Innovative Business Models

Harshani Wathsala Wickramaarachchi

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business model (BM)Business model is a way to conceptualize and

understand organizations as systems that have common components

Plan implemented by a company to generate revenue and make a profit from operations. The model includes the components and functions of the business, as well as the revenues it generates and the expenses it incurs

Role of bM

The technical experts know their domain and the business experts know theirs. The business model serves to connect these two domains as shown in the following diagram,

Components of Bm

• Value proposition - a description of the customer problem, the product that addresses the problem, and the value of the product from the customer's perspective

• Market segment - the group of customers to target, recognizing that different market segments have different needs

• Value chain structure - the firm's position and activities in the value chain and how the firm will capture part of the value that it creates in the chain

Components of Bm cont.

• Revenue generation and margins - how revenue is generated (sales, leasing, subscription, support, etc.), the cost structure, and target profit margins

• Position in value network - identification of competitors, and any network effects that can be utilized to deliver more value to the customer

• Competitive strategy - how the company will attempt to develop a sustainable competitive advantage, for example, by means of a cost, differentiation, or niche strategy

Examples of bms

• Bricks and clicks business model - Company integrates both offline (bricks) and online (clicks) presences

• Collective business model - Business system, organization or association typically composed of relatively large numbers of businesses, tradespersons or professionals in the same or related fields

• Cutting out the middleman model - The removal of intermediaries in a supply chain: "cutting out the middleman"

• Direct sales model - Marketing and selling products to consumers directly, away from a fixed retail location

• Value-added reseller model - Business makes something which is resold by other businesses but with modifications which add value to the original product or service

Bm frameworks

• Business reference model - Concentrating on the architectural aspects of the core business of an enterprise, service organization or government agency

• Component business model - Technique developed by IBM to model and analyze an enterprise. It is a logical representation or map of business components and can be depicted on a single page

• Industrialization of services business model - Used in strategic management and services marketing that treats service provision as an industrial process, subject to industrial optimization procedures

• Business Model Canvas - One of the most used frameworks for describing the elements of business models

Bm canvas

The value proposition of what is offered to the market

The segment(s) of clients that are addressed by the value proposition

The communication and distribution channels to reach clients and offer them the value proposition

The relationships established with clients

The key resources needed to make the business model possible

The key activities necessary to implement the business model

The key partners and their motivations to participate in the business model

The revenue streams generated by the business model

The cost structure resulting from the business model

Bm innovation

• The term business model is also closely related to innovation

• Business model concept is related to a whole new range of business design opportunities

• There are examples of business model innovations in each of the 9 building blocks described earlier

• The most obvious is innovating in the value proposition

• When mobile phones appeared in the market they offered a different value proposition than fixed line phones

• Dell became really successful by exploring the web as a distribution channel

• Cisco became famous for its capacity of configuring activities in new and innovative supply chains

• Google tapped in an innovative revenue streams by linking highly specific search results and content with text ads

What is innovation?Innovation is about being different in a way customers love

BM innovation

• The reinventor approach is deployed in light of a fundamental industry challenge,, in which a business model is deteriorating slowly and growth prospects are uncertain. In this situation, the company must reinvent its customer-value proposition and realign its operations.

• The adapter approach is used when the current core business, even if reinvented, is unlikely to combat fundamental disruption. Adapters explore adjacent businesses or markets, in some cases exiting their core business entirely.

BM innovation

• The maverick approach deploys business model innovation to scale up a potentially more successful core business. Mavericks which can be either startups or insurgent established companies employ their core advantage. This requires an ability to continually evolve the competitive edge or advantage of the business to drive growth

• The adventurer approach aggressively expands the footprint of a business by exploring or venturing into new or adjacent territories. This approach requires an understanding of the company’s competitive advantage and placing careful bets on novel applications of that advantage in order to succeed in new markets

Innovative Business Models Shaking Up the Marketplace

AirbnbLaunched: 2008Founders: Brian Chesky, Joe Gebbia and Nathan BlecharczykInnovative angle: Create a sharing economy that utilizes empty rooms, apartments and homes, upending the hotel sector

Lesson: Sharing is caring, peer-to-peer models save consumers money, help owners make money and create a more authentic, local experience for travel.

Airbnb is an online community marketplace that connects people looking to rent their homes with people who are looking for accommodations. The site hosts 300,000 listings and has helped more than 4 million travelers book stays.

SkillshareLaunched: 2011Founders: Malcolm Ong and Michael KarnjanaprakornInnovative angle: A platform for learning about anything

Lesson: Leverage the intelligence and expertise of normals to create a massive intellectual marketplace.

Skillshare is a learning community for creators. Anyone can take online classes, watch video lessons, create projects, and even teach a class themselves. Skillshare launched as an education marketplace, experts could teach a class on any subject, and anyone could attend.

UberLaunched: 2009Founders: Travis Kalanick and Garrett CampInnovative angle: Upending the taxi/transportation ecosystem with on-demand drivers and dynamic pricing

Lesson: Innovation is an uphill battle, but it's one worth

fighting.

Uber is an app-based transportation network and taxi company. The company uses a smartphone application to receive ride requests and then sends these trip requests to their drivers

StyleSaintLaunched: 2010Founders: Allison Beal and Brian GarrettInnovative angle: Fashion meets media in this fashion label, whose designs are inspired by customer interests

The Los Angeles-based retail company began as a self-publishing platform where style-minded users could create their own "tear sheets." Those tear sheets were then used by founder as inspiration for the inaugural StyleSaint collection. The direct-to-consumer approach helps to reduce excess inventory and spare fast fashion in favor of quality goods.Lesson: The customer is right, especially when it comes to her own taste.

Rent the RunwayLaunched: 2009Founders: Jennifer Hyman and Jenny FleissInnovative angle: Rent inventory of high-end dresses at a fraction of the price to create a "Cinderella moment" and introduce women to brands they wouldn't otherwise wear

Lesson: Aspirational fashion and try-before-you-buy are potent sales drivers.

Rent the Runway is a fashion

company powered by a

transformative business model,

proprietary technology, and a

unique reverse-logistics

operation. Rent the Runway offer

in-season merchandise and rents

the items out to different

consumers every week, so it

recoups the cost of the items and

functions as a gateway for women

to get into luxury brands.

ZolaLaunched: 2013Founders: Shan-Lyn Ma, Nobu Nakaguchi and Kevin RyanInnovative angle: A fully customizable registry, with group-buying for bigger gifts and a "cash fund."

The founders came up with Zola as a new alternative for modern couples to register for homewares, kitchen equipment, furniture, food, bicycles, experiences, honeymoon funds and cash funds. Engaged couples can create a fully customizable registry with unique features for guests, such as group gifting.

Lesson: A beautiful interface and the ability to customize go a long way, as does reinventing the traditional way of doing things.

Warby ParkerLaunched: 2010Founders: David Gilboa, Neil Blumenthal, Andrew Hunt, Jeffrey RaiderInnovative angle: Cutting out the middleman transforming a medical device into a fashion accessory

Lesson: Change the way people see an industry.

Warby Parker is an American brand of prescription eyeglasses and sunglasses. Warby Parker designs glasses in-house and sells directly to customers to avoid retail markups. A lower price is possible because glasses are designed in-house, eliminating licensing fees. WarbyParker does not sell glasses through third party brick-and-mortar retailers, whose markups can double or triple prices.

HandybookLaunched: 2012Founders: Umang Dua, Oisin Hanrahan, Ignacio Leonhardt and Weina ScottInnovative angle: On-demand home services, like cleaning or repairs, bookable from a sleek mobile app

Handybook is a marketplace that handles payments and scheduling on both the supply and the demand end of the home services industry. It operates in 26 cities. The way Handybook set up is to think about all the services need inside home and how they can be a remote control for managing those services.

Lesson: Convenience is key.

Paperless PostLaunched: 2008Founders: James Hirschfeld and Alexa HirschfeldInnovative angle: Reinventing the world of stationery, by taking it online, then back offline

Paperless Post is an e-commerce company focusing on design-driven online and printed stationery, including greetings, invitations, birth announcements, wedding suites, and custom stationery. It encourages people to email invitations and announcements, made pretty with hundreds of design templates.

Lesson: Aesthetics matter.

Stitch FixLaunched: 2011Founder: Katrina LakeInnovative angle: Personal styling made smarter by data and trendy part-time fashionistas

Lesson: A product that uses smart data to surprise, delight and save consumers time is a win.

Stitch Fix is a combination of the art and science and has not been seen before in retail industry. It provides a truly personalized retail experience at the affordable price point. Stitch Fix originally targeted urban professional who has a demanding job and does not have much time to shop.

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