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.

Need any help?

Jeffdrust@comcast.net+1 650 208 5771Skype: jeffdrustwww.linkedin.com/in/jeffdrust

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