UNIVERSITY OF TRIESTE – DEAMS DEPARTMENTBACHELOR COURSE IN BUSINESS & MANAGEMENTA.Y. 2019 – 2020

BLOCK 2Management of Innovation

INSTRUCTOR Guido Bortoluzzi (Ph.D)

BUSINESS MODEL INNOVATION• The business model is a coherent framework through the which

business ideas are converted into economic value by firms. A business model:

1. Identifies a market segment2. Articulates the value of the proposed offering3. Focus on the key attributes of the offering (characteristics of the offering

and main benefits for consumers)4. Defines the value chain to deliver that offering5. Creates a way for getting paid6. Establishes the value network and the ecosystem needed to sustain the

model

1. Identify a market segment• Is it possible to segment the market? • Who’s the client / who is the user? Is it a B2B or a B2C one?• Are there underserved needs?• Is there any market potential?

2. Value drivers• The main and most important benefits provided to the client /

user and the main reason why customers choose “the” company and not a competitor

CUSTOMIZATIONTailoring products and services

to the specific needs of individual customers or

segments. Increasing role of MASS CUSTOMIZATION and CUSTOMER CO-CREATION

processes.● an example?

GETTING THE JOB DONEOffering “solutions” to users instead of single products and services.

●

PERFORMANCEImproving existing product or service

performance●

BRAND / STATUSUsers could value a specific brand and/or be “proud” to show

others they belong to a certain “community”

●

DESIGNA product may stand

out for superior design/aesthetic

●

NEWNESSThe product or service satisfies entirely new needs not perceived before by the user

●

VALUE DRIVERS

ACCESSIBILITYMaking products or

services accessible to users who previously lacked access to them

(sharing economy)●

COST REDUCTIONOffering products,

services or solutions that help clients to reduce their costs

●

RISK REDUCTIONReduce the uncertainty

and the risks consumers incur when

they buy “complex” products

●

USABILITYMake products easier or more convenient to

use●

VALUE DRIVERS

$

PRICEOffering similar values

to price-sensitive consumers but at a

lower prices.●

Firms can provide more than 1 value

driver to users!However, too much drivers may create

confusion

3. Key attributes• It is the list of benefits provided to user• Such benefits are also the main source of the differentiation

strategies of the firm

4. Value chain• It corresponds to the suppliers (and sub-suppliers) of the

company and to the distributors and clients• Strategy alignment and consistency is needed to create and

preserve the competitive advantage (i.e., a “cheap” supplier could be counterproductive for the pursue of a “differentiation” strategy)

5. Ways of getting paid• It corresponds to the “revenue model” of the firm, that is the

model used by the firm for generating revenues• A firm could (at the same time) sell products, provide access to

the product (leasing); provide financial services; provide maintenance services; sell spare parts; etc.

• All the above are different revenue streams

6a. Value network• All the external parties, other than suppliers and clients, that

could significantly impact on the success/failure of a business venture that are not regulated by business relationships(for example: influencers; investors; scholars; journalists; general public; communities; public bodies; other companies; etc.)

• The value network can be “activated” by a firm but can be controlled just in part

6b. EcosystemIt refers to the external (to the firm) conditions - such as norms, rules, standards, degree of technological development, infrastructures, etc. - that are relevant to determine the success/failure of a business venture, on which the company has no direct control and poor influence.

CASE DISCUSSION:The business model of RYANAIR

Innovation types

• Incremental vs. Radical innovation• Component vs. Architecture innovation• Discontinuous innovations• Disruptive innovation

Incremental vs. Radical innovation

• Incremental innovations refer to day-to-day changes (marginal improvements in products or optimizations in production processes). They develop over “solid basis” (already existing products or processes).

• Radical innovations represent a radical step change in a product or process.

New? Not New? Radically new? Who decide?

• There are not objective or standardized measure for determining the degree of novelty of an innovation

• If related to product and positioning, well “novelty is very much in the eye of the beholder”. Consumers have different perspectives

• If related to process and business model, we normally refer to a "radical" innovation as a complete new way to organize the operations and the business as a whole

About radical innovations

• Radically new products are more frequent than radical changes in production processes

• Radical process innovations generally take more time to spread (think at Toyotism and Lean Production!). However they normally have a longer life (than products) because they involve assets and knowledge that will be applied to multiple products

Discontinuous innovations• Innovation (especially technological innovation) tends to develop

incrementally over time along well defined trajectories• Discontinuous innovations represent a (radical) rift in such trajectories

that change the “rules of the game” for all the companies and can force incumbents to completely revise their business mode in order to avoid competitive irrelevance

• Potential sources of discontinuity: • New market segments emerge• New technologies emerge• New political rules emerge/shift in regulatory regimes• New consumers’ behaviors emerge• New business models emerge• Unthinkable events

How di firms react to discontinuous innovations• Incumbents

• Short-term: limit the damage (price tactics, wait-and-see behavior)

• Long-term: shift to the new trajectory (if the winning one)

• New comers• Short-term: gain as much market share as possible• Long-term: prepare for tough competition coming

from “converted” firms

Component vs. Architecture innovation

• Architecture: products composed by a multitude of components and sub-components

• Most common sit.: Innovation processes at lower levels (component and subcomponents) are constrained by innovation processes at the Architecture level

• Less common sit.: component innovation -> architecture innovation

FIAT Panda Suppliers (first level)

Disruptive Innovation• Disruptive innovation is a term coined by Clayton Christensen, that

describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors

Examples of disruptive innovators

The case of Arcelik A.S. → Main brands: BEKO and GRUNDIG→ Revenues: 4,8 bln Euro→ EBITDA: 11%→ Market presence: +140 Countries→ Production plants: 18 (Turkey, South Africa, Pakistan, China,

Thailand, Russia, Romania)

→ Source: http://www.arcelikas.com/UserFiles/file/Arcelik-InvestorPresentation-December2016.pdf

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International GrowthCore positions in European markets

Source: GFK Jan-December 2016 (ranking based on volume share)

Beko is:• The 2nd largest brand in total

market and the 1st brand in free-standing segment in Europe

• The leading brand in the UK andPoland total white goods market

• Leader in France in the freestanding white goods market

• The fastest-growing brand in the German white goods market, doubling its market share in the last five years.

• Leader in Belgium in refrigerator and FS cooker segment

• Leader in Italy and Spain in freezer segment

In addition to Beko’s success, Arçelik and Arctic are theleading brands in Turkey and Romania, respectively.

BEKO’s scaling up process

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International GrowthLeveraging on sponsorships

Beko-Basketball League Sponsorships• Germany: German Basketball League- Beko Basketball

Bundesliga• Italy: Premier Basketball League-Beko Lega Basket

Serie A• Lithuania: Lithuanian Basketball League-Beko LKL

League

Beko-Basketball Event SponsorshipsPresenting Sponsor of• 2015 EuroBasket European Basketball Championship

(France, Germany, Latvia, Croatia) • 2014 FIBA World Basketball Cup (Spain)• 2013 EuroBasket European Basketball Championship

(Slovenia)• 2011 EuroBasket European Basketball Championship

(Lithuania)• 2010 FIBA World Basketball Cup (Turkey)

Main Sponsor of• 2009 EuroBasket (Poland)• 2009 FIBA Asian Championship (China)

Other• Grundig: Sponsor of Fenerbahçe Volleyball Team• Grundig: Main Sponsor of Norway Handball League -

Grundig Ligaen• Beko: 2014 Major Home Appliance Sponsor of NRL

Auckland Nines (New Zealand)• Beko: Official Naming Rights Sponsor of the Ocean

Thunder Surf Boat Series for 2014-2015 (Australia)

Football sponsorships • Beko: Sponsor of Beşiktaş Football Team (Turkey)• Grundig: Official Technology Partner of Bundesliga• Beko Sponsor of FA Cup in UK in 2012-2013 & 2013-

2014• Grundig: Partner of Borussia Dortmund• Grundig: Sponsor of Nürnberg and 1.FC Nürnberg in

Germany

Beko FC Barcelona Premium Partner

What would you do if you were Bosch?

And what if you were Miele?

Potential responses to disruptive innovators

→Going up and up (being aware of the “quality trap”)

→Repositioning down→Dual positioning strategy (even through M&A)

CASE DISCUSSION:The evolution of the Music Industry

• Think at the evolution of the Music Industry from the “CD” era to the “streaming” era.

• Identify and briefly describe:• Innovation platforms (at the industry level)• Discontinuous innovations• Disruptive innovations • VALUE DRIVERS

• No Power Point presentations are needed. Just take notes and get ready to discuss your findings in class

Innovation platforms (at the industry level)

Discontinuous innovations

Disruptive innovations

Value drivers