Slides from a recent speech in front of 1500 people on: - Why business model innovation is important - What a business model is - How to design and implement innovative business models using a design thinking approach. Many cases illustrate how to do it in practice.

1. Get the business model wrong
and there is almost no chance
of success.
Prof. David Teece
University of California, Berkley.
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9. This is
Business Model
Innovation

10. Marc Sniukas

11. WHATWHY HOW

12. WHY
is business model
innovation important?
What advantages could it bring
to your organization?

13. Source: IBM Global CEO Study 2006
Why do companies engage in
business model innovation?

14. Source: IBM Global CEO Study 2006
Business Model Innovators
outperform competition.

15. Source: IBM Global CEO Study 2006
Higher operating margin growth.

16. Source: Businessweek / BCG Innovation Survey 2008
Higher shareholder return.

17. Source: Moore, GA 2004, Darwin and the Demon: Innovating Within Established Enterprises. Harvard Business Review, 82
Stagnating or
declining
revenues
Sustainable product success.

18. Source: Moore, GA 2004, Darwin and the Demon: Innovating Within Established Enterprises. Harvard Business Review, 82
Sustainable product success.

19. Align to changing markets and
take advantage of trends.

20. “Get the business model wrong,
and there is almost no chance of
success...”
Prof. David Teece
University of California, Berkley.

22. Why is Business Model Innovation important?
Major element of
differentiation and
sustainable competitive
advantage
Means to adapt to the
rapidly changing
environment and seize
opportunities
Fundamental to
performance
Key to the
commercialization of new
technologies

23. Your business model needs to be
managed, renewed and changed.

24. How to do it?

25. WHAT
is business model
innovation?
Really!

26. © Marc Sniukas - Doujak Corporate Development

27. WHAT
is business model
innovation?
a

28. Business Model Innovation 2
Cost Model.◊ How do we configure our assets and costs to deliver on our value proposition profitably?
Organization.◊ How do we deploy and develop our people to sustain and enhance our competitive
advantage?
As Apple has demonstrated, innovation in a business model is more than mere product, service, or
technological innovation. It goes beyond single-function strategies, such as enhancing the sourcing
approach or the sales model. Innovation becomes BMI when two or more elements of a business model are
reinvented to deliver value in a new way. Because it involves a multidimensional and orchestrated set of
activities, BMI is both challenging to execute and difficult to imitate.
Distinguishing business model innovation from product, service, or technology innovations is important.
Companies that confuse the latter for the former risk underestimating the requirements for success.
Why Business Model Innovation Is Relevant Today
Business model innovation is especially valuable in times of instability. BMI can provide companies a way
to break out of intense competition, under which product or process innovations are easily imitated, com-
petitors’ strategies have converged, and sustained advantage is elusive. It can help address disruptions—
such as regulatory or technological shifts—that demand fundamentally new competitive approaches.
BMI can also help address downturn-specific opportunities, enabling companies, for example, to lower
prices or reduce the risks and costs of ownership for customers. In our experience, the companies that
flourish in downturns frequently do so by leveraging the crisis to reinvent themselves—rather than by
simply deploying defensive financial and operational tactics. Moreover, during times of crisis, companies
often find it easier to gain consensus around the bold moves required to reconfigure an existing business.
BMI may be more challenging than product or process innovation, but it also delivers superior returns.
The Boston Consulting Group (BCG) and BusinessWeek recently conducted their annual survey to identify
the most innovative companies. We analyzed our database of innovators, segmenting them into business
model innovators and product or process innovators. Our analysis showed that while both types of
innovators achieved a premium over the average total shareholder return for their industries, business
Business model
Value proposition
Operating model
Exhibit 1. A Business Model Typically Consists of Six Components
Source: BCG research.
54 Harvard Business Review | December 2008 | hbr.org
Often, it starts as a quite simple realization. Imagine,
for a moment,that you are standing on a Mumbai road
on a rainy day. You notice the large number of motor
scooters snaking precariously in and out around the
cars. As you look more closely, you see that most bear
whole families – both parents and several children.
Your first thought might be “That’s crazy!” or “That’s
the way it is in developing countries – people get by
as best they can.”
When Ratan Tata of Tata Group looked out over
this scene, he saw a critical job to be done: providing
a safer alternative for scooter families. He understood
that the cheapest car available in India cost easily
five times what a scooter did and that many of these
families could not afford one. Offering an affordable,
safer,all-weather alternative for scooter families was a
powerful value proposition, one with the potential to
reach tens of millions of people who were not yet part
of the car-buying market. Ratan Tata also recognized
that Tata Motors’business model could not be used to
develop such a product at the needed price point.
At the other end of the market spectrum, Hilti, a
Liechtenstein-based manufacturer of high-end power
tools for the construction industry, reconsidered the
real job to be done for many of its current custom-
ers. A contractor makes money by finishing projects;
if the required tools aren’t available and functioning
properly, the job doesn’t get done. Contractors don’t
make money by owning tools; they make it by using
them as efficiently as possible. Hilti could help con-
tractors get the job done by selling tool use instead of
the tools themselves – managing its customers’ tool
inventory by providing the best tool at the right time
and quickly furnishing tool repairs, replacements,
and upgrades, all for a monthly fee. To deliver on
that value proposition, the company needed to cre-
ate a fleet-management program for tools and in the
process shift its focus from manufacturing and distri-
bution to service. That meant Hilti had to construct
a new profit formula and develop new resources and
new processes.
The most important attribute of a customer value
proposition is its precision: how perfectly it nails the
customer job to be done – and nothing else. But such
precision is often the most difficult thing to achieve.
Companies trying to create the new often neglect
PROFIT FORMULA
Revenue model How much
money can be made: price x
volume. Volume can be thought of
in terms of market size, purchase
frequency, ancillary sales, etc.
Cost structure How costs are
allocated: includes cost of key
assets, direct costs, indirect costs,
economies of scale.
Margin model How much each
transaction should net to achieve
desired profit levels.
Resource velocity How quickly
resources need to be used to sup-
port target volume. Includes lead
times, throughput, inventory turns,
asset utilization, and so on.
KEY RESOURCES
needed to deliver the
customer value proposition
profitably. Might include:
People
Technology, products
Equipment
Information
Channels
Partnerships,
alliances
Brand
KEY PROCESSES, as well as
rules, metrics, and norms, that
make the profitable delivery of the
customer value proposition repeat-
able and scalable. Might include:
Processes: design, product
development, sourcing, manu-
facturing, marketing, hiring and
training, IT
Rules and metrics: margin re-
quirements for investment, credit
terms, lead times, supplier terms
Norms: opportunity size needed
for investment, approach to
customers and channels
can then judge how well the same model could be used to fulfill
a radically different CVP – and what they’d need to do to con-
struct a new one, if need be, to capitalize on that opportunity.
Customer Value Proposition (CVP)
Target customer
Job to be done to solve an
important problem or fulfill an
important need for the target
customer
Offering, which satisfies the
problem or fulfills the need.
This is defined not only by what
is sold but also by how it’s sold.
1711 Johnson.indd 541711 Johnson.indd 54 10/30/08 2:02:48 PM10/30/08 2:02:48 PM
your company other company client
transaction possible transaction
product service experience reputation
money less money attention exposure

29. HOW DO YOU DO BUSINESS?
Which activities do you
perform?
Which assets and
capabilities are
necessary to perform
these activities?
Who performs the
activities and provides
the assets and
capabilities?
How do you organize
and manage the activity
system?

30. Business Model Innovation…
…is the invention of new ways of doing business,…

31. Marketing
Content
Traditional
Business Model
New
Business Model
Infrastructure
Marketing, Branding,
Customer Relationship
3rd party developers
Outsourced to Nokia,
Siemens, Ericsson, IBM

32. Source: www.hilti.com

33. Source: www.hilti.com

34. Business Model Innovation…
…is the invention of new ways of doing business, with
the aim to provide new and/or increased value for the
customers, the company itself and its partners.

35. WHAT VALUE DO YOU CREATE?
Customer Value Proposition
Firm Value Proposition
Ecosystem Value Proposition
Fulfilling
customers’ needs
and making their
life easier.
Offering your
partners
advantages.
Strategic
Operational
Financial

36. Customer Value Proposition
Firm Value Proposition
Ecosystem Value Proposition
Convenience
Low cost
Revenues
Customer Lock-In
Platform for other
services / products
Copyright protected
downloads
Access to customers &
global distribution

37. Business Model Innovation as a Strategic Choice.
Traditional Strategic Choices.
Markets
Products
Existing
New

38. Business Model Innovation as a Strategic Choice.
The Strategy Cube.
Existing
New
Existing
New
Markets
Customer Segments
Products
Services
Business Models
Business ModelInnovation

39. Markets
Customer Segments
Products
Services
Business Models
Books United States Retail Bookstores
Online Retail

40. 40

46. Markets
Customer Segments
Products
Services
Business Models
Books United States Retail Bookstores
Range of
online businesses
Global Online Retail

48. Markets
Customer Segments
Products
Services
Business Models
Air Transportation United States Hub
Point to Point

49. Rental by the day
Markets
Customer Segments
Products
Services
Business Models
Cars People living in cities Sell the car
Rental by the minuteMobility Solutions

50. Markets
Customer Segments
Products
Services
Business Models
Furniture Young families
city areas
Home delivery
Do it yourself

51. Will this work in
our company?

52. Yes!

53. HOW
to design new business
models?
…even in established
organizations…

54. Major challenges and barriers.
(1) Business Model Innovation Challenges
Different type of innovation
High risk and uncertainty
(2) Organizational Challenges
Lack of capabilities
New organization required: Yes/No?
(3) Individual Challenges
Change in behavior
Mental models/cognitive maps

55. The Business Model Innovation Loop.
Discover
Design
Do
1
2
3Finding Opportunities for
Business Model Innovation
Testing and Implementation
Designing the new Business
Model

56. The Business Model Innovation Loop.
Discover
1
Finding Opportunities for
Business Model Innovation

57. Sources of inspiration.
Where to look for opportunities?
People
Individuals
Groups
Peers
Experts
Customers
Non-customers
Your company
Trends
The Market
Yourself
Extreme Users
Existing offerings
Competitors
Substitutes Suppliers
Business Model
Existing business models
Strategy
Strengths Weaknesses
Core competences
Assets
Capabilities
Culture
Technological
Legal / Regulatory
Society
Socio-economic
Macro-economic
Customer segmentsBuyer Experience
Strategic groups
Scope of offerings
Appeal

58. Look at Non-Customers.
Who is not buying our product / services?
Why are they not buying?
What are the barriers to consumption?
2
1
3

59. Pro7Sat1 is the largest German television
network and a major player in Europe.
The questions they asked themselves:
- How can we increase our revenues?
- How can we make better use of our
underutilized assets (e.g. advertising
minutes not sold)?
- How can we turn non-customers into
customers and become more independent
of our existing customers?

60. Non-Customers
- Small and medium sized enterprises.
- Start-Ups.
Why don’t they buy?
- Cannot afford.
- Don’t have the skills.

61. The Business Model Innovation Loop.
Design
2
Designing the new Business
Model

62. www.sniukas.com/designthemes

63. Idea:
- We give our advertising minutes for free.
- We help them with production.
- In return we receive a share of revenues
made.

64. The Business Model Innovation Loop.
Do
3
Testing and Implementation

65. How to test your idea?

66. - Client company needs to have the
resources and capacities to meet the
demand we create.
- Online sales can be tracked best.
- Share of revenues as only revenue stream
is not enough for us.

67. Experimentation & Testing
=
Learning
=
Reducing your risk of failure
(before you commit a lot of money and resources)

68. The Business Model Innovation Loop.
Discover
Design
Do
1
2
3Discover what works and what
doesn’t
Testing and Implementation
Adapt the Business Model

69. Dedicated company & team.
Hired private equity & investment banking
skills.
Developed the new business model.
Uses the results in traditional business.

70. 20%3 years after launch

71. How to get started?

72. A Road Map.
Action Steps to Take.
1
Assemble a team.
Are you committed?
Train your team!
2
3

77. Want more?

78. www.businessmodelgallery.com

79. The difficulty lies not in the
new ideas, but in escaping from
the old ones.
John Maynard Keynes
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80. Thanks for your attention!
Get in touch!
Marc Sniukas
marc@sniukas.com
www.sniukas.com
@sniukas