BUSINESS MODEL INNOVATION2015

Berend-Jan Hilberts, Menno van Dijk, Saskia Rotshuizen

BUSINESS MODEL INNOVATION DISRUPTS MASSIVE INDUSTRIES.

IntroductionSmall scale High cost Compete on functionality and performance

GrowthIncreasing scaleCost economies Compete on qualityand services

MaturityMarket saturationCommoditization Compete on convenience and price

Product innovation

Business model innovation

Industry development

Industry size

MOST COMPANIES STRUGGLE WITH THEIR INNOVATION PERFORMANCE

SOURCE: McKinsey Global Innovation Survey, McKinsey Innovation Practice

Percentage of global executives who agree (%)

84% 80%Our business models are at

risk

Innovation is important to our growth strategy

We are satisfied with our innovation performance

6%

AT THNK, WE HAVE SYNTHESIZED BUSINESS MODEL INNOVATION

INTO 4 MAJOR REFRAMES

From loyalty to

empower-ment

From effi-cient to in-

telligent

From assets to access

From low cost To no cost

THESE REFRAMES IMPACT DIFFERENT ELEMENTS OF THE BUSINESS MODEL

FOR EACH OF THE REFRAMES, WE HAVE BEEN COLLECTING

EXAMPLESTHESE SERVE AS AN INSPIRATION

GALLERY

Innovating in customer relationships

FROM LOYALTY TO EMPOWERMENT

By empowering the customer, businesses can lower their production costs, reach a wider audience and fulfill the growing need for user self-actualization.

Do it yourself (DIY) is creating something without the support or expertise of professionals. This can save cost and time and gives the satisfaction of self-actualization and uniqueness.

Could you make your service DIY?

DO-IT-YOURSELF

IKEA delegates the assembly process of the furniture to the consumer.

Squarespace makes it easy for anyone to create beautiful websites using drag and drop tools, templates and e-commerce features.

Freemium is a pricing strategy by which an offering is provided free of charge, but charges for proprietary or premium features, functionalities or virtual goods. The customer is empowered by accessing a free version and having the choice to upgrade to the premium version. This strategy also lowers the customer acquisition costs.

How could you provide a free version of your offering to lower your customer acquisition costs?

FREEMIUM

Dropbox is a file hosting service that offers a premium version with additional services.

Change.org allows non-profits to pay for sponsoring their petitions and thereby increasing visibility.

Self-actualization and self-expression give the customer the opportunity to fulfill their own talents and express their own ideas, feelings and thoughts. This is usually made possible via provision of design tools plus raw materials.

Could you provide the tools so your customers design their own product?

SELF-ACTUALIZATION

Quirky designs and produces consumer products as informed by the ideas and votes of an online community.

MakerLabs is a makerspace that provides members with the tools and expertise they need to build what they want.

Disintermediation removes intermediaries in a supply chain, like brokers, agents, shops. Direct (digital) contact is created between producer and customer. This saves costs and avoids the frustration of dealing with the middleman.

Could you skip the channel and go direct?

DISINTERMEDIATION

E-Trade gives direct access to specialist research and stock screeners, eliminating the dependence on a bank agent.

GiveDirectly sends money directly to the extreme poor, eliminating the involvement of an implementation partner.

Inclusive sourcing means connecting consumers directly to the local producers, contributing to their livelihood and improving their position in the value chain. The target market is usually sustainability-conscious.

Could you connect your customers directly to the source suppliers?

INCLUSIVE SOURCING

Community Seafood links consumers to local family businesses that produce organic, sustainable and fairly-traded seafood.

Tony Chocolonely is a chocolate manufacturer that strives to have a slave-free production chain by directly connecting with cocoa farmers.

Mass customization combines the low cost per unit of mass production with flexibility of individual customization through a pre-selected range of options, thereby offering a tremendous increase in variety and choice to customers.

Could you offer much, much more choice?

MASS CUSTOMIZATION

NIKEiD allows customers to customize the design of their own Nike apparel, offline and online.

Seregentee lets customers choose a fabric to customize their apparel. Each fabric supports a specific cause.

Unbundling and re-aggregation breaks up and re-configures content or information to individual personal preference in a way that is unmatchable by the old order of traditional providers (e.g., music, education, broadcasting, publishing).

Could you unbundle your product and sell the components separately?

UNBUNDLING AND RE-AGGREGATING

Apple’s iTunes sells music in individual tracks as to entire albums, and television shows by episode rather than as entire season.

Coursera offers online courses from accredited universities, allowing students to follow classes from several universities simultaneously.

Offering the “long tail“ means offering products that are in low demand or have low sales volume but that collectively make up a market share that rivals the relatively few current bestsellers and blockbusters. Success is mostly dependent on whether the store or channel is large enough.

Could you offer a long tail of low demand products without lots of cost?

LONG TAIL

Amazon.com has an unlimited ability to hold and stock products and can therefore offer items of which only a small number will ever be sold.

Etsy is a global marketplace for handmade goods, which are sold via individual online stores.

Businesses with a “consume and do good” offer sell a good or service that makes the world better or at least donate a portion of the profits to a good cause. This business model taps into the market of consumers who want to contribute to a better world.

How could consuming your product make the world a better place?

CONSUME AND DO GOOD

Toms has a buy-one-give-one business model: for every pair of shoes purchased, one pair of shoes is given to a child in need via local partners.

Warby Parker is an eyewear retailer that donates a portion of its profits to non-profit partners, who sell glasses at an affordable price in developing countries.

Business models that are based on unique experiences create memorable events for customers, and the memory itself becomes the product. Customers pay for the feeling that the ‘experience’ provides when they engage in it, such as at Disneyland Parks.

How could your service provide a life experience?

EXPERIENCES

Starbucks ensures that the customer will feel right at home in any of its stores, using signature drinks, replicated store layouts and emphasis on customer service.

Concerts create lasting memories for the audience, who then wants to re-live those memories through the associated songs.

Multi-sided platforms are platforms where users (producers and consumers) can create, share and exchange things without intervention from the platform owner. In this model consumers are often also producers.

How could you support your customers transacting with each other?

MULTI-SIDED PLATFORMS

The App Store allows users to browse and download applications that were developed by other users with Apple's iOS SDK.

Crowdrise is an online fundraising platform that allows anyone to either start a campaign or support an existing one.

Collective pricing is a model by which products and services are offered at a significantly reduced price on the condition that a large number of buyers make the purchase. This allows consumers to buy at prices otherwise only available to professional volume buyers.

How could you achieve major volume discounts for your customers?

COLLECTIVE PRICING

Groupon offers daily deals of up to a 90% price reduction, on the condition that a set number of customers purchase the deal.

Groundswell brings together community members to increase their power to negotiate prices, starting with access to clean energy.

Performance contracts specify desired results by using sophisticated tracking. These provide the service provider much latitude in deciding how to deliver these results. “Social impact bonds” (SIB) are one example allowing private sector service providers to deliver on social programs.

How could you do a better job if you were under a performance contract?

PERFORMANCE CONTRACTS

MDRC leads a program to reduce recidivism and is payed based on reduced re-admissions via a SIB with the Department of Correction.

General Electrics equips its products with sensors that conduct detailed performance tracking and allow for specific performance contracts.

Revenue partnerships aim to increase traffic to your offering via affiliate partners. Affiliates are rewarded based on the results obtained. This business model innovation is particularly relevant for e-commerce platforms, for which the pool of affiliates is easily accessible and unlimited.

How could you leverage revenue partnerships to increase your revenue channels?

REVENUE PARTNERSHIPS

eBay’s Affiliate Program increases the entry points to the trading platform via affiliate websites, and rewards these affiliates for qualifying traffic to eBay.

Grameen Bank is a microfinance organization and community development bank serving the bottom of the pyramid.

Innovating in access to resources

FROM ASSETS TO ACCESS

.

Increased digital connectiv-ity and open source data means that we can increasingly leverage data to tap into under-utilized re-sources.

Collaborative consumption encourages sharing, reuse and (re-)distribution of excess or surplus capacity of human or physical assets, moving consumers from ownership to user-ship. This model requires real-time, location-specific and reputational information.

How could you leverage the underused assets and resources in your market?

COLLABORATIVE CONSUMPTION

Peerby is an app that enables neighbors to share under-utilized items.

Uber enables any qualified driver with an acceptable vehicle to provide taxi rides.

Crowdsourcing is the process of obtaining needed services, ideas, financing or content by soliciting contributions from a large group of (laymen) people, rather than from traditional (professional) employees or suppliers – often leveraging internet communities.

How could you leverage the crowd to come up with better and lower cost products?

CROWD SOURCING

Kickstarter is a platform that leverages the direct support of individuals to bring to life creative projects.

Mosaic enables crowd funding of loans for solar development projects.

Re-use involves collecting and repurposing products for further use in a profitable and sustainable way. Also known as up-cycling or cradle to cradle, it can reduce sourcing costs as the offering is manufactured out of what would normally be considered as waste.

How could you re-use the products and services you produce?

RE-USE

Desso is a carpentry manufacturer that aims to have all its products disassembled after the end of their life cycle and the materials reused or recycled.

Hipcycle is the leading online store for ‘upcycled’ goods, i.e. new products made of waste.

A supplier network is a series of connected facilities and distribution channels. By adopting a focus on access rather than ownership, supplier networks can limit risks associated with the production process and increase the overall efficiency of the delivery system.

How would you use a supplier network to replace in-house resources?

SUPPLIER NETWORKS

Li & Fung is a global sourcing firm that relies on detailed information regarding the changing utilization and costs in the factories of their suppliers.

Zaycon Foods shortens the distribution channel from farm to customer by leveraging its network of farms and selling fresh food directly to customers.

FROM EFFICIENT TO INTELLIGENTInnovating in activities

Businesses that leverage digitization to create a learning sys-tem gain Further control over costs and open new revenue opportuni-ties.

Companies in the ‘behavior change’ model encourage consumers to reduce consumption, change purchasing patterns or modify daily habits by empowering them with knowledge about their consumption and helping them track product use.

How could you encourage your customers to change their behavior?

BEHAVIOR CHANGE

Patagonia encourages consumers to buy less and repair more by making recycling, repairing and responsible sourcing part of its strategy.

The Digifit is an application that tracks and records the metrics of the user’s athletic endeavors to improve future performance.

Infomediaries collect information about the service/product and price of various providers and share this with consumers to facilitate comparison. At the same time, infomediaries share information about online behavior of consumers to the service providers to allow targeted offerings.

How could the information you collect about your customers help fill a user need?

INFOMEDIARIES

Skyscanner is a flight comparison tool that aggregates the most up-to-date flight prices from different travel websites.

Ashoka is a global network of social entrepreneurs, providing investments and mentorships all around the world.

When a product is sold as a service, a previously one-time transaction is now provided on a per-use basis. This creates a rich flow of information on usage with in turn can be used for product improvement (e.g., upgrades) and cross-selling.

How could you leverage the usage information if your product becomes a service?

EVERYTHING AS A SERVICE

Car2go’s car-sharing service features one-way point-to-point rentals, which charges users by the minute, with hourly and daily rates available.

With Hilti Fleet Management a fixed monthly charge covers all tool, service and repair costs.

“Produce to demand“ means that the offering is produced or prepared specifically when someone requests it. This approach, adopted by pioneering company Dell, also allows for the offering to be customized as desired by the customer, reduces costs associated with storage, and leads to leaner supply chains.

How could you produce to demand?

PRODUCE TO DEMAND

Threadless lets consumers vote on shirts designs, which means shirts are only produce when consumer demand has been confirmed.

Dell’s just-in-time ordering increases its competitive edge.

Robots are machines that have been programmed with the intelligence necessary to perform specific tasks, usually jobs that are particularly dangerous, unhealthy or stressful for humans to perform. By equipping robots with software that learns, the task delivery is constantly improved.

How could you make your automation learning?

AUTOMATION AND ROBOTICS

Fellow Robots support retail employees with the most up to date information on inventory and location of goods and services.

The Da Vinci Surgical System enables minimal invasiveness, increased precision and enhanced dexterity during medical procedures.

Innovating on cost structures

FROM LOW TO NO COST

Business models that exploit zero-variable cost of pro-ductionoffer products or services at a very low price or for free to rapidly Build scale. This includes providing service through software.

A business model that does not have any variable costs can grow without seeing an increase in cost structure. This model is usually associated with an automated customer relationship, no incremental production costs, and an unlimited supply of the offering. As a result, the offering can be made available for free or almost free.

How could you turn your business into a zero-variable cost structure?

ZERO-VARIABLE COSTS

Google’s cost base does not go up with additional users, hence Google can offer its service to users for free.

SunnyMoney sells and distributes solar-powered lights in Africa, creating new entrepreneurship and livelihood opportunities.

‘Service to Software’ means using computer software as a substitution to humans for fulfilling specific tasks. Common examples include translators, ATMs, and automatic checkouts. Such a move can lead to almost zero operating costs and increased performance.

How could you turn your service into a software solution?

FROM SERVICE TO SOFTWARE

Fusion Suite™, designed by Dolbey, includes software and hardware for dictation, transcription and speech recognition needs for medical doctors.

Jacaranda Health uses an electronic medical record system to improve quality of care in private maternity clinics in East Africa.