENUES We know how much our customers are willing to pay us and how they will pay. COSTS We know our costs for creating and delivering the value proposition. Risk Reduction · Adaptability Evidence INDUSTRY FORCES Our idea/project is well positioned to succeed against established competitors and new emerg- ing players. MARKET FORCES Our idea/project takes known and emerging mar- ket shifts into account. KEY TRENDS Our idea/project is well positioned to benefit from key technology, regulatory, cultural and societal trends. MACRO-ECONOMIC FORCES Our idea/project is adapted to known and emerg- ing macro-economic and infrastructure trends. Opportunity Value We understand the financial potential of our idea. strong very strong unclear unclear unclear <$100K poor to little poor to little poor to little $3M+ strong strong strong $50M+ very strong very strong very strong $100M+ some good some good some good $10M+ Exploit ch 23 TOOL n Risk o EXPLORE Explore Actions Ideate A still exists but outside the portfolio ↓ A belongs to the portfolio The activity of turning market opportunities, technologies, prod- ucts, or services into first business model and value proposition pro- totypes. This typically happens in a workshop setting. At this stage, there is no real evidence that significantly reduces innovation risk, only assumptions that you plan to test. You capture results in slides and spreadsheets. Retire A belongs to the portfolio ↓ A is killed The decision to kill a search proj- ect based on evidence or lack of strategic fit. The evidence might show that an idea won't work in reality or that the profit potential is insufficient.  Spinout A belongs to the portfolio ↓ A still exists but outside the portfolio The decision to spin out rather than to kill a promising idea. This can either be in the form of selling it to another company, to inves- tors, or to the team that explored the idea. The company might invest in the spinout, or buy it back at a later less-risky stage.  Transfer A belongs to the Explore portfolio ↓ A is transferred to the Exploit portfolio The decision to move a business model idea from exploration to exploitation based on strong evidence. This typically happens once you’ve produced strong evidence of desirability, feasibil- ity, viability, and adaptability. Transferring requires finding a good home in the exploit portfolio. This may be as part of an existing business or as a new stand-alone business. There are seven actions you perform in your EXPLORE portfolio. All of them are related to shaping and testing new business ideas in order to improve their return and reduce their innovation risk. The exploration of new ideas may include everything from radically new business models all the way to testing incremental improvements of existing busi- ness models in the EXPLOIT portfolio.  Transfer Spinout Retire Persevere Invest A exists, outside the portfolio ↓ A partly belongs to the portfolio The decision to invest fully or partially in an outside start-up or exploration project to bolster your portfolio of internal projects.  Persevere A belongs to the portfolio ↓ A is unchanged, inside the portfolio The decision to continue testing an idea based on evidence. This typically happens after gaining insights you feel confident about from the analysis of the evidence. You persevere by further testing the same hypothesis with a stron- ger experiment, or by moving on to your next important hypothesis. Pivot A belongs to the portfolio ↓ A is changed into B, inside the portfolio The decision to make a significant change to one or more elements of your business model. This typically happens after learning that the idea you’ve been testing won’t work in reality without major modifications. A pivot often means that some of your earlier evidence may be irrelevant to your new trajectory. It usually requires re-testing elements of your business model that you've already tested. The idea to visualize actions with a triangle emerged after a discussion with Luis Felipe Cisneros. See p.XXX in MANAGE for more on Explore Portfolio Actions. Transfer Expected Return Cost of Testing to Date Time Spent Testing Innovation Risk Desirability? Feasibility? Viability? Adaptability? INNOVATION METRICS 94 MANAGE 95 MANAGE Exploit Explore ExpectedReturn Innovation Risk INNOVATION METRICS Portfolio Level You can visualize the state of your explore portfolio once you get your teams to track the KPIs of their individual explore project. This gives you a powerful overview of the financial potential of your ideas in explora- tion and their current risk level. Equipped with this data and overview you can make better investment decisions and decide which projects to fund and support and which projects to retire. Business Model Portfolio (EXPLORE) PROJECT Expected revenues Testing costs / Time running PROJECT C $205 million $180 thousand / 4 months PROJECT H $780 million $1 million / 12 monthsPROJECT E $500 million $150 thousand /1 months PROJECT A $750 million $5,800 / 8 weeks PROJECT D $440 million $120 thousand /3 months PROJECT B $150 million $500 thousand / 9 months LEGEND: 93 MANAGE HYPOTHESIS 1 10% HYPOTHESIS 2 7.5% HYPOTHESIS 3 7.5% HYPOTHESIS 4 15% HYPOTHESIS 5 10% HYPOTHESIS 6 15% HYPOTHESIS 9 10% HYPOTHESIS 7 15% HYPOTHESIS 8 10% EXP. 1 $0.2K EXP. 2 $0.5K EXP. 3, EXP. 4 $1.2K EXP. 5 $1.3K EXP. 6, EXP. 7 $0.5K EXP. 8 $0.2K EXP. 12 $0.7K EXP. 9, EXP. 10 $0.2K EXP. 11 $1K $5,800 70% v/ X v/ X v/ ? v/ v/ ? 0.75 1 1 1 0.5 0.25 0.5 10% x 0.75 = 7.5% 0% 7.5% x 1 = 7.5% Persevere Pivot Persevere Pivot Persevere Re-test Persevere Persevere Re-test $1 billion $250 million 0% 10% x 0.5 = 5% 0% 10% x 0.25 = 2.5% 15% x 0.5 = 7.5% 0% PROJECT A 9/12/2020 8 weeks Learning Log Actions Expected Return Experiment LogHypotheses Log Project Metrics Name Name Start Date Project Duration Name Cost $ Overall Cost $ Innovation Risk Level % Insight Confidence #0 –1 Risk Reduction = Risk x Confidence Revenue Potential Expected Return $ Cost Structure Re-test, Shelve, Perservere, Pivot Risk % Desirability Viability Adaptability Feasibility $750 million PROJECT F $100 million $10 thousand / 3 weeks PROJECT G $400 million $20 thousand / 1week DECISIONS For every project: Exploit search 22 TOOL ExpectedReturn Innovation Risk Potential Actions in the Explore Portfolio EXPLORE Explore Actions Ideate A still exists but outside the portfolio ↓ A belongs to the portfolio The activity of turning market opportunities, technologies, prod- ucts, or services into first business model and value proposition pro- totypes. This typically happens in a workshop setting. At this stage, there is no real evidence that significantly reduces innovation risk, only assumptions that you plan to test. You capture results in slides and spreadsheets. Retire A belongs to the portfolio ↓ A is killed The decision to kill a search proj- ect based on evidence or lack of strategic fit. The evidence might show that an idea won't work in reality or that the profit potential is insufficient.  Spinout A belongs to the portfolio ↓ A still exists but outside the portfolio The decision to spin out rather than to kill a promising idea. This can either be in the form of selling it to another company, to inves- tors, or to the team that explored the idea. The company might invest in the spinout, or buy it back at a later less-risky stage.  Transfer A belongs to the Explore portfolio ↓ A is transferred to the Exploit portfolio The decision to move a business model idea from exploration to exploitation based on strong evidence. This typically happens once you’ve produced strong evidence of desirability, feasibil- ity, viability, and adaptability. Transferring requires finding a good home in the exploit portfolio. This may be as part of an existing business or as a new stand-alone business. There are seven actions you perform in your EXPLORE portfolio. All of them are related to shaping and testing new business ideas in order to improve their return and reduce their innovation risk. The exploration of new ideas may include everything from radically new business models all the way to testing incremental improvements of existing busi- ness models in the EXPLOIT portfolio.  Transfer Spinout Pivot Invest Retire Ideate Persevere Invest A exists, outside the portfolio ↓ A partly belongs to the portfolio The decision to invest fully or partially in an outside start-up or exploration project to bolster your portfolio of internal projects.  Persevere A belongs to the portfolio ↓ A is unchanged, inside the portfolio The decision to continue testing an idea based on evidence. This typically happens after gaining insights you feel confident about from the analysis of the evidence. You persevere by further testing the same hypothesis with a stron- ger experiment, or by moving on to your next important hypothesis. Pivot A belongs to the portfolio ↓ A is changed into B, inside the portfolio The decision to make a significant change to one or more elements of your business model. This typically happens after learning that the idea you’ve been testing won’t work in reality without major modifications. A pivot often means that some of your earlier evidence may be irrelevant to your new trajectory. It usually requires re-testing elements of your business model that you've already tested. The idea to visualize actions with a triangle emerged after a discussion with Luis Felipe Cisneros. See p.XXX in MANAGE for more on Explore Portfolio Actions. Transfer Expected Return Cost of Testing to Date Time Spent Testing Innovation Risk INNOVATION METRICS
  19. 19. 8 9 The Iterative Process Business Concept Design Design is the activity of turning vague ideas, market insights, and evidence into con- crete value propositions and solid business models. Good design involves the use of strong business model patterns to maximize returns and compete beyond product, price, and technology. The risk that a business can’t get access to key resources (technology, IP, brand, etc.), can’t develop capabilities to perform key activities or can’t find key partners to build and scale the value proposition. Testing and reducing risk To test a big business idea you break it down into smaller chunks of testable hypotheses. These hypotheses cover three types of risk. Firstly, that customers aren’t interested in your idea (desirability). Secondly, that you can’t build and deliver your idea (feasibility). Thirdly, that you can’t earn enough money from your idea (viability). You test your most important hypotheses with appropriate experiments. Each experi- ment generates evidence and insights that allow you to learn and decide. Based on the evidence and your insights you either adapt your idea if you learn you were on the wrong path or continue testing other aspects of your idea if the evidence supports your direction. Desirability risk Customers aren’t interested The risk that the market a business is targeting is too small, that too few customers want the value proposition, or that the company can’t reach, acquire, and retain targeted customers. Feasibility risk We can’t build and deliver The risk that a business can’t get access to key resources (technology, IP, brand, etc.), can’t develop capabilities to perform key activities or can’t find key partners to build and scale the value proposition. Viability risk We can’t earn enough money The risk that a business can’t generate successful revenue streams, that customers are unwilling to pay (enough), or that the costs are too high to make a sustainable profit. Reducing Uncertainty and Risk TEST BUSINESS DESIGN Ideate Business Prototype Assess Learn D ecide Hypothesize Experiment Idea Key Hypotheses Business Model Experiments Value Proposition Key Insights EXPLOIT EXPLORE 12 13 1 2 3 4Design Design the Team p. 207 Shape the Idea p. 207 Experiments Select an Experiment p. 207 Discovery p. 207 Validation p. 207 Test Hypothesize p. 207 Experiment p. 207 Learn p. 207 Decide p. 207 Manage p. 207 Mindset Avoid Pitfalls p. 207 Lead through Experimentation p. 207 Organize for Experiments p. 207 AFTERWORD p. 207 TEST DESIGN Ideate Prototype Assess Learn D ecide Hypothesize Experiment Discovery Business Design Increase Expected Return Test Reduce Innovation Risk Ideate Prototype Assess Hypothesize ExperimentLearn EXPLORE PORTFOLIO Design & Test 8 The Iterative Process Business Concept Design Design is the activity of turning vague ideas, market insights, and evidence into con- crete value propositions and solid business models. Good design involves the use of strong business model patterns to maximize returns and compete beyond product, price, and technology. The risk that a business can’t get access to key resources (technology, IP, brand, etc.), can’t develop capabilities to perform key activities or can’t find key partners to build and scale the value proposition. TEST BUSINESS DESIGN Ideate Assess Learn D ecide Hypothesize Experiment Idea Business Model Value Proposition strategyzer.com Gain Creators Pain Relievers Pains Gains Products & Services Customer Job(s) The Value Proposition Canvas Value Proposition Customer Segment strategyzer.comThe makers of Business Model Generation and Strategyzer Copyright Business Model Foundry AG makes explicit how an idea creates value for your organization makes explicit how an idea creates value for the customer Resource Activity Partner Your Value Proposition Your Customer Cost Channel Relationship Revenue business people don’t just need to understand designers better; they need to become designers “ ”– Roger Martin, Rotman School @ Toronto
  20. 20. Testing and reducing risk To test a big business idea you break it down into smaller chunks of testable hypotheses. These hypotheses cover thr types of risk. Firstly, that customers aren interested in your idea (desirability). Secondly, that you can’t build and deliver your idea (feasibility). Thirdly, that you can’t earn enough money from your idea (viability). You test your most important hypothese with appropriate experiments. Each expe ment generates evidence and insights th allow you to learn and decide. Based on evidence and your insights you either ad your idea if you learn you were on the wr path or continue testing other aspects o your idea if the evidence supports your direction. Feasibility risk We can’t build and delive The risk that a business ca get access to key resource (technology, IP, brand, etc. can’t develop capabilities perform key activities or c find key partners to build a scale the value proposition TEST BUSINESS DESIGN Ideate Learn D ecide Hypothesize Experiment Business Model Value Proposition Business Model Pattern 141 at new ventures and anies can apply to build petitive business models. pattern so that you can a reference library. tration to highlight a pattern t outline the company’s odel—just show how ular pattern to build ve business model. e business model might patterns. These are variations of a particular pattern to help you understand different ways to apply the pattern in question. – Greenfield – Business Model Pattern – Case Illustration – Pattern Building Blocks – Optional Pattern Building Blocks – Original Business Model Blocks – Other Business Model Blocks ‣A repeatable configuration of different business model building blocks to strengthen an organization’s overall business model 8 The Iterative Process Business Concept Design Design is the activity of turning vague ideas, market insights, and evidence into con- crete value propositions and solid business models. Good design involves the use of strong business model patterns to maximize returns and compete beyond product, price, and technology. The risk that a business can’t get access to key resources (technology, IP, brand, etc.), can’t develop capabilities to perform key activities or can’t find key partners to build and scale the value proposition. Testing an To test a big it down into hypotheses. types of risk interested in Secondly, th deliver your that you can from your id You test you with approp ment genera allow you to evidence an your idea if path or cont your idea if direction. TEST BUSINESS DESIGN Ideate Business Prototype Assess Learn D ecide Hypothesize Experiment Idea Business Model Value Proposition8 e sign turning vague ideas, evidence into con- sitions and solid business design involves the use of ness m odelpatterns to m axim ize nd com pete beyond product,price, echnology. The risk thata business can’tgetaccess to key resources (technology,IP,brand,etc.), can’tdevelop capabilities to perform key activities orcan’tfind key partners to build and scale the value proposition. Testing To testa big itdow n into sm a hypotheses.These types ofrisk.Firstly,t interested in youridea (d Secondly,thatyou can’tbuild deliveryouridea (feasibility).Thir thatyou can’tearn enough m oney from youridea (viability). You testyourm ostim portanthypotheses w ith appropriate experim ents.Each experi- m entgenerates evidence and insights that allow you to learn and decide.Based on the evidence and yourinsights you eitheradapt youridea ifyou learn you w ere on the w rong path orcontinue testing otheraspects of youridea ifthe evidence supports your direction. Feasibility risk W e can’tbuild and deliver The risk thata business can’t getaccess to key resources (technology,IP,brand,etc.), can’tdevelop capabilities to perform key activities orcan’t find key partners to build and scale the value proposition. TEST BU SIN ESS D ESIG N Ideate Business Prototype Assess Learn Decide H ypothesize Experim ent Idea Business M odel Value Proposition 8 tive s ept D esign ctivity ofturning vague ideas, hts,and evidence into con- ue propositions and solid business s.G ood design involves the use of ong business m odelpatterns to m axim ize eturns and com pete beyond product,price, and technology. The risk thata business can’tgetaccess to key resources (technology,IP,brand,etc.), can’tdevelop capabilities to perform key activities orcan’tfind key partners to build and scale the value proposition. Testing To testa big itdow n into sm hypotheses.These types ofrisk.Firstly, interested in youridea ( Secondly,thatyou can’tbuild deliveryouridea (feasibility).Thir thatyou can’tearn enough m oney from youridea (viability). You testyourm ostim portanthypotheses w ith appropriate experim ents.Each experi- m entgenerates evidence and insights that allow you to learn and decide.Based on the evidence and yourinsights you eitheradapt youridea ifyou learn you w ere on the w rong path orcontinue testing otheraspects of youridea ifthe evidence supports your direction. Feasibility risk W e can’tbuild and deliver The risk thata business can’t getaccess to key resources (technology,IP,brand,etc.), can’tdevelop capabilities to perform key activities orcan’t find key partners to build and scale the value proposition. TEST BU SIN ESS D ESIG N Ideate Business Prototype Assess Learn Decide H ypothesize Experim ent Idea Business M odel Value Proposition 8 The Iterative Process Business Concept Design Design is the activity of turning vague ideas, market insights, and evidence into con- crete value propositions and solid business models. Good design involves the use of strong business model patterns to maximize returns and compete beyond product, price, and technology. The risk that a business can’t get access to key resources (technology, IP, brand, etc.), can’t develop capabilities to perform key activities or can’t find key partners to build and scale the value proposition. Testing and reducing risk To test a big business idea you break it down into smaller chunks of testable hypotheses. These hypotheses cover three types of risk. Firstly, that customers aren’t interested in your idea (desirability). Secondly, that you can’t build and deliver your idea (feasibility). Thirdly, that you can’t earn enough money from your idea (viability). You test your most important hypotheses with appropriate experiments. Each experi- ment generates evidence and insights that allow you to learn and decide. Based on the evidence and your insights you either adapt your idea if you learn you were on the wrong path or continue testing other aspects of your idea if the evidence supports your direction. Feasibility risk We can’t build and deliver The risk that a business can’t get access to key resources (technology, IP, brand, etc.), can’t develop capabilities to perform key activities or can’t find key partners to build and scale the value proposition. TEST BUSINESS DESIGN Ideate Assess Learn D ecide Hypothesize Experiment Idea Business Model Value Proposition 8 The Iterative Process Business Concept Design Design is the activity of turning vague ideas, market insights, and evidence into con- crete value propositions and solid business models. Good design involves the use of strong business model patterns to maximize returns and compete beyond product, price, and technology. The risk that a business can’t get access to key resources (technology, IP, brand, etc.), can’t develop capabilities to perform key activities or can’t find key partners to build and scale the value proposition. Testing and reducing risk To test a big business idea you break it down into smaller chunks of testable hypotheses. These hypotheses cover three types of risk. Firstly, that customers aren’t interested in your idea (desirability). Secondly, that you can’t build and deliver your idea (feasibility). Thirdly, that you can’t earn enough money from your idea (viability). You test your most important hypotheses with appropriate experiments. Each experi- ment generates evidence and insights that allow you to learn and decide. Based on the evidence and your insights you either adapt your idea if you learn you were on the wrong path or continue testing other aspects of your idea if the evidence supports your direction. Feasibility risk We can’t build and deliver The risk that a business can’t get access to key resources (technology, IP, brand, etc.), can’t develop capabilities to perform key activities or can’t find key partners to build and scale the value proposition. TEST BUSINESS DESIGN Ideate Business Prototype Assess Learn D ecide Hypothesize Experiment Idea Key Hypothes Business Model Value Proposition idea 8 The Iterative Process Business Concept Design Design is the activity of turning vague ideas, market insights, and evidence into con- crete value propositions and solid business models. Good design involves the use of strong business model patterns to maximize returns and compete beyond product, price, and technology. The risk that a business can’t get access to key resources (technology, IP, brand, etc.), can’t develop capabilities to perform key activities or can’t find key partners to build and scale the value proposition. TEST BUSINESS DESIGN Ideate Business Prototype Assess Learn D ecide Hypothesize Experiment Idea Business Model Value Proposition business SEARCH GROW SEARCH GROW INVENT IMPROVE INVENT & IMPROVE Shift Patterns Invent Patterns Pattern New Business Model INVENT Invent Patterns Business Models Canvas Backstage Disruption • Resource Castles • Activity Differentiators • Scalers Profit Formula Disruption • Revenue Differentiators • Cost Differentiators • Margin Masters Frontstage Disruption • Market Explorers • Channel Kings • Gravity Creators 226 Shift Pattern Library EPICENTERS Invent Patterns Library
  21. 21. FRONTSTAGE DISRUPTION ?What did all these three companies add to their business model that keeps them ahead of competition? They added “switching costs” that make it difficult for customers to leave or switch to competitors. Gravity Creators Gravity Creators Lock in Customers Key Partners Key activities Value Proposition Customer SegmentCustomer Relationship Key Resources Channels Cost Structure Revenue Streams
  22. 22. Exercise — iPod with this amazing device you can put thousand songs in your pocket ... and you’re locking us in because it has just become more difficult to switch devices 3:00 How would you map out Apple’s iPod business model using the ‘Gravity Creators’ pattern ? 1 2 3 4 56 Gravity Creator iPod: 1’000 songs in your pocket a Mass marketd iPod hardware & software c Switching cost b Recurring transactional sales e Retailf write down the full sequence of 6 letters matching the numbers Key Partners Key activities Value Proposition Customer SegmentCustomer Relationship Key Resources Channels Cost Structure Revenue Streams
  23. 23. 1 2 6 3 4 5 1 2 3 4 56 a d c b e f iPod: 1’000 songs in your pocket Mass market iPod hardware & software Switching cost Recurring transactional sales Retail Gravity Creator Solution: adbefc Key Partners Key activities Value Proposition Customer SegmentCustomer Relationship Key Resources Channels Cost Structure Revenue Streams iTunes TRIGGER QUESTION How could we make it difficult for customers to leave and increase switching costs in a positive way? Lock in Customers Gravity Creators Different flavors Assessment Question How easy or difficult is it for our customers to leave or switch to another company? Making the shift from competitive advantage to transient strategy - Rita McGrath, Columbia “ ” The Iterative Process Business Concept Design Design is the activity of turning vague ideas, market insights, and evidence into con- crete value propositions and solid business models. Good design involves the use of strong business model patterns to maximize returns and compete beyond product, price, and technology. The risk that a business can’t get access to key resources (technology, IP, brand, etc.), can’t develop capabilities to perform key activities or can’t find key partners to build and scale the value proposition. Testing an To test a big it down into hypotheses. types of risk interested in Secondly, th deliver your that you can from your id You test you with approp ment genera allow you to evidence an your idea if path or cont your idea if direction. TEST BUSINESS DESIGN Ideate Business Prototype Assess Learn D ecide Hypothesize Experiment Idea Business Model Value Proposition 8 The Iterative Process Business Concept D esign D esign is the activity ofturning vague ideas, m arketinsights,and evidence into con- crete value propositions and solid business m odels.G ood design involves the use of strong business m odelpatterns to m axim ize returns and com pete beyond product,price, and technology. The risk thata business can’tgetaccess to key resources (technology,IP,brand,etc.), can’tdevelop capabilities to perform key activities orcan’tfind key partners to build and scale the value proposition. Testing To testa big itdow n into sm a hypotheses.These types ofrisk.Firstly,t interested in youridea (d Secondly,thatyou c deliveryouridea thatyou can’t from yourid You te w it TEST BU SIN ESS D ESIG N Ideate Business Prototype Assess Learn Decide H ypothesize Experim ent Idea Business M odel Value Proposit 8 The Iterative Process Business Concept D esign D esign is the activity ofturning vague ideas, m arketinsights,and evidence into con- crete value propositions and solid business m odels.G ood design involves the use of strong business m odelpatterns to m axim ize returns and com pete beyond product,price, and technology. The risk thata business can’tgetaccess to key resources (technology,IP,brand,etc.), can’tdevelop capabilities to perform key activities orcan’tfind key partners to build and scale the value proposition. Testing To testa big itdow n into sm hypotheses.These types ofrisk.Firstly, interested in youridea ( Secondly,thatyou can’tbuild deliveryouridea (feasibilit thatyou can’tearn eno from youridea (viab You testyourm w ith approp m entge allow ev TEST BU SIN ESS D ESIG N Ideate Business Prototype Assess Learn Decide H ypothesize Experim ent Idea Business M odel Value Proposition 8 The Iterative Process Business Concept Design Design is the activity of turning vague ideas, market insights, and evidence into con- crete value propositions and solid business models. Good design involves the use of strong business model patterns to maximize returns and compete beyond product, price, and technology. The risk that a business can’t get access to key resources (technology, IP, brand, etc.), can’t develop capabilities to perform key activities or can’t find key partners to build and scale the value proposition. Testing and reducing risk To test a big business idea you break it down into smaller chunks of testable hypotheses. These hypotheses cover three types of risk. Firstly, that customers aren’t interested in your idea (desirability). Secondly, that you can’t build and deliver your idea (feasibility). Thirdly, that you can’t earn enough money from your idea (viability). You test your most important hypotheses with appropriate experiments. Each experi- ment generates evidence and insights that allow you to learn and decide. Based on the evidence and your insights you either adapt your idea if you learn you were on the wrong path or continue testing other aspects of your idea if the evidence supports your direction. Feasibility risk We can’t build and deliver The risk that a business can’t get access to key resources (technology, IP, brand, etc.), can’t develop capabilities to perform key activities or can’t find key partners to build and scale the value proposition. TEST BUSINESS DESIGN Ideate Business Prototype Assess Learn D ecide Hypothesize Experiment Idea Business Model Value Proposition The Iterative Process Business Concept Design Design is the activity of turning vague ideas, market insights, and evidence into con- crete value propositions and solid business models. Good design involves the use of strong business model patterns to maximize returns and compete beyond product, price, and technology. The risk that a business can’t get access to key resources (technology, IP, brand, etc.), can’t develop capabilities to perform key activities or can’t find key partners to build and scale the value proposition. Testing and reducing risk To test a big business idea you break it down into smaller chunks of testable hypotheses. These hypotheses cover three types of risk. Firstly, that customers aren’t interested in your idea (desirability). Secondly, that you can’t build and deliver your idea (feasibility). Thirdly, that you can’t earn enough money from your idea (viability). You test your most important hypotheses with appropriate experiments. Each experi- ment generates evidence and insights that allow you to learn and decide. Based on the evidence and your insights you either adapt your idea if you learn you were on the wrong path or continue testing other aspects of your idea if the evidence supports your direction. TEST BUSINESS DESIGN Ideate Business Prototype Assess D ecide Hypothesize Key Hypothes idea The Iterative Process Business Concept Design Design is the activity of turning vague ideas, market insights, and evidence into con- crete value propositions and solid business models. Good design involves the use of strong business model patterns to maximize returns and compete beyond product, price, and technology. The risk that a business can’t get access to key resources (technology, IP, brand, etc.), can’t develop capabilities to perform key activities or can’t find key partners to build and scale the value proposition. TEST BUSINESS DESIGN Ideate Business Prototype Assess D ecide Hypothesize business SEARCH GROW SEARCH GROW INVENT IMPROVE INVENT & IMPROVE Shift Patterns Invent Patterns
  24. 24. Shift Pattern (Pivot) New Business Model Original Business Model IMPROVE Shift Patterns 226 Shift Pattern Library Value Proposition Shifts p. XXX From Product to Recurring Service p. XXX From Low-Tech to High-Tech p. XXX From Sales to Platform Frontstage Driven Shifts p. XXX From Niche Market to Mass Market p. XXX From B2B to B2(B2)C p. XXX From Low Touch to High Touch Backstage Driven Shift • From Dedicated to Multi-Usage • From Asset Heavy to Asset Light • From Closed to Open (innovation) Profit Formula Driven Shift • From High Cost to Low Cost • From Transactional to recurring revenue • From Conventional to Contrarian Frontstage Driven Shift • From Niche to Mass Market • From B2B to B2(B2)C • From Low to High Touch Value Proposition Shift • From Product to Service • From Low-Tech to High-Tech • From Sales to Platform EPICENTERS Shift Pattern Library From Product to Recurring Service Sales force Customer acquisition costs Tool manufacturing & distribution High quality tools Builders Transactional Transactional tool sales 232 RNS 232 In 2000, one of Hilti’s customers asked for a holistic tool management solution. That made Hilti realize that customers didn’t want to own tools, but always wanted their workers to work productively. Hilti began an initial pilot program for tool fleet manage- ment in Switzerland and eventually rolled out the service worldwide in 2003. Hilti Hilti shifts from selling high quality tools to selling tool fleet manage- ment services to construction compa- nies, after a key customer requests a holistic tool management system to increase productivity. From Product to Recurring Service 2000 2003 3 From Sales Chan Service Delivery Hilti retrains its sa tives rather than p logistics and effic adds new online s tional sales chann the service, helpin their inventory on access Hilti easily their tools. s To From the original product model... SALES CHANNEL PRODUCT- RELATED COST PRODUCT- RELATED ACTIVITIES ∗ PRODUCT CUSTOMER SEGMENT SALES PRODUCT- RELATED RESOURCES Original product business model Recurring service pattern CUSTOMER SEGMENT Original product business model CUSTOMER SEGMENT Recurring service pattern 231 is the shift from manufacturing (and/or buying) and selling products toward providing a recurring service. Selling products on a transactional basis requires a continuous effort for every sale and it is often unpredictable. Recurring services require upfront customer acqui- sition costs that lead to recurring revenues. Revenues become more predictable and grow exponentially, because you build on top of a continuously growing base of customers. STRATEGIC REFLECTION How might we grow recurring and predictable revenues by providing a recurring service, rather than selling a product? Upfront acquisition costs per customer might be higher, but revenues become more predictable and the lifetime value of customers often increases. Product and/or technology innovation can often provide the foundation for new services. EXAMPLE HILTI From Product to Recurring Service COST OF SERVICE SERVICE DELIVERY CHANNELS GET CUSTOMER TO USE SERVICE UPFRONT CUSTOMER ACQUISITION COST RECURRING REVENUE CUSTOMER SEGMENT ∗ SERVICE SERVICE PROVISIONING SERVICE RESOURCES STRATEGIC REFLECTION How might we grow recurring and predictable revenues by providing a recurring service, rather than selling a product? [sources: Mark W. Johnson, photo: Hilti.com] Illustration — HILTI Hilti shifts from selling high quality tools to offering tool fleet management services
  25. 25. “The big benefit of recurring service revenues helped us to stabilize our business during the financial crisis, a time when most contractors wouldn’t purchase new equipment - Christoph Loos, CEO of Hilti Sales force Customer acquisition costs Tool manufacturing & distribution High quality tools Builders Transactional Transactional tool salesTransactional tool sales 232 IMPROVEPATTERNS 232 1.5 Million tools Hilti had 1.5 million to fleet management in 2 Billion CHF Total contract value o under fleet managem In 2000, one of Hilti’s customers asked for a holistic tool management solution. That made Hilti realize that customers didn’t want to own tools, but always wanted their workers to work productively. Hilti began an initial pilot program for tool fleet manage- ment in Switzerland and eventually rolled out the service worldwide in 2003. With tool fleet management, Hilti became more relevant to construction companies by reducing nonproductive time for workers and adding a gain of taking on more cus- tomer jobs (e.g., tool repair). Hilti also discovered that customers were willing to lease more tools than they had ever purchased. Some even asked Hilti to include non-Hilti tools in the service to completely pre- vent nonproductive time due to broken tools. When the 2008 financial crisis hit the con- struction sector, many stopped purchasing new equipment. Yet Hilti’s business model shift from a product to a recurring service allowed it to overcome the crisis and it has continued to grow since. Hilti Hilti shifts from selling high quality tools to selling tool fleet manage- ment services to construction compa- nies, after a key customer requests a holistic tool management system to increase productivity. From Product to Recurring Service 2000 2003 1 From Product to Recurring Service and Revenues Managers of building companies have a lot more to worry about than just buying tools. Hilti recognizes that in 2000 and starts offering to track, repair, replace and upgrade the whole tool fleet for their clients. This increases their productivity by ensuring they always have the right tools, properly maintained and reliable at all times. Hilti allows customers to lease the tools through a monthly subscription rather than paying for them upfront – enabling predictability of costs for building company managers and recurring revenues for Hilti. 2 From Product-Related Activities to Service Provisioning Hilti evolves its key activities from its core of manufacturing and sales to fleet manage- ment activities that enable tool tracking, repairing, replacement and upgrading. 3 From Sales Channel to Service Delivery Channels Hilti retrains its sales force to speak to execu- tives rather than project managers, and about logistics and efficiency rather than tools. It adds new online service channels to the tradi- tional sales channel, raising awareness about the service, helping fleet customers access their inventory online, enabling them to access Hilti easily in case of a problem with their tools. 4 From a Product to a Service Cost Structure Hilti’s cost structure adapts to this new service orientation with new fleet management costs. To date, this shift has added over CHF1 billion worth of receivable volume to Hilti’s balance sheet. Even customer acquisition costs (CAC) increase, due to the longer sales and contract- ing process with building company managers. The CAC, however, is now a one-time cost, leading to recurring revenues and opportuni- ties for additional revenues with the long-term relationship. “The big benefit of service revenues to stabilize our bu during the (globa crisis—a time whe contractors would purchase new eq —DR. CHRISTOPH LOOS CEO of Hilti 2 3 4 1 Service-focused sales & marketing Fleet management Tool fleet management Construction company managers Monthly service revenue Fleet management infrastructure Inventory of tools Online Fleet management costs Long-term contracts Sales force Customer acquisition costs Tool manufacturing & distribution High quality tools BuildersTransactional Transactional tool sales From the original product model... …to new recurring service model Recurring service pattern Sales force Customer acquisition costs Tool manufacturing & distribution High quality tools Builders Transactional Transactional tool sales 232 IMPROVEPATTERNS 232 1.5 million tools Hilti had 1.5 million t fleet management in 2 billion CHF Total contract value under fleet managemIn 2000, one of Hilti’s customers asked for a holistic tool management solution. That made Hilti realize that customers didn’t want to own tools, but always wanted their workers to work productively. Hilti began an initial pilot program for tool fleet manage- ment in Switzerland and eventually rolled out the service worldwide in 2003. With tool fleet management, Hilti became more relevant to construction companies by reducing nonproductive time for workers and adding a gain of taking on more cus- tomer jobs (e.g., tool repair). Hilti also discovered that customers were willing to lease more tools than they had ever purchased. Some even asked Hilti to include non-Hilti tools in the service to completely pre- vent nonproductive time due to broken tools. When the 2008 financial crisis hit the con- struction sector, many stopped purchasing new equipment. Yet Hilti’s business model shift from a product to a recurring service allowed it to overcome the crisis and it has continued to grow since. Hilti Hilti shifts from selling high quality tools to selling tool fleet manage- ment services to construction compa- nies, after a key customer requests a holistic tool management system to increase productivity. From Product to Recurring Service 2000 2003 1 From Product to Recurring Service and Revenues Managers of building companies have a lot more to worry about than just buying tools. Hilti recognizes that in 2000 and starts offering to track, repair, replace, and upgrade the whole tool fleet for their clients. This increases their productivity by ensuring they always have the right tools, properly maintained and reliable at all times. Hilti allows customers to lease the tools through a monthly subscription rather than paying for them upfront – enabling predictability of costs for building company managers and recurring revenues for Hilti. 2 From Product-Related Activities to Service Provisioning Hilti evolves its key activities from its core of manufacturing and sales to fleet manage- ment activities that enable tool tracking, repairing, replacement, and upgrading. 3 From Sales Channel to Service Delivery Channels Hilti retrains its sales force to speak to execu- tives rather than project managers, and about logistics and efficiency rather than tools. It adds new online service channels to the tradi- tional sales channel, raising awareness about the service, helping fleet customers access their inventory online, and enabling them to access Hilti easily in case of a problem with their tools. 4 From a Product to a Service Cost Structure Hilti’s cost structure adapts to this new service orientation with new fleet management costs. To date, this shift has added over CHF1 billion worth of receivable volume to Hilti’s balance sheet. Even customer acquisition costs (CAC) increase, due to the longer sales and contract- ing process with building company managers. The CAC, however, is now a one-time cost, leading to recurring revenues and opportuni- ties for additional revenues with the long-term relationship. “The big benefit o service revenues to stabilize our b during the [glob crisis—a time wh contractors wou purchase new eq —DR. CHRISTOPH LOOS CEO of Hilti 2 3 4 1 Service-focused sales & marketing Fleet management Tool fleet management Construction company managers Monthly service revenue Fleet management infrastructure Inventory of tools Online Fleet management costs Long-term contracts Sales force Customer acquisition costs Tool manufacturing & distribution High quality tools BuildersTransactional Transactional tool sales From the original product model... …to new recurring service model Recurring service pattern From Product to Recurring Services SHIFT PATTERN 3 Establishing an Innovation Culture Your exploitation culture cherishes the management, systematic improvement, and growth of existing business Your exploration culture cultivates the creation, discovery, validation, and acceleration of new ideas that are foreign to an organization Cultivate Explore and Exploit Under One Roof
  26. 26. Innovation Culture ? The Culture Map “If you want to understand a culture, you need to map it. Dave Gray, author and entrepreneur The Culture Map Outcomes Beta Behaviours Enablers/Blockers copyright: Strategyzer AG & Dave Gray, 2015 The makers of Business Model Generation and Strategyzer dave gray: davegrayinfo.com strategyzer.com A Change Management Tool Designed by: Date: Iteration:Designed for: Every company has a corporate culture. Yet, too many companies let culture just happen. Invincible companies actively understand, design, and manage culture. They create world-class innovation and execution cultures that live in har- mony. In this section we outline how you can map corporate culture and what it takes to create a world-class innovation culture. What enables and blocks us from our goals? What behaviors will allow us to achieve our desired outcomes? What are our desired outcomes? 294 295 DEFINITION The Culture Map policies, processes, reward systems, rituals, …
  27. 27. Exploration Culture INNOVATION CULTURE Designing an Exploration Culture INNOVATION CULTURE Leadership Support Resource allocation Portfolio management Strategic guidance Strategic Guidance Resource Allocation Portfolio Management Question for You How much time does your CEO spend on innovation every week ?
  28. 28. <10% (less than 1/2 day) 10-25% (approx. 1 day) 25-50% (more than a day) >50% (1/2 week or more) How much time does your CEO spend on innovation every week ? Poll In Zoom: single choice 0-10%67% 10-25%16% 25-50%10% > 50%7% How much time does your CEO personally spend on innovation every week ? I spend 40% to 60% of my time on innovation - Bracken Darrell, CEO, Logitech “ ” 2019 EXPLORE ExpectedReturn Innovation Risk Death & Disruption Risk Return Exploit Explore 12 13 DEFINITION The Portfolio Map A strategic management tool to simultaneously visualize, analyze, and manage the business mod- els you are improving and growing and the future business models you are searching for and testing. Explore Portfolio Your portfolio of innovation projects, new business mod- els, new value propositions, new products and services, all mapped out in terms of Expected Return and Innovation Risk. Exploit Portfolio Your portfolio of existing businesses, value proposi- tions, products and services, all mapped out in terms of Return and Death and Disruption Risk. Innovation Risk The risk that a (convincing) business idea is going to fail. Risk is high when there is little evidence beyond slides and spreadsheets to support the success chances of an idea. Risk decreases with the amount of evidence that supports the desir- ability, feasibility, viability, and adaptability of a business idea. Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Death & Disruption Risk The risk that a business is going to die or get disrupted. Risk is high when a business is either emerging and still vulnerable, or when a business is under threat of disruption from technology, competition, regulatory changes, or other trends. Risk decreases with the moats protecting your business. Return How lucrative a business area is for the company. ExpectedReturn Innovation Risk Death & Disruption Risk Return Exploit Explore 12 13 DEFINITION The Portfolio Map A strategic management tool to simultaneously visualize, analyze, and manage the business mod- els you are improving and growing and the future business models you are searching for and testing. Explore Portfolio Your portfolio of innovation projects, new business mod- els, new value propositions, new products and services, all mapped out in terms of Expected Return and Innovation Risk. Exploit Portfolio Your portfolio of existing businesses, value proposi- tions, products and services, all mapped out in terms of Return and Death and Disruption Risk. Innovation Risk The risk that a (convincing) business idea is going to fail. Risk is high when there is little evidence beyond slides and spreadsheets to support the success chances of an idea. Risk decreases with the amount of evidence that supports the desir- ability, feasibility, viability, and adaptability of a business idea. Expected Return How lucrative a business idea could be for the company if it turned out to be successful. Death & Disruption Risk The risk that a business is going to die or get disrupted. Risk is high when a business is either emerging and still vulnerable, or when a business is under threat of disruption from technology, competition, regulatory changes, or other trends. Risk decreases with the moats protecting your business. Return How lucrative a business area is for the company. 121 MANAGE BRACKEN DARRELL Logitech CEO Explore ther Jaybird (2016) Leader in wireless audio wearables for sports and active lifestyles Blue Microphones (2018) Microphones for audio professionals, musicians, and consumers Logitech’s Fiscal Year 2019 vs. 201336 2013 2019 $2.79 Billion Total sales Net Retail Sales Growth +10% Non-GAAP Operating Income $352M Strategic Growth as % of Sales 60% SMART & OTHER CLOUD-BASED PERIPHERALS $49 million –44% In 2015 exits the OEM Business for the PC mouse, which for a long time accounted for a large portion In 2016 Lifesize, an HD video conferencing solution, split from Logitech as a fully independent GAMING $648 million +32% CREATIVITY & PRODUCTIVITY $1.3 billion +10% VIDEO COLLABORATION $260 million +42% B MUSIC $508 million –10% A Divest Saitek Pro Flight (2016)37 Advanced manufacturer of flight simulation controllers ASTRO Gaming (2017) Leading console gaming accessory brand for professional gamers and enthusiasts Beyond Entertainment (2018) Online platform that offers the latest news from the console industry Acquire Acquire -7% 10% $352M$67M20% 60% 2019 End of Year Results 75%
  29. 29. INNOVATION CULTURE Organizational Design Legitimacy and Power Bridge to the Core Rewards and Incentives Bridge to the core Rewards and incentives Legitimacy and power Legitimacy, Power and Bridge to the Core EXPLOITEXPLORE ORGANIZATIONAL DESIGN Org Chart Chief Entrepreneur Ping An Finance Center; Shenzhen, China / KPF. Image Courtesy of CTBUH Illustration — Ping An Legitimacy, Power and Bridge to the Core EXPLOITEXPLORE ORGANIZATIONAL DESIGN Org Chart Chief Entrepreneur Jessica Tan Peter Ma
  30. 30. Revenue of Ping An from 2010 to 2019 ORGANIZATIONAL DESIGN INNOVATION CULTURE Innovation Practice Innovation Tools Process Management Skills Development Skills development Process management Innovation tools MEASURE Innovation Metrics EXPLORE MEASURE 94 MANAGE 95 MANAGE Exploit Explore ExpectedReturn Innovation Risk INNOVATION METRICS Portfolio Level You can visualize the state of your Explore portfolio once you get your teams to track the KPIs of their individual explore project. This gives you a powerful overview of the financial potential of your ideas in explora- tion and their current risk level. Equipped with this data and overview you can make better investment decisions and decide which projects to fund and support and which projects to retire. Business Model Portfolio (Explore) PROJECT Expected revenues Testing costs / Time running PROJECT C $205 million $180 thousand / 4 months PROJECT H $780 million $1 million / 12 monthsPROJECT E $500 million $150 thousand / 1 months PROJECT A $750 million $5,800 / 8 weeks PROJECT D $440 million $120 thousand / 3 months PROJECT B $150 million $500 thousand / 9 months LEGEND: 93 MANAGE HYPOTHESIS 1 10% HYPOTHESIS 2 7.5% HYPOTHESIS 3 7.5% HYPOTHESIS 4 15% HYPOTHESIS 5 10% HYPOTHESIS 6 15% HYPOTHESIS 9 10% HYPOTHESIS 7 15% HYPOTHESIS 8 10% EXP. 1 $0.2K EXP. 2 $0.5K EXP. 3, EXP. 4 $1.2K EXP. 5 $1.3K EXP. 6, EXP. 7 $0.5K EXP. 8 $0.2K EXP. 12 $0.7K EXP. 9, EXP. 10 $0.2K EXP. 11 $1K $5,800 70% v/ X v/ X v/ ? v/ v/ ? 0.75 1 1 1 0.5 0.25 0.5 10% x 0.75 = 7.5% 0% 7.5% x 1 = 7.5% Persevere Pivot Persevere Pivot Persevere Re-test Persevere Persevere Re-test $1 billion $250 million 0% 10% x 0.5 = 5% 0% 10% x 0.25 = 2.5% 15% x 0.5 = 7.5% 0% PROJECT A 9/12/2020 8 weeks Learning Log Actions Expected Return Experiment LogHypotheses Log Project Metrics Name Name Start Date Project Duration Name Cost $ Overall Cost $ Innovation Risk Level % Insight Confidence #0 –1 Risk Reduction = Risk x Confidence Revenue Potential Expected Return $ Cost Structure Re-test, Shelve, Perservere, Pivot Risk % Desirability Viability Adaptability Feasibility $750 million PROJECT F $100 million $10 thousand / 3 weeks PROJECT G $400 million $20 thousand / 1week KPIs ?
  31. 31. EXPLORE 95 MANAGE Exploit Explore ExpectedReturn Innovation Risk Business Model Portfolio (Explore) PROJECT Expected revenues Testing costs / Time running PROJECT C $205 million $180 thousand / 4 months PROJECT H $780 million $1 million / 12 monthsPROJECT E $500 million $150 thousand / 1 months PROJECT A $750 million $5,800 / 8 weeks PROJECT D $440 million $120 thousand / 3 months PROJECT B $150 million $500 thousand / 9 months LEGEND: 93 MANAGE 70% .75 .5 .25 .5 10% x 0.75 = 7.5% 0% 7.5% x 1 = 7.5% Persevere Pivot Persevere Pivot Persevere Re-test Persevere Persevere Re-test $1 billion $250 million 0% 10% x 0.5 = 5% 0% 10% x 0.25 = 2.5% 15% x 0.5 = 7.5% 0% Log Actions Expected Return Innovation Risk Level % nfidence –1 Risk Reduction = Risk x Confidence Revenue Potential Expected Return $ Cost Structure Re-test, Shelve, Perservere, Pivot $750 million PROJECT F $100 million $10 thousand / 3 weeks PROJECT G $400 million $20 thousand / 1week Measure: Innovation Risk Expected Return Time Spent Testing Cost of Testing Innovation Metrics – Jeffrey Bezos, Amazon founder & CEO “ ” I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins SCORING Innovation Culture Readiness INNOVATION CULTURE Designing an Exploration Culture
  32. 32. How ready are you to become an invincible company? □ Give your company a score from 0 to 5 for each area. □ Define which area you’d like to improve over the next 12 and 36 months. □ Eliminate the blockers and imple- ment the enablers that will help you achieve your improvement goals. BEGINNER We have little to no experience with this topic We have some experience INTERMEDIATE We regularly work this way, but not systematically We frequently work this way WORLD CLASS Our practice is used as a case study for others to learn from Leadership Support Strategic Guidance Leadership does not provide explicit strategic guidance for innovation There is some strategic guidance for innovation but not everybody in the company knows it Leadership provides strategic innovation guidance at important meetings and everybody knows it Resource Allocation Resources for innovation are bootstrapped or on an ad-hoc project basis Resources for innovation are available, but they are not substantial and not protected Resources for innovation are institutionalized and leaders commit at least 50% of their time to innovation Portfolio Management Leadership is mainly focused on improving the core business We make some investments to explore the future and new business models, but it's not systematic Leadership is eager to pioneer and invests in a large innovation pipeline of small bets of which the best get follow-up investments Organizational Design Legitimacy and Power Innovation projects are skunk work and outside official channels Innovation is officially in the org chart, but lacks power and influence Innovation is at the very top of the org chart and has power and influence Bridge to the Core Innovation teams have limited or no access to cus- tomers, resources, and skills of the core business The core business and innovation teams collaborate, but there are conflicts There are clear policies that help innovation teams and the core business collaborate as equal partners Rewards and Incentives Innovation does not have a dedicated incentive system that differs from the core business We have some incentives in place to encourage innovation and reward it differently from execution Innovation has a dedicated incentive system that rewards experimentation and new value creation Innovation Practice Innovation Tools We do not use business model, lean startup, or design thinking tools for innovation Business model, lean startup, or design thinking tools are used in pockets of the organization Business model, lean startup, or design thinking tools are widely adopted and mastered Process Management Our processes are linear and requiredetailed business plans with financial projections We occasionally use iterative processes and systematic business experiments to test business ideas Our processes are optimized for innovation and we systematically measure the reduction of risk in new ideas Innovation Skills We don’t hire for innovation skills and experience and don’t develop them We occasionally hire experienced innovation talent and train some specialized staff in innovation We hire and develop world class innovation talent with extensive experience across the organization Innovation Culture Readiness 1 1 1 1 1 1 1 1 1 3 3 3 3 3 3 3 3 3 5 5 5 5 5 5 5 5 5 2 2 2 2 2 2 2 2 2 4 4 4 4 4 4 4 4 4 344 CULTURE 344 ASSESSMENT Innovation Culture Readiness Corporate Identity WHO WE ARE Portfolio Map WHAT WE’RE DOING Culture Map HOW WE’LL DO IT PORTFOLIO MANAGEMENT GROW SEARCH Business Model Patterns HOW WE’RE DOING Corporate Identity WHO WE ARE Portfolio Map WHAT WE’RE DOING Culture Map HOW WE’LL DO IT Invent Improve SEARCH GROW PORTFOLIO MANAGEMENT Prediction is very difficult, especially if it's about the future. – Niels Bohr, Nobel Price of physics (1922) ” “
  33. 33. No need for lengthy debates to demystify charlatans Did you see that one coming? I foresee the future … Thank you

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