Business model innovation – Part III

Intro

In part I of our odyssey into business model innovation, the business model canvas and its different elements and building blocks was presented and in part II we looked closer into what constitutes a business model innovation. In this part I will use the canvas presented in part I, which is a slightly modified version of the famous business model canvas by Osterwalder and Pigneur (2010), as a tool for analysis of the current business model and a tool for building a novel business model.

canvas

The figure above shows the modified business model canvas.

So how do we do this then?

De Jong and van Dijk (2015) present a five step process for creating potentially disruptive business models. By using their principles with the canvas seen above as a visualization tool we can build mind blowing business models with epic potential.

  1. Decide a focal subject, be it an industry, your organization, a competitor, a technology, a service, your product or whatever you want to build a business model for.
  2. Outline the dominant business model of that focal subject.
  3. Using the canvas, dissect the most important long-held beliefs into their supporting notions.
  4. Turn an underlying belief on its head using the business model canvas and a creativity method of your choosing.
  5. Sanity-test your re-frame.
  6. Translate the tested and approved re-framed belief into your new focal subject business model.

1)  As mentioned in previous posts a business model is an abstract idea that represents and supports high-level thinking [4] and is thus a social and conceptual construct [5][6]. As such, the business model can be used to understand any type of focal subject within a spectra from large to small. An example of a large scale focal subject is an industry while a small scale focal subject can be an individual product.

2) In any focal subject there are long-standing beliefs on how to create value. For example, in retail it is believed that purchasing power and format determine the bottom line [2]. On an e-commerce site such as eBay buyer and seller retention, the amount of items available and the average sales price are seen as fundamental. While a product such as Spotify is thought to dependent on the amount of subscribers to drive profitability [3]. According to De jong and van Dijk (2015) such governing beliefs reflect widely shared notions about customer preferences, the role of technology, regulation, cost drivers, and the basis of competition and differentiation. They are often considered inviolable until they are violated by a disruptive business model. Consequently, starting with the question “What are the long-held core beliefs about how to create value?” is essential.

3 ) Once the core beliefs of the focal subject are exposed, use the business model canvas and dissect the most important long-held belief into its supporting notions. How do notions about customer needs and interactions, distribution channels, technology, partnerships and regulation and ways of operating underpin the core beliefs?

4) After dissecting the core beliefs into their supporting notions turn the beliefs on their head. Formulate radical new hypothesis which no one wants to believe using outside-the-box “what if?” questions [2]. Use the building blocks in the business model canvas as a framework and question each part using creativity tools such as Turn around or other tools which help you challenge your assumptions.

Some examples are:

Tesla: What if cars are not dependent of fossil fuels? What if cars do not need gas stations? What if cars can be sold directly through us and not through franchised dealerships? What if the fuel stations are owned by car companies and not by oil companies?

Philips Lighting: What if the lighting industry would stop selling replacement products? What if the lightning product can show different colours? What if the light can be controlled by your phone?

5 ) Many re-framed beliefs will just be nonsense. Applying a re-frame that has already proved itself in another industry greatly enhances your prospects of finding something which makes sense for your business. Gassmann et al., (2013) argue that 90% of the business model innovations mapped in their studies were mainly re-combinations of previously existing concepts. Often business model innovations “are slight variations of something that has existed elsewhere, in other industries, or in other geographical areas.” [7:3].

6 ) Typically, once organizations arrive at a re-frame, the new mechanism for creating value suggests itself—a new way to interact with customers, organize the operating model, leverage resources, or capture value. Of course, organisations then need to transition from their existing business model to the new one, and that is easily said than done. Often considerable nerve, trial-and-error iterations using real life prototypes and sophisticated timing is needed to manage the process. [2][5][8].

Holy moly, that was a lot of awesome information but what if i want to know more about the actual implementation?

In part IV of our exploration of business model innovation we will look at common challenges of implementing a new business model.

Resources:

[1] Osterwalder, A. & Pigneur, Y. (2010). Business model generation [Elektronisk resurs] : a handbook for visionaries, game changers, and challengers. Hoboken: John Wiley & Sons.
[2] de Jong, M. & van Dijk, M. (2015) Disrupting belifes: A new approach to business-model innovation. McKinsey Quaterly http://www.mckinsey.com/insights/innovation/disrupting_beliefs_a_new_approach_to_business-model_innovation [First accessed:2015-08-09 15:32]
[3] Ries, E. (2011). The Lean Startup: how constant innovation creates radically successful businesses. London: Portfolio Penguin
[4] Bryman, A. & Bell, E. (2011). Business research methods. (3. ed.) Oxford: Oxford University Press
[5] Bucherer, B., Eisert, U. and Gassmann, O. (2012) Towards Systematic Business Model Innovation: Lessons from Product Innovation Management. Creativity and innovation management, 21(2): 183-198
[6] Harari, Y.N. (2015). Sapiens: en kort historik över mänskligheten. (1. utg.) Stockholm: Natur & kultur.
[7] Gassmann, O., Frankenberger, K. & Csik, M. (2013) The St. Gallen Business Model Navigator. Working paper, University of St.Gallen
[8] McGrath, R. G. (2010). Business Models: A Discovery Driven Approach. Long Range Planning 43:247-261

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