Business ModelDesign
“What will get you there? Likely not what got you here.”
Girota and Netessine’s Business Model Innovation Matrix helps trigger ideas and different thinking to change risks, costs and advantages. • 4 decision areas each with 3 innovation
approaches.
• Applies to both established and new disruptive business models business models.
• Don’t let ‘where you started’ constrain ‘where you could go’.
• Following slide gives real examples but business model changes are seldom one offs – models need to continue to evolve and develop as customers , competitors and markets change. Amazon has never stopped innovating in its business model!
What When Who Why
Select focused vs. flexible model
Delay decisions Transfer decisions to best-informed players
Change profit or revenue streams to align incentives
Change scope of decisions
Change decision sequence
Transfer decision rights to party best able to tolerate consequences
Synchronize differing time horizons
Hedge of complement decisions with each other
Split decisions to obtain partial info before decision implemented
Move decision consequences to party that benefits most
Pursue a vertical integration strategy
WhatTo sell?
WhenDecisions are made?
WhoMakes which decision?
WhyIncentives?
Select focused vs. flexible model• Zappos Shoes vs Amazon
‘Everything’• Netflix mailed DVDs vs
Blockbuster stores
Delay decisions• Benetton dyeing after knitting to
postpone design and assortment decisions
• American Airlines pioneering dynamic pricing – internet retailers now change prices daily, hourly, even by user
• Kohl’s use of digital price tags
Transfer decisions to best-informed players• Zara having local stores decide
what fashion lines to stock – empower the better informed
• 2008 US financial crisis showed many parties not sufficiently informed for their decisions and incentives are misaligned
Change profit or revenue streams to align incentives• Nintendo limiting supply of Wii• Rolls Royce offering both T&M
and PB contacts on engines - change contracts between parties to get alignment
• Behavioral economists’ understanding and influencing for better outcomes
Change scope of decisions• Software companies
changing from upgrades and perpetual licenses to subscription maintenance and subscription licenses
Change decision sequence• X-Prize competition getting
technologies developed and proven before selecting which to really invest in
Transfer decision rights to party best able to tolerate consequences• Walmart transferring store
replenishment to P&G – decision maker who bears the brunt with most increase the value created
Synchronize differing time horizons• LiveOps real time ‘hiring’ of call
center reps• Toyota dopping competitive
supplier bidding for long-term relationships
Hedge of complement decisions with each other• Zipcar changed car rental
from daily to hourly, Avis bought Zipcar
• LAN airlines focusing on passengers and cargo
Split decisions to obtain partial info before decision implemented• Dell receiving orders then building
PCs• MyFab splitting buying decisions
in two, preferred selection and purchase
• Kickstarter getting projects funded
Move decision consequences to party that benefits most• Amazon’s initial ‘sell all books,
carry few’ used publishers stock• Modern focus on User
Experience and feedback to drive satisfaction and innovation
Pursue a vertical integration strategy• Kaiser Healthcare integrating
doctors, hospitals, pharmacies, insurance
• Freddie Mac providing internal health-maintenance clinic
BUSINESS MODEL AUDIT• Identify all decisions in current or proposed business model.• Map out inefficiencies and risks to identify most consequential
decisions – what has gone wrong, what could go wrong? Look for symptoms, dig for root causes.
• Investigate possible changes to these decisions assessing business model efficiency and risk
• Define new business model .• Test with rapid prototyping – experiment, change, repeat..• Expect opposition to change but don’t be hostage to past success!
“Healthy growth is not engineered. It is the outcome of growing the demand … the
outcome of having superior products and skills… the reward for innovation,
cleverness, efficiency, and creativity.”Richard Rumelt
Obviously the above are just ideas and they need customizing and developing to your business.
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