BUSINESS MODEL GENERATION (Alex Osterwalder & Yves ...

For whom are we creating value? Who are our most important customers? Mass Market Niche Market Segmented Diversified Multi-sided Platform

Customer Segments (CS)

What value do we deliver to the customer? Which one of our customer’s problems are we helping to solve? What bundles of products and services are we offering to each Customer Segment? Characteristics Newness Performance Customisation “Getting the Job Done” Design Brand/Status Price Cost Reduction Risk Reduction Accessibility Convenience/Usability

Value Propositions (VP)

Through which Channels do our Customer Segments want to be reached? How are we reaching them now? How are our Channels integrated? Which ones work best? Which ones are most cost-efficient? How are we integrating them with customer routines? Channel phases: 1. Awareness How do we raise awareness about our company’s products and services? 2. Evaluation How do we help customers evaluate our organisation’s Value Proposition? 3. Purchase How do we allow customers to purchase specific products and services? 4. Delivery How do we deliver a Value Proposition to customers? 5. After sales How do we provide post-purchase customer support?

Channels (CH)

What type of relationship does each of our Customer Segments expect us to establish and maintain with them? Which ones have we established? How are they integrated with the rest of our business model? How costly are they? Customer Relationships (CR) Examples Personal assistance Dedicated Personal Assistance Self-Service Automated Services Communities Co-creation For what value are our customers really willing to pay? For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues?

CHAPTER 3: DESIGN Game changing business models come from deep and relentless inquiry

CHAPTER 1: CANVAS BUSINESS MODEL GENERATION (Alex Osterwalder & Yves Pigneur)

Dynamic pricing Negotiation( bargaining) Yield Management Real-time-Market

CHAPTER 5: PROCESS

Revenue Streams (R$) Fixed pricing List Price Product feature dependent Customer segment dependent Volume dependent Types: Asset sale Usage fee Subscription Fees Lending/Renting/Leasing Licensing Brokerage fees Advertising What Key Resources do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue Streams? Types of resources Physical Intellectual (brand patents, copyrights, data) Human Financial

Key Resources (KR)

What Key Activities do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue streams? Key Activities (KA) Categories Production Problem Solving Platform/Network

Who are our Key Partners? Who are our key suppliers? Which Key Resources are we acquiring from partners? Which Key Activities do partners perform? Key Partnerships (KP) Motivations for partnerships: Optimisation and economy Reduction of risk and uncertainty Acquisition of particular resources and activities What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive? Is your business more: Cost Driven (leanest cost structure, low price value proposition, maximum automation, extensive outsourcing) Value Driven ( focused on value creation, premium value proposition)

CHAPTER 4: STRATEGY

Cost Structure (C$)

Sample characteristics: Fixed Costs (salaries, rents, utilities) Variable costs Economies of scale Economies of scope CHAPTER 2: PATTERNS

CHAPTER 1: CANVAS Challenge: Costs are too high. Conflicting cultures = trade offs.

UNBUNDLING BUSINESS MODELS

Examples : Telco, Private Banks Challenge: Targeting less profitable segments with specific VPs is too costly 1. Democratisation of tools of production: Falling technology costs give ind'ls access to tools that were too exp a few years ago. Music, videos/movies, software (apps) etc. 2. Democratisation of distribution: the internet has made digital content distribution a commodity. With lower inventory. communication and transaction costs opening up new markets for niche products.

Why does this biz mod work (for media)?

THE LONG TAIL

3. Falling search costs to connect supply with demand: The real challenge of selling niche products is finding interested potential buyers. Powerful search and recommendation engines, user ratings and communities of interest have made this easier. Examples: Lulu.com, Amazon.com, eBay.com, netflix.com, Challenge: Enterprise fails to acquire potential new customers who are interested in gaining access to company's existing customer base

(i) Brings together 2+ distinct but interdependent groups of customers. Matchmaking Which side do you subsidise? How to price correctly?

One way multi-sided platforms solve this problem is by subsdising a customer segment (less expensive or free VP) in order to attract users.

(ii) Such platforms are of value only if the other group of customers are present. (Chicken & Egg dilemma) What are they? (iii) The platform creates value by facilitating interactions between the different groups. (iv) A multisided platform grows in value to the extent that it attracts more users - network effect 1. Platform management 2. Service provisioning

3 x KA

3. Platform promotion Examples: eBay.com, Visa, Microsoft Windows, FT, Google, Apple App Store, Wii, Metro Generate high platform traffic and increase attractiveness to advertisers

CHAPTER 3: DESIGN Game changing business models come from deep and relentless inquiry

Main costs relate to: (i) Maintaining and developing the platform. (ii) Traffic generation, distribution and retention costs Examples City A.M, Evening Std outside tube stations

BUSINESS MODEL GENERATION (Alex Osterwalder & Yves Pigneur)

FREE as a Business Model CHAPTER 2: PATTERNS

CHAPTER 4: STRATEGY CHAPTER 5: PROCESS

Examples: Metro, Evening Standard, City AM MULTI-SIDED PLATFORMS The small base of paying users subsidise the free users

Get the basics for free, Pay for more.

How does it work?

1. The cost of adding the free users is low. Typically automated When does it work? 2. The rates at which free users convert to paying is acceptable - typically >10% Examples: dropbox, Flickr, yousendit, Skype, Open Source: Red Hat and Linux. Provides support + stability + cost advantage. Red Hat sell subscriptions

FREEMIUM WITH A TWIST Some variant business models

Rega: Swiss non-profit org'n for accident airlifting FREEMIUM UPSIDE DOWN Patrons don't pay if airlifted FREEMIUM Telcos: free phone tied into a long contract Examples Razors: Gillette, give away the razor, charge for razor blades

Focus on delivery of follow up products or services

Brand / patent protection

Usually require a strong brand

R$ & C$: Follow up products cover subsidisation of initial product. Follow up = high margin + repeated

BAIT & HOOK - aka "Loss Leader" or "Razor + blades" model

How to make it work?

Lock-in of some form - high switching costs CS: attracted by instant gratification Challenge: R&D is costly. Productivity is falling Can be used by companies to create + capture value by systematically collaborating with outside partners

What is it?

Focus on KR, KA, KP and C$ The Connector: Innocentive (part of P&G). Connects solvers to problems. Focus on VP, CR, CH, CS and R$

P&G: Connect & Develop programme. 50% of R&D with outside partners (tech entrepreneurs, internet platforms, retirees).

Outside-in, by bringing external ideas, IP, technology into a firm's devt and commercialisation process. How does it work?

GSK Patent Pools. Open up patent pools to other researchers on a license/profit share basis. Targets less mainstream diseases etc.

Inside-out by providing or licensing external parties with IP or technology, typically lying idle within the firm.

OPEN BUSINESS MODELS

Principles of Innovation

What job(s) do our customers need to get done and how can we help? What are our customers aspirations and how can we help them live up to them? What relationship do your customers expect us to establish with them? For what values are our customers WTP? How to design- Customer Centric

Don't just focus on existing customers - look at new or unreached segments

Satisfy the unmet needs of customers Successful innovation requires a deep understanding of customers - daily routine, concerns aspirations etc. Need to know which customers to heed and which to ignore

How not to design - Organisation Centric

Better Value Propositions Appropriate Customer Relations True and accurate WTP

Tomorrow's growth segments wait at the periphery of todays' cash cows.

What can we sell customers? How can we reach customers most efficiently? What relationships do we need to establish with customers? How can we make money from our customers?

Create a customer viewpoint to continuously question your business model + assumptions

Customer Insights

The Empathy Map (created by XPLANE) http://www.xplane.com/company/about/

1. Brainstorm the possible Customer Segments that you might serving 2. Choose three promising candidates and select one for your first profiling exercise 3. Give the customer a name, demographic characteristics (income, marital status etc) (i) What does she see?

(ii) What does she hear?

Environment, Friends, what the market offers What friends/colleagues/boss says? Who really influences her and what do they say? What media channels are influential?

How to use the (Customer) Empathy Map (iii) What does she think and feel?

4. Using the Empathy Map (using a flip chart) answer the following questions:

What really counts? What moves her? Major preoccupations? Worries?

(iv) What does she say and do?

Attitude in public? What does she tell others? (Pay particular attention to the difference between what she tells others and what she may truly think and feel) Her appearance? Behaviour toward others?

(v) What is the customer's pain?

Biggest frustrations? What obstacles stand between her and what she wants or needs to achieve? What risks might she fear taking?

(vi) What does the customer gain?

What does she truly want or need to achieve? How does she measure success?

1. Team composition: assemble the right diverse team (Age, seniority, experience, sector, background). Generate fresh left field ideas. 2. Immersion: Preparation/study before generation (e.g. Empathy Map, market study, competitor analysis, 6 Forces) 1. Resource driven: originate from the company's existing infrastructure or partnerships to expand or transform the business model e.g. Amazon Cloud Services 2. Offer driven: create new VP's that affect the other 8 blocks e.g. Cemex 4 hour cement delivery vs. industry 48 hours

(A) Epicentres

3. Customer driven: based on customer needs, facilitated access or convenience. e.g. 23andMe personalised DNA tests 4. Finance driven: Innovations driven by revenue streams, pricing mechanisms or reduced cost structures. e.g. Xerox (monthly charge + charge/copy) 5. Multiple epicentre driven: Innovations driven by multiple epicentres e.g. Hilti, global construction tool manufacturer moved from selling tools to renting tools (R$ + VP + CS driven).

3. Expanding: Use each of the 9 blocks as a starting point for innovation

The Ideation Process

Challenge our thinking and provocative. Should disturb us as intriguing, difficult-to-execute propositions.

(B) 'What If' questions

Ideation (i) Warm up: silly cow/pig/dog/cat exercise. Create an innovative business model. (ii) Stay focused: start with a well-honed statement of the problem at hand

Brainstorming Rules

(Iii) Enforce Rules: via a facilitator. Rules to include defer judgement, one conversation at a time, go for quantity, be visual, etc. Facilitators

(iv) Think Visually: write down ideas or sketch them out on a surface everyone can see. (e.g. Post-it notes on wall) (v) Prepare: with some sort of 'immersion experience' e.g. scouting field trip, discussions with customers, or any other immersion activity related to the problem at hand 4. Criteria Selection: What are the most important criteria for prioritisation? (e.g. implementation time, resources, revenue potential, impact on competitive advantage etc) 5. "Prototyping": What does the complete business model for each shortlist idea look like? Prototype shortlist of 3 - 5 models. Elmar Mock @ Creaholic http://www.xplane.com/company/about/ (i) Post-Its: thick marker pens, write one element per Post-it and write only one point per Post-It (ii) Drawings: people react stronger to images than words. Even crude sketches work CHAPTER 3: DESIGN Game changing business models come from deep and relentless inquiry

CHAPTER 1: CANVAS

(iii) Understand the essence: Visual grammar, Capturing the big picture, seeing relationships How?

BUSINESS MODEL GENERATION (Alex Osterwalder & Yves Pigneur)

Visual Thinking

CHAPTER 2: PATTERNS

(iv) Enhance dialogue: collective reference point, shared language, joint understanding

Visual techniques give 'life' to a bizmod and facilitates co-creation

(v) Explore ideas: idea trigger, Play (vi) Improve communication: create company-wide communication, selling internally, selling externally. Use to tell the story of the BMC… Level of detail depends on one's goal - Skype vs. Sellabond New customer segment

What is it?

A thinking tool that allows us to explore different directions to take our business model - for example:

A tool of inquiry

Remove a costly resource Give away free and replace revenue with something more innovative

What does it look like?

How does it work?

Can take the form of a simple sketch, a complete BMG canvas, or a financial spreadsheet. To understand the pros/cons of different possibilities, we need to construct multiple prototypes at different levels of refinement. 1. "Thats a nice idea, if only we had the time to explore different options…."

Interaction with prototypes produces ideas far more readily than 'vanilla' discussion

'Business as usual' = incremental improvements are enough to survive/maintain competitive edge

NO. Businesses risk being overtaken/sidelined by more dynamic competitors/upstarts

How do people react? 2. Market research would be an equally good way to come up with a new business model

Assumes that data is the most important consideration when designing new strategic options

Market Research is a single input in designing new bizmods

Prototyping

Design Attitude

"If you freeze an idea too quickly, you fall in love with it. If you refine it too quickly, you become attached to it and it becomes very hard to keep exploring, to keep looking for better" Jim Glymph, Gehry Partners The crudeness of early models should be very deliberate The spirit of inquiry. A willingness to to explore crude ideas, discard, then take time to examine multiple possibilities before choosing to refine a few.

Accepting uncertainty until a design direction matures

1. Napkin sketch: draw a basic BMG canvas 2. Elaborated Canvas: Develop a full detailed BMG canvas. Estimate mkt potential. Think through connections between blocks Prototypes at different scales 3. Business case: Spreadsheet including key data. Sensitivity analysis. 4. Field Test: Test on actual customers. Test VP, CH, pricing mechanism (R$), etc.

Why use storytelling?

By their very nature, new business models can be difficult to describe and understand. They challenge the status quo by arranging things in unfamiliar ways.

Engaging storytelling suspends disbelief in the unfamiliar. Overcomes resistance.

What the problem is and how it is solved? Employee tells the story from the company perspective Impact/changes to/difference in KA, KR, KP, C$ 1. Introducing the new: Making the new tangible. A good story is a compelling way to quickly outline a broad idea before getting caught up in the details.

Make Business Models tangible. Keep the story simple. Depending on your your audience you can use different protagonists with different perspectives.

Challenges faced. Jobs that need to get done.

Customer tells the story from her perspective

How the new biz mod solves her problems/gets the job done. And the WTP Impact/changes to/difference in CR, CH, CS, R$

When to use storytelling

What future business model? 2. Pitching to investors: How will you create value for customers? How will you make money doing so? Telling a story illustrates how your business model solves a customer problem and makes money.

Get 'buy-in' before explaining your model in detail

Making the future tangible: stories offer a strong technique for blurring the lines between reality and fiction. A powerful tool for providing tangibility to future dilemma.

Storytelling 3. Engaging employees: Your team need a crystal clear understanding of the new business model and what it means for them.

People are moved more by stories than logic. Ease listeners into the new or unknown by building the logic of your model into a compelling narrative.

Techniques

Why use scenarios?

dilemma How products or services are used? What kinds of customers use them? Customers' concerns? Customers' desires and objectives? 1. Customer scenarios Guide us through the Customer Segments:

Scenarios Imagine future possible environments - what is the most appropriate business model for each of the future environments

Two main methods

2. Future scenarios

Scenario planning: forces reflection on how a model might have to evolve under certain conditions. This sharpens understanding of the model and of potentially necessary adaptations. Most important it helps us prepare for the future. Discussing bizmods around scenarios of concrete future contexts are more productive than free brainstorming CHAPTER 4: STRATEGY CHAPTER 5: PROCESS

Which channels are most appropriate? Which rel'ships would be best to establish? Which problem solutions would customers be most WTP? Is there a single biz mod that serves them all? Or do we need to adapt the model for each segment?

Planned future business model

dilemma Justify change: When you have a strong idea of what the future competitive landscape will look like. Helps people imagine where the current biz mod should evolve to.

CHAPTER 3: DESIGN Game changing business models come from deep and relentless inquiry Crucial issues affecting customers and landscape Market Issues Which shifts are underway? Where is the mkt heading? Most important customer segments? Biggest growth potential? Market Segments Declining customer segments? Peripheral segments that need addressing? Market forces

Customer needs? Biggest unmet needs? Needs and Demands Demand increasing? Decreasing? What binds customer to a company? Switching costs

What are the switching costs for a customer? Importance of brand in this market? What are customers WTP?

Revenue attractiveness Where are the largest margins? Industry Forces

Use Yoffie's 6 Forces

Macro-Economics Forces Business Model Environment

CHAPTER 1: CANVAS BUSINESS MODEL GENERATION (Alex Osterwalder & Yves Pigneur) CHAPTER 2: PATTERNS

CHAPTER 4: STRATEGY Key Trends

IT infrastructure Example: amazon.com 2005 1. Big Picture assessment

Order fulfilment on behalf of companies and individuals

Evaluating Business Models BM Canvas high level S + W

2. SWOT

Of each of the 9 canvas building blocks

See BMG book pg. 217 - 223 for sample questions

Book by Kim & Mauborgne Is about creating a completely new industry through fundamental differentiation as opposed to competing in existing industries by tweaking established business models.

Creating new uncontested market space through value innovation.

What is it? First Goal: Lower costs by cutting less valuable features or services. Simultaneously increasing value while reducing costs

Second Goal: Increasing value for customers by creating new benefits & services. Without significantly increasing cost base

1. Eliminate: Which factors can you eliminate that your has long competed on? 2. Reduce: Which factors should be reduced below industry standard?

Business Model Perspectives on Blue Ocean Strategy 4 Actions Framework

3. Raise: Which factors should be raised above industry standard? 4. Create: Which factors should be created that the industry has never offered? 1. Cost Impact exploration: LHS epicentre on BM Canvas Ask the 4 Action Framework questions about each building block of the BM Canvas Blue Ocean + BM Canvas =

2. Value proposition impact: central epicentre on BM canvas 3. Customer impact: RHS epicentre on BM Canvas

Examples: Cirque du Soleil, Wii Examples: Nespresso, SMH (Swatch) and Car2go (Daimler) (i) Similarity across the 9 building blocks Look at 3 factors: Managing Multiple Business Models

(ii) Potential for synergies (iii) Potential for conflicts Integrated within group

Options:

Autonomy within the group Separation (outside the group)

CHAPTER 5: PROCESS

CHAPTER 3: DESIGN Game changing business models come from deep and relentless inquiry CHAPTER 4: STRATEGY Satisfy Market: Tata car, NetJets, GrameenBank, Lulu.com Bring to Market: Xerox 914, Swatch, Nespresso, Red Hat Improve market: Dell, EFG bank, Wii, IKEA, Bharti Airtel, Skype, Ryanair, amazon.com

Create market: Diners Club, Google Business Model Design + Innovation Finding the right model Testing the model before full-scalp launch Challenges: Inducing the market to adopt the model Continuously adapting the model in response to feedback Reactive: IBM 90s, Wii, Rolls Royce Jet Engines Adaptive: Nokia, P&G open innovation, Hilti Expansive: Nespresso, Xerox 914, iPod-iTunes Pro-active/explorative: Car2go, Amazon Web Services Factors specific to Established companies Developing an appetite for new models Aligning old and new models Challenges: Managing vested interests Focusing on the long term

Activities: frame project objectives, Test prelim ideas, Plan, Assemble team. 1. Mobilise CSF's: Appropriate people, experience and knowledge Key dangers: Overestimating value of initial ideas Activities: Scan environment, study potential customers (detailed) , interview experts, research what has already been tried (understand causes of failures), Collect opinions and ideas.

2. Understand CHAPTER 1: CANVAS BUSINESS MODEL GENERATION (Alex Osterwalder & Yves Pigneur)

Established company activities: Build project legitimacy, Manage vested interests, recruit a crossfunctional team, get buy-in from decision makers

20 mins of kill/thrill on all ideas. (Devil's advocate) Established company activities: Mapping and assessing existing business models, looking beyond the status quo, searching beyond the existing client base, demonstrate progress

CSF's: deep understanding of potential target markets, looking beyond the boundaries defining target markets Key dangers: over-researching (disconnect between research and objectives), biased research because of pre-commitment to a certain business idea

CHAPTER 2: PATTERNS CHAPTER 5: PROCESS

Activities: Brainstorm, prototype, test, select

3. Design Business Model Design Process

Established company activities: prevent taming of bold ideas, participatory design, old vs. new, avoid short term focus

CSF's: co-create with people across the company, ability to see beyond the status quo, taking time to explore multiple business models

Key dangers: watering down or suppressing bold ideas, falling in love with ideas too quickly

Activities: communicate and involve, execute

4. Implement

Established company activities: Proactively managing roadblocks, getting key project sponsorship, old vs. new business model, communication campaign announcing the new business model

CSF's: best practice project mgmt, ability and willingness to rapidly adapt the business model (quick growth + customer feedback + resolution of issues), align 'old' and 'new' business models Key dangers: weak or fading momentum Activities: scan the environment, continuously assess your business model, rejuvenate and rethink your business model, align business models throughout the enterprise, manage synergies or conflicts between models

5. Manage CSF's: long term perspective, pro-activeness, governance of business models Key dangers: becoming a victim of your won success, failing to adapt (Dell) It is difficult to design an alternative biz mod, but once you have the decision to select one becomes trivial. Participants must be willing to invest a significant amount of time and effort.

Design Attitude Design Squiggle - uncertain at the outset (messy + opportunistic) before it focuses on a single point of clarity once the design has matured. (Damien Newman, Central - design agency)

Must explore many possible solutions without jumping to adopt one solution

Established company activities: Business model governance, manage synergies and conflicts, business model portfolio, keep the beginner's mindset (constant inquiry + reflection)