Business Model Innovation | Terwilliger

Product Development and Management Associa6on 35th Product Innova6on Management Annual Global Conference October 29 – November 2, 2011 | Arizona Biltmore | Phoenix, Arizona

©Crea&ve Reali&es, Inc.

Business Model Innova6on

Jay Terwilliger October 31, 2011

Value



35th Product Innova6on Management Annual Global Conference October 29 – November 2, 2011 | Phoenix, Arizona p. 2

“Business Innova-on is the process of envisioning

and successfully implemen-ng new ways of doing anything that creates value for an

enterprise and its customers”

How We Define Innova&on




NATIONAL ACADEMY OF ENGINEERING



35th Product Innova6on Management Annual Global Conference October 29 – November 2, 2011 | Phoenix, Arizona

What was Apple’s biggest innova&on in the past 20 years?

p. 4




A Business Model Innova&on -‐ iTunes

The Digital Media Store that enables their future growth

iTunes U

Over 800 Universi&es

Social Networking for Digital Media

Music

Movies TV Shows

Apps Books

Podcasts




PlaWorm Trajectory

p. 6

2001: January Music Player Applica&on for Apple Computers

2003: First legal online store for the purchase of music

2011: Online store for music, movies, TV shows, podcasts, University courses, books and more

2011: Online store moves to the cloud




A Business Model -‐ iTunes Turns just another computer, mp3 player, cell phone, tablet, TV adapter into compe&&vely advantaged plaWorms




How To Envision the Future and Get There First

Not surprisingly, what the organization does now is

always relevant in this future!

Sometimes, what the organization does now is no longer relevant in this

future!

History

Present Near Future

Long- Term

Future

CRI Future Pull (Induc6ve)

2 History

Present Near Future

Long- Term

Future

Tradi6onal Model

(Deduc6ve)

3

2

1 3

3

4 1

3


©Crea&ve Reali&es, Inc. p. 9

Apple Example Year

Digital Hub

P PlaWorm

01 02 03 04 05 06 07 08 09 10 11

Mac’s

iTunes

iDVD

iMovie

GarageBand

iPhoto

iPod

Apple TV

iPhone

Touch

iPodphoto Nano

App Store

iTunes Store

Enabler

iPhone 4

iPad

??




Why are you here? •  I’m “interested” in the subject

•  Our business model is broken/under aeack

•  Our world is changing and business as usual isn’t /won’t con&nue to work

•  Our business model is no longer profitable

•  We have an idea that won’t work in our exis&ng business model

•  We need more growth than just new products can generate

•  We have latent competencies we could leverage

p. 10




Here’s the Plan

•  The framework/context for this session •  Crea&ng Value is the goal •  Let’s iden&fy some new Business Models

p. 11




What is a business model?

A business model is a framework for crea&ng and delivering economic, social and/or other forms of value, and capturing that value for the business.

Why is this important?

To create sustainable, compe&&ve advantage

Create

Deliver Capture

Value




Think in 3 dimensions

•  Sustainable Compe&&ve Advantage happens when all three of the Value components are aligned, cohesive and working in harmony.

•  A new business model can be created in an exis&ng space by changing one or two of the three elements….

p. 13

Create

Deliver Capture

Value




Successful Business Models

p. 14

Value

Deliver Capture

Profitability

Target

Need

Unique Benefit

Resources

Ac&vi&es

Revenue

Cost Structure

The real power is when each element works in concert

Create




Think in Dimensions

p. 15

What Value am I crea&ng… for whom?

What resources and ac&vi&es will best deliver that value?

How do I best capture that

value? Transac&on?

Price? Costs?



So what’s our objec&ve?

1.   No one “owns” it now

2.   It’s worth owning

3.   You have a way to own it.

•  You and the customer drive price based on value, not on a compe6tor’s price

1.   You are the “only” player

2.   You can charge enough of a premium price to…

3.   Recover our investment & make money

Source: Milind Lele, Monopoly Rules




Value

Think in Dimensions

p. 17

Key Resources •  Physical Assets (plant, equipment, loca&on, etc.) •  Human

•  Organiza&onal •  Informa&onal •  Etc.

Key Ac6vi6es •  Things you do, how you do them •  Processes •  Etc.

Deliver

Profit Formula •  Revenue:

•  How you will charge •  Cost

•  What it will cost

Capture

Create

Customer Value Proposi6on •  What is the segment? •  What are their unique needs? •  What can I offer? •  Is it meaningful? •  How differen&ated




Apple iPod

Value

99¢ -‐69¢ 30¢

The “Offer” •  Cool, Personal, Portable Music

The Innova&on: •  Online, digital music

The product: •  Great design •  Incremental technology




Ownable Space – The “Value” Opportunity

Begins with a clearly definable segment with enough prospects, an unmet need and money to spend

p. 19




The Value Proposi&on

Simply put:

“Why should you buy my offer versus someone elses?”

p. 20



Describe target For target end user

Who wants/needs compelling reason to buy

The Heart of the Model is the Value Proposi&on

The Business

Provides key benefit

Unlike existing alternatives Uniqueness --

key differentiators, which may include a relative price point

Describe

Describe

Describe

Describe




Ford’s Automobile Value Proposi&on

"The day will come when the whole no-on of car ownership is an-quated.”

-‐-‐ Bill Ford Great, grandson October, 2000

(If you are guaranteed mobility on demand from a local network, will you s&ll want to pay for a car?)

"I will build a motor car for the great multitude... It will be so low in price that no man making a good salary will be unable to own one and enjoy with his family the blessing of hours of pleasure in God's great open spaces.”

-- Henry Ford 1922




Let’s look at an “easy,” familiar Industry

Car Rental Original Industry insight: Air travel offers people a way to travel fast from point A to Point B… and then they have no way to get to and around their ul&mate des&na&on (Unmet Need).

Original Industry belief:

“People need to rent cars when they travel”

p. 23



Travelers (Primarily Air) For target end user


Industry Value Proposi&on

The Business




A car at their flight des&na&on

The Car rental business

A range of vehicle op&ons at every airport, with a minimum of travel interrup&on and hassle.

Hertz: Faster (#1 Gold reserva&on/pickup)

Avis: (Beeer service “Try Harder”)




Value

The industry business model

p. 25

Key Resources •  6500 loca&ons worldwide •  550,000 vehicles •  Airports worldwide – prime, on-‐site where possible

Key Ac6vi6es •  Gold – go to directly to car, agreement complete at car

•  Buy and sell vehicles profitably •  Worldwide reserva&on center (1970) •  Instant return (1987) •  #1 Gold – no lines or paperwork (1989) •  Premium, fun and specific brand vehicles

•  Plate Pass

Deliver


•  Pay by day •  Premium for one-‐way •  Mileage •  Gas, insurance, etc. •  Gold – charge your card

•  Cost •  Buy and sell “Fleets” of cars in close rela&onship with manufacturers

•  Hertz Car Sales

Capture

Create

Customer Value Proposi6on •  Quick and easy personal transporta&on available wherever your travels take you.




Which eventually led to commodi&za&on

•  Faster/easier •  Beeer service/cleaner cars

•  Lower price •  Etc.

p. 26




Time for Business Model Innova&on

•  Where’s the opportunity? •  What’s working/what’s not?

•  What other segments exist/have needs that could create value?

p. 27




Enterprise Changed the Game Exis&ng Industry belief: “People need to rent cars when they travel”

Enterprise Insight:

“People need to rent cars when they are at home” – Personal vehicle is being repaired – Personal vehicle is not sufficient for temporary need

p. 28



People who’s vehicle is temporarily unavailable or

insufficient for need For target end user


Enterprise Value Proposi&on

The Business




Convenient, Temporary Transporta&on

Enterprise Rent-‐a-‐Car

A range of vehicle op&ons near your home

We are local, we will pick you up if you need it, and we are available at and through most auto repair

shops or dealers




Value

The business model

p. 30

Key Resources •  5399 loca&ons in North America (within 15 miles of 90% of U.S. Pop) •  Suburban real estate in smaller footprints than compe&&on (closer and less costly)

Key Ac6vi6es •  We’ll pick you up •  Rental through auto dealers, repair shops, etc. (pick up and deliver there)

•  Insurance pays directly •  Online and telephone reserva&ons

Deliver


•  Dealers pay as loaners •  Insurance Co’s pay as temporary replacements

•  Low cost daily, miles, etc. for direct customers

•  Cost •  Buying power of purchaser of 7% of all new vehicles in U.S.

•  Small, rural loca&ons cost less to own/operate

•  No “buses, etc.”

Capture

Create

Customer Value Proposi6on •  Quick and easy personal transporta&on available where you live and need it




Time for Business Model Innova&on

•  Where’s the opportunity? •  What’s working/what’s not?

•  What other segments exist/have needs that could create value?

p. 31



City Dwellers For target end user


Value Proposi&on

The Business




Frequent transporta&on without the cost and hassle of car

ownership in a city

zipcar

A convenient, hassle-‐free and cost effec&ve alterna&ve to owning

your own car in the city

You can reserve a car remotely, pick it up a nearby off-‐street parking area and use it for any length of &me (over 60 minutes)

you need

“Wheels when you want them”




Ownable Space – The “Value” Opportunity

A clearly definable segment with enough prospects, an unmet need and money to spend

p. 33

The Traveler The Repair & Temporary Use

The Metro

The Lease

The Future?




Tips & Tools

Are you: – Reinven&ng your exis&ng Business Model?

– Crea&ng a new business model?

– Suppor&ng a new plaWorm with a new business model?

Each is a different challenge, with different assump&ons, “sacred cows”, opportuni&es

p. 34




Value

Think in Dimensions

p. 35

Key Resources •  Physical Assets (plant, equipment, loca&on, etc.) •  Human

•  Organiza&onal •  Informa&onal •  Etc.

Key Ac6vi6es •  Things you do, how you do them •  Processes •  Etc.

Deliver


•  How you will charge •  Cost

•  What it will cost

Capture

Create

Customer Value Proposi6on •  What is the segment? •  What are their unique needs? •  What can I offer? •  Is it meaningful? •  How differen&ated




#1: Get clear on theValue Proposi&on

p. 36

“If you don’t know where you’re going… any road will take you

there.”

-‐ The Cheshire Cat to Alice in Wonderland




Ques&ons to ask yourself

p. 37

•  Is the segment large enough (now/soon) –  (worthwhile)?

•  Is it growing? (Future Trends) –  (sustainable)

•  Is the problem/need clear and important? –  (Importance)

•  How is the need currently being addressed? –  (exclusivity/differen&a&on)

•  Can I envision an “elegant” solu-on that is not available or easily duplicated?




Useful frameworks

p. 38

Map the flow of your business model

Organize the key elements of your model

Understand Your

competencies



The Business Model Map •  Visualize your business… Map it!

–  Butcher paper, post-‐its and your imagina&on

–  Start with your target & needs and work backward •  How do they learn about you? •  How do they interact with you? •  What is the transac&on?

•  How is it made/fulfilled?

•  How is it delivered –  Where do you add value?

Where would a partner add more?

•  Change it – Op-mize it

p. 39 p. 39



Business Model Elements Framework

•  Working with your map, consider the key elements of your Business Model

•  Consider choices, alterna&ves, opportuni&es to innovate

•  What will you own?, what will you outsource/partner?

•  Use the map to see how they all work together and influence each other

p. 40



Get real about competencies & Value

•  How will you “own” this? –  What unique power/value do you really bring?

–  What necessary value will you have to obtain?

•  Objec&vely assess your competencies –  Consider competencies in four “buckets”

–  Kid yourself now, and your will pay for it later.

p. 41

Future

Latent

Core

Basic



Test, learn, refine… Create the Value!

p. 42




Let’s Play

1.  Pick an Industry 2.  Iden&fy a Segment with a Need

3.  What’s a key element that could trigger a whole new business model?

p. 43




Example: More Cars for people?

•  What segments might develop? – Seniors – who can’t afford cars the way they used to

– High School – College – Global workforce

•  What’s the insight? – Value Proposi&on

44

End

p. 45




Business Model Innova&on w/NPD

•  The following story is for use if the subject of BMI in the course of NPD is of interest to a significant por&on of the audience.

•  It’s of a client who engaged in Business Model innova&on when the product they wanted to develop was not possible within their exis&ng business model

p. 46



Think beyond the product •  Situa&on:

–  80% of Bacardi rum sales were in-‐home use –  Only 17% of in-‐home use was in the types of

exo&c drinks people enjoyed in bars

•  Problem/Need –  People who enjoy exo&c rum drinks in bars and

restaurants, want to enjoy them at home but find it too difficult to make a quality version themselves

•  Solu&on: –  Create quality, all-‐natural exo&c drink mixers

(margarita, pinacolada, daiquiri, mojito, etc.)

•  Result: –  Bacardi receives 5% of mixer sales as royalty –  Sales of rum for in-‐home use increased 2-‐3%

represen&ng a profit of $50 Million annually

p. 47

STOP (Bacardi Business Model doesn’t

fit)



Adult Spirits Users when at home For target end user


The Heart of the Model is the Value Proposi&on

The Business




To be able to easily prepare restaurant/bar quality exo&c drinks for personal and social

occasions

Bacardi Frozen Mixes business

All-‐Natural, quality exo&c drink mixes that you just add the rum and blend

Bacardi mixes are all-‐natural, and frozen for fresh, quality taste that is not available in

alterna&ves that are highly processed, high-‐sugar, ar&ficially sweetened liquid or dry

forms




Value

The Basics

p. 49

Key Resources •  Frozen food manufacturing •  Frozen food distribu&on •  Supermarket distribu&on

Key Ac6vi6es •  Partner

Deliver


•  5% Royalty on every sale of frozen mix

•  Incremental 2% sales increase equal to $50 Million

•  Cost •  Minimal A&P

Capture

Create

Customer Value Proposi6on For Adult drinkers who enjoy exo&c mixed drinks at bars and restaurants, but can’t serve or enjoy them at home because they are too difficult to make and exis&ng mixes are of poor quality.

Business Model Innovation | Terwilliger

Business

Transcript of Business Model Innovation | Terwilliger