Business Model PDF

Business model - Defines how a company’s activities result in captured value Willingness to pay - WTP refers to the maximum price customers are willing to pay for a product or service. What value do we create? - Value created is the difference between the customer’s WTP and the cost...

Business model - Defines how a company’s activities result in captured value Willingness to pay - WTP refers to the maximum price customers are willing to pay for a product or service. What value do we create? - Value created is the difference between the customer’s WTP and the cost to produce the product or service. How do we capture our created value? - Value is captured through pricing strategies that generate profit while remaining below the customer’s WTP. Business model innovation - Changing how business creates, delivers, and captures value. Value creation – how products/services are developed Value delivery – how offerings reach the customers Value capture – how revenue and profit are generated Product innovation - Introducing product to a new market - New product existing market - Existing product new market - New product new market Trend - Patterns or shifts that disrupt or shape industries Trendwatching - Process of identifying, monitoring and analyzing emerging patterns, shifts, or disruptions across various contexts (consumer behavior, markets, technology) to provide insights that guide strategic decision-making. Why Trendwatching matters - Identifies growth opportunities - Helps businesses adapt to changes in the environment - Provides clarity in chaotic, fast changing industries. Types of trends - Fads: short lived phenomena (ice bucket challenge) - Trends: medium-term lasting influences (electric vehicles) - Megatrends: LT structural changes (sustainability in business practices) Why making a distinction - To make a choice in which ones to invest - De-risk investments by making well founded choices - Searching evidence to predict tendency Trendwatching capabilities - Trend identification (which patterns and trends are emerging?) - Trend management (which trends are relevant to our organization?) - Portfolio management (which initiatives we are going to undertake with what priorities?) Trend identification - Qualitative (subjective and bias, time consuming) - Quantitative (very dependent on a size and quality of data sets) Trend identification tools - Social media analysis – identifying trends by analyzing sentiment and behavior. - Big data & analytics – identifying trends and predictions. - Conferences – highlight trends and innovations for industries (Gartner Symposia, Forrester, The Next Web) - Tools for Trendwatching – trends.google.com or Trendwatching.com Trend management Link between trends and business model  - Each part collectively links trends to specific elements of the business model for better alignment and adaptability. Foresight - The central component where trends are analyzed to predict future opportunities and challenges for the business model. Industry forces - External pressures within the industry, such as competitors substitutes, suppliers, and customer expectations, impacting the business model. Market forces - Broader conditions like capital markets, consumer trends, and demand that influence the organization’s value proposition and strategy. Macro-economic forces - Economic trends, regulations, and global conditions that shape the overall market environment, affecting costs and revenue streams. Scenario planning - Scenario planning involves developing different future scenarios based on trends and foresight to prepare for uncertainty. Process - Select factors/trends (silver workers, remote work) - Assign variables to these factors o Silver workers: increasing/decreasing o Remote work: everything remote/back to the offices Evaluation of scenarios  - Identify probability (likelihood of occurrence) - Consider belief/vision Goal: - Explore the most interesting, high-impact scenarios to make informed strategic decisions. Portfolio management 3 horizons of growth - Balance efforts across all horizons to ensure ST performance while preparing for LT success H1 - Focus on core business improvements to sustain current revenue and growth (low risk, immediate returns) H2 - Expand into adjacent markets or innovations to explore new opportunities (moderate risk, medium-term impact) H3 -Explore disruptive ideas or new markets for future growth and transformation (high risk, LT potential) The aim is to let initiatives move from right to left. The portfolio map Explore phase (design and test) 1. Ideation: generate new business ideas with high innovation risk 2. Discovery: experiment with concepts to find promising opportunities 3. Validation: test assumptions and reduce uncertainty 4. Confirmation: finalize a viable model with evidence of success 5. Transfer: transition the proven model to the exploit phase Exploit phase 6. Launch: introduce the model to the market 7. Sustaining innovation: improve and optimize the model 8. Efficiency: maximize profitability and scale operations 9. Mature business: the business achieves stability and high returns 10. Declining business: profits drop as the market or model becomes outdates 11. Renovation: revitalize the model to prevent decline Successful companies balance exploration for innovation with exploitation for profitability. Transition between phases ensures sustainable growth and risk mitigation. Link to portfolio management – DISRUPTIVE BUSINESS MODELS (explore phase) Types of disruptions: 1. Frontstage disruptions a. Target customer and value proposition changes b. Market explorers – create or unlock new or underserved markets through innovative value propositions (Tesla’s mobility solutions)  c. Channel kings – change how you reach and acquire a large number of customers through innovative channels (direct-to-customers models like Nespresso) d. Gravity creators – make it difficult to leave or switch to competitors (Apple’s ecosystem lock-in) 2. Backstage disruptions a. Changes in how operations are structures b. Resource castles – create or own key resources that are difficult to copy (Airbnb’s network effect, Waze community, Dyson intellectual property, Apple brand) c. Activity differentiators – radically innovate on performed activities and how they are combined to deliver value (Zara’s fast fashion logistics, Ford’s assembly line production & worker wages, Patagonia sustainability practices) d. Scalers – find new ways to scale a business model where others fail to do so (McDonalds franchise system, IKEA transport and assembly) 3. Profit formula disruptions a. Innovations in pricing and cost structures b. Revenue differentiators – find innovative ways to capture value and increase prices (Spotify’s freemium model, Audi subscriptions, Gillette recurring razor blade buys, Fortnite in-app purchases) c. Cost differentiators – build a game-changing cost structure in a disruptive way (low-cost airlines – Ryanair, Udemy – teacher’s payroll is variable) d. Margin masters – achieve significantly higher margins than competitors by driving the wedge between value captured and cost (Citizen – affordable luxury – high margin per room). - The larger you want to create the value captured, the broader the implications become, e.g., the Margin Masters business models - Mostly, a business model (innovation) is a combination of different disruptions altogether - There is a lot of value in understanding how companies innovate their business models and apply it in other industries or organizations. Link to portfolio management and BUSINESS DESIGN Business design loop (red) 1. Ideation – generate multiple business model possibilities a. Use design sprints to explore options 2. Prototype – develop a tangible representation of the business model a. Highlight the changes you made b. Tools: BMC, Value Proposition Canvas 3. Assessment a. Ask challenging questions about feasibility, desirability, and adaptability b. Validate models using stakeholder feedback 4. Testing a. Develop and prioritize hypotheses around desirability, feasibility, viability and adaptability i. Types of hypotheses: 1. Desirability – does it solve customer pain points? 2. Feasibility – can we deliver this solution? 3. Viability – is it financially sustainable? 4. Adaptability – can it change with the environment? b. Conduct experiments to validate key assumptions c. Test loop – hypothesize, prioritize hypotheses (crucial, unknown), experiment, learn, evidence strength. How do we decide? - Ideate - preserve o After ideating we get more confidence in the business model. Therefore, we can decide to continue testing it - Pivot o Adjust based on evidence to new opportunities  - Retire o Phase out unsustainable ideas - Spinout o If we see a lot of potential in an idea, but our company cannot pursue it, we can decide to create a spin-off from the company - Invest o Some ideas can be very high promising, but we don’t want to further develop the model ourselves, we can decide to acquire a player or technology - Scale o If we feel we have sufficiently proven the adaptability, viability, feasibility and desirability of the model, we can decide to scale it towards the exploit phase. Business model shifts = gradual or radical changes in key aspects of a business model to adapt to external or internal pressures Types of shifts 1. Value proposition shifts – a shift in the way WTP is generated for customer a. From product to service – the shift from building/buying and selling products to providing a recurring service (D’leteren Auto – financial services) b. From low tech to high tech – the shift from basic, labor-intensive value propositions toward technology-based value propositions (content streaming platform) c. From sales to platform – the shift from pipeline business to platform business (bol.com dropshipping) 2. Frontstage shifts – a shift of who is targeted and how value is delivered a. From niche to mass market – the shift from servicing a niche market to reach broader market (TED Talks expanding via free streaming) b. From B2B to B2(B2)C – the shift from a supplier that is invisible to the customer towards a brand that matters to the customer (Intel’s Inside branding – PC buyers)  c. From low to high touch – the shift from standardized to customized value propositions (Thermomix’s guided cooking) 3. Backstage shifts – a shift in how value is created a. From dedicated to multi-usage resources – from using a resource for one value proposition to re-using it for a different value proposition (The 58 Gin – from gin to hand sanitizer) b. Grom asset heavy to asset light – from a business with high CAPEX to more variable costs (Bharti Airtel outsourcing infrastructure) c. From closed to open innovation – from closed approach to building value propositions to an open approach (Microsoft’s OS initiatives)  4. Profit formula shifts – a shift of how profits are made in terms of revenue and cost a. From high to low costs – towards more efficient activity and resource configuration to decrease the cost structure (Ryanair) b. From transactional to recurring revenue – from having a high transactional cost of acquisition to recurring revenues (project revenues – monthly subscription) c. From conventional to contrarian – to reduce costs and increase value at the same time (Apple’s iMac streamlining) - Shifts happen within already existing companies. Often, startups’ business models are a “shift” from an existing company, which we call a disruption - Typically, companies constantly perform (a combination of) shifts - Use the shift patterns as a toolbox that can support the ideation process Exploit and transform = transition proven business models from exploration to exploitation while ensuring scalability and alignment with organizational capabilities Exploit - Focus on maximizing returns from proven business model with lower innovation risk Transform - Constantly evaluate and update capabilities to adapt tp changing trends and market needs Key steps to exploit and transform 1. Scale – prove adaptability, viability, feasibility, and desirability before scaling a model 2. Roadmap development  a. Define milestones and prioritize value creation b. Align all stakeholders on the timeline and deliverable Business capabilities = capabilities are essential organizational functions needed to deliver customer value Types - Strategic – guide direction (vision, strategic frameworks) - Core – create market differentiation (product design, client management) - Enabling – support operations (finance, recruitment) Classification of capabilities - Fitting – aligned with current needs - Underfitting – needs improvement to meet goals - Overfitting – excessive focus, leading to inefficiencies Capability mapping and value streams Value stream examples: - Marketing and sales – lead generation, account management - Service delivery – consulting, staffing - Enabling capabilities – compliance, financial reporting Four elements to define capabilities 1. Organizational structure 2. Processes 3. People and skills 4. Technology Practical applications - Identify gaps in capabilities and classify areas needing development or extension. Roadmapping Purpose - Set a logical sequence for milestones based on risk, priorities, and dependencies - Communicate timelines and outcomes to all stakeholders Structure - Dimensions: time and outcomes - Rolling approach: regular updates ensure alignment with dynamic goals - Adjust levels of detail depending on the audience Example: Quarter-based roadmap 1. Q1 define target customers and enable sales 2. Q2 hire and train support agents 3. Q3 implement tools for customer billing and support 4. Q4 integrate accounting and finalize automated processes Continuous improvement PDCA Cycle (Plan-Do-Check-Act) - Monitor and improve the organization’s adaptation to new realities - E.g., ISO9001 certification ensures quality management Change management Principles - Change impacts people and requires structured support - Success formula: results = quality x adaptation Methods 1. Kuber-Ross Change Curve: support individuals through emotional responses to change 2. ADKAR model: address critical change elements a. Awareness: understand the need for change b. Desire: foster willingness to change c. Knowledge: provide tools and skills d. Ability: enable action e. Reinforcement: sustain change Strategic framework - Align vision, value, and objectives to ensure LT scalability and adaptability - Link capabilities, Roadmapping, and change management to the organization’s strategic goals