BUSINESS MODEL INNOVATION CREATING VALUES IN TIMES OF CHANGE

By,

R.Kanmani, Priyanka, II MBA University of Madras.

B.Sakthi

ABSTRACT
Innovation can be a nebulous term what is innovative to one person may be only clever marketing to someone else. A new technology may solve a problem and bring real value to users, or it may simply be another patent that sits in a drawer but the company awarded the patent is still called innovative. With such different definitions of innovation, it is no wonder that organizations are confused about what it is and how to apply it, leverage it, profit from it. Its also not surprising that the phrase business model innovation engenders even more confusion and even fear. After all, if innovative products and services are so hard to conceive of, how can an organization be expected to innovate its business model, and why should they go to such lengths? Business Model Innovation is more important now than ever. As with any serious organizational change, using a proven process for designing, testing and implementing the new business model will greatly improve the chances of success. In this paper we have explained about the need and the importance of innovations in business models, steps in introducing new innovations in business with reference to the companies that successfully adopted . INTRODUCTION: In the ever-changing world, innovation is the only key which can sustain long-run growth of the country. More and more firms are realizing the importance of innovation to gain competitive advantage. Accordingly, they are engaging themselves in various innovative activities, ranging from manufacturing processes, product improvement, and brand building initiatives to customer satisfaction. Today, business environment has become very dynamic with more demanding customers and intense market competition. To meet this, firms are creating new products, solutions and services that provide a radically better experience for the consumers. Innovation is not only about technology, but is also about understanding and exploring untapped user needs that require to be addressed in an efficient manner. It must occur at every stage of a product or solution development and release cycle. Thus, managing innovation is fast becoming priority in a global business environment. Firms which innovate tend to survive and grow to a greater extent. Some of the key innovation areas are: product development and improvement; manufacturing processes; creating entirely new set of products; etc. In area of supply chain management, innovations help

in making the supply chain more responsive, flexible and efficient. Supply chain innovation can be used to reduce costs, offer better assortment of customer centric products, decreasing time to market and driving growth. A business model consists of two essential elementsthe value proposition and the operating model each of which has three sub elements. 1) The value proposition answers the question, What are we offering to whom? It reelects explicit choices along the following three dimensions: Target Segment(s). : Which customers do we choose to serve? Which of their needs do we seek to address? Product or Service Offering. : What are we offering the customers to satisfy their needs? Revenue Model. : How are we compensated for our offering?

2) The operating model answers the question, how do we profitably deliver the offering? It captures the businesss choices in the following three critical areas:

Value Chain: How are we configured to deliver on customer demand? What do we do in-house? What do we outsource? Cost Model: How do we configure our assets and costs to deliver on our value proposition profitably? Organization: How do we deploy and develop our people to sustain and enhance our competitive advantage? Innovation becomes BMI when two or more elements of a business model are reinvented to

deliver value in a new way. Because it involves a multidimensional and orchestrated set of activities, BMI is both challenging to execute and difficult to imitate. Business model innovation can be considered as the search for newness. Innovating the business model helps to find new customers and new markets, create new offerings and, ultimately, creates new value. It can also help to discover new ways of doing business. A companys business model is its plan for creating value, making a profit and differentiating itself from the competition. A business model includes the components and functions of the business, as well as the revenues it generates and the expenses it incurs.

Dell is a famous example because they innovated the traditional distribution model for personal computers. Instead of selling pre-configured systems, they let customers customize their computer order online, and then built the computer to spec. Changing their business model in this way also required their suppliers to modify their processes, causing a ripple throughout the industry, but one that turned out to be advantageous for the industry and consumers alike. Dells early adoption of Internet technologies to enable customers to configure their systems online is another hallmark of business model innovation. Dells business model capitalized on new Internet technology, as did the business models of Amazon and eBay. And, nearly 100 years ago, the auto maker Henry Ford leveraged new technology to transform his industrys business model from labor-intensive single car creation to production line efficiency. Today, the rapid pace of technology today has made it possible for companies to innovate their business model without waiting for a new technology to arrive they simply need to look for new ways to use existing technology to deliver a better value proposition. This includes better, faster, cheaper value to current customers, as well as new value that serves a segment of the market that was previously neglected. IS OPPURTUNITY KNOCKING? The flip side of the business model coin is opportunity. Instead of a innovating the business model because of a threat, reinvent it to take advantage of an opportunity. FedEx, for instance, recognized a business model opportunity in the form of guaranteed overnight package delivery. It was the first delivery company to offer this service, and as such it was able to go beyond price competition and provide a solution for a job to be done. People needed quick, guaranteed shipments (the job) and the FedEx business model provided the answer and shaped an entire industry in the process.

The Tata Nano is another example, only this is an existing company reinventing its business model to provide inexpensive cars to the masses in India. Business model innovations such as this enable established organizations to open up new markets by appealing to the base of the pyramid (the poorest socioeconomic group) with value propositions that are new to this segment of the market. (Existing offering + new market still = business model innovation.)Perhaps the greatest opportunity that argues for business model innovation is return on investment. Statistics show that business model innovators see operational margin growth of more than five times that of competitors who only practice product or service innovation. If the companys revenues are down or stagnant, innovating the business model could bring significant ROI and put back on the path to profitability. IMPLEMENTING INNOVATIVE BUSINESS MODELS: Having creative ideas is easy and most people and organizations are not too bad at it. But implementing these ideas and turning them into successful innovations in the market is much harder. This is the domain many companies struggle with. This is even more so when innovations are not only about products and services only these can be easily tested and we have many processes, tools and theories at disposal. When we are talking about ideas and innovations that have an impact on the business and the way you do business as a whole, these business model innovations need a distinct process and approach.

Step 1: Setting the Stage The first step in the business model innovation process is to clarify what the business model innovation goals are, and why we want to or need to engage in this kind of innovation. Usually the top team needs to agree on a common view before the organization can productively and effectively engage in the process and necessary activities. Setting the stage also includes agreeing on the concept and working definition of a business model to be used in the organization. Another important exercise is to describe the existing business model and establish a common view. Management usually thinks they have a common understanding of the existing business model, but such an exercise usually shows they dont. Step 2: Discovery The second step in business model innovation consists of some real-world discovery of the current situation, customers, their needs, challenges, etc. In addition to customers, it also pays to look into what competition is doing, which trends have an impact on the business, and which business model innovations companies outside the industry are implementing that you can learn from. We might also want to look inside to determine what assets, resources and core competencies you have within the company that we can leverage. The main purpose of Step 2 is to seek and discover opportunities for business model innovation. Step 3: Development and Design Now comes the creative part! Based on the insights gained in Step 2, you develop an idea portfolio that includes ways we could innovate the business model. Ideas can come from many different places both within and outside of the company. Tools to describe the business model, customer profiles and the buying

experience can be used to visualize the future state. Once you have developed many ideas, an initial evaluation and prioritization will lead to a portfolio of business model innovation ideas we can test in Step 4.Step 4: Conversion The fourth step in the business model innovation process is about putting the ideas into practice and turning them into innovations in the marketplace. The goal is not to fully launch the business model innovations yet, but to test the ideas within a limited scope to determine whether customers like the innovation, accept it and are willing to pay. Often its a good idea to test innovations in markets and business, or with products and services that dont perform. This step is the most important, as innovations will have to be tweaked and changed. Some ideas will work, others will not; it takes some time experimenting to find the best ideas and make them fit together in a system. Step 5: Commercialization Step 5 is where we take the business model innovations that have been successfully tested and tweaked to make them work, and scale them up. These innovations are implemented across the whole organization using a suitable change strategy. Sometimes new business models can be implemented in the existing organization; sometimes you might need to launch a new venture.

EXAMPLES OF BUSINESS MODEL INNOVATION 1) CavinKare: Sachetization

It is the company behind the highly successful concept of sachets which is reckoned in the personal skin and healthcare segments. Starting from sachetization of its Chik shampoo to the ever-popular Fairever cream that took the FMCG granddaddy HLL, with its entrenched fairness brand, Fair & Lovely head-on, CavinKare is making successful inroads into the rural as well as urban households.CavinKare embraces the classic long-term approach to marketing, i.e. maintaining exclusivity of the distributor and customizing product, communication and packaging and communication to suit those specific markets. Even the advertising agencies are from those countries so as to tailor their communication according to the local tastes. All this has helped them evolve with brand like Chik, Nyle herbal Range of products, Indica hair dye, Fairever fairness cream etc. Innovative Spirit of CavinKare, The first brand to introduce floral fragrances in shampoos. The first brand to break the price barrier and offer shampoos at 50 paise

 The first to offer perfumes in a unique dab-on pack at Rs. 10. The first to introduce a single-use perfume at Rs. 2. The first company who introduced pickles in Sachets. 2) Another example of local customization comes from the Chinese home appliance manufacturer Haier. When a rural customer in Chinas Sichuan province complained that his Haier washing machine kept breaking down, service technicians found the plumbing clogged with mud. It turned out that many rural Chinese customers were using the Haier machines meant to wash clothing to clean sweet potatoes and peanuts. Instead of warning customers about what should not be washed in the companys machines, Haier engineers modified the washer design to accommodate their needs. From then on, Haier washing machines sold in Sichuan were labeled, Mainly for washing clothes, sweet potatoes and peanuts. Haiers strategy of meeting localized market demand at home and abroad with innovative models resulted in about 96 product categories and 15,100 specifications. Haier executives maintained that these kinds of feature innovations were inexpensive to produce, but highly valued by customers. 3) E- Seva: The government of Andhra Pradesh, a southern state in India has managed to come up with an innovative business model to provide access to its services and agencies. eSeva, meaning e-service, are centers operated through a public-private partnership, which can be accessed via the Internet or through kiosks set up by the government.Thus, citizens can pay electricity bills, and property taxes, or get their drivers license through this system, via the Internet, or in only one trip to a kiosk, without any corruption. ESeva allow all citizens to receive the same service, no matter their economic class, and allow for a greater transaction visibility as well. 4) Bharti Airtel: Outsourcing the unexpected Bharti Airtel, Indias leading mobile telecom service provider, managed to increase their subscription base from 8.2 million in 2004 to 27 million in 2006. In 2007, Bharti announced that they have even crossed the 50 million customer mark within 143 months of start of operation. They recognized the need for a better customer relationship, growing revenue stream and, at the same time, decreasing operational cost. In order to do so, they did the unexpected and outsourced the IT and networking services while staying purely focused on marketing, sales and distribution. Bharti Airtel chose to engage some of the well-known global equipment vendors and service providers to ensure quality services. It chose Ericsson, Nokia, and Siemens, which were key telecom network-equipment

vendors, to build up and manage its telecom network. It chose IBM to build and manage the IT network. These actions mitigated Bharti Airtel's risk. The vendors for telecom network management were paid only for the capacity utilized by Bharti Airtel, not for the equipment. Bharti's innovative business model converted fixed costs in capital expenditure to a variable cost based on usage of capacity and revenue from services. Through the outsourcing arrangements, Bharti dramatically lowered its costs while ensuring high quality for customers, since vendors had world-class competencies in their domains. By transforming the telecom infrastructure, Bharti was able to offer additional value-added services on the mobile platform. For instance, its "Music Bharti" is now the largest music company in India. Though Bharti Airtel does not produce music, it has created another stream of revenues by distributing music via caller ring-back tones, mobile radio, and music on demand. With 110 million subscribers, Bharti Airtel is the world's third-largest single-country mobile operator. Bharti has innovated a management model the virtual corporation that has enabled the company to manage an enormous subscriber base and still grow cost effectively. Bharti Airtel's innovative business model has now become the norm not just in India's telecom industry but also in the telecom industries of several other emerging and developed countries. 4) Mc Donald: McDonalds classic innovation for India is Mc Donalds veggie burgers, which is being taken reverse to the western markets. Some years ago, as far as traveling goes, India was probably the only country where McDonald offered this veggie Burger. Happy Price menu of Rs 20 was also an innovation especially to attract the low people segments in India. 5) Apple: For most of its history, the company had been focused on the production of innovative hardware, mostly personal computers. By creating the iPod and the associated music download business iTunes, however, Apple was the first electronics company to include music distribution as an activity, linking it to the development of the iPod hardware and software. Apple thereby pushed many sub activities of legal music downloads to its customers, thus avoiding or reducing additional costs for the firm, while offering a new service. Rather than growing by simply bringing a new hardware product to the market, Apple radically

transformed its business model to include an ongoing relationship with its hardware customers. In this way, Apple expanded the locus of its innovation from the product space to the business model.

CONCLUSION
Today, business environment has become very dynamic with more demanding customers and intense market competition. To meet this, firms are creating new products, solutions and services that provide a radically better experience for the consumers. Business model innovation is a business's attempt to reinvent itself in order to obtain a competitive edge and Stimulatethe Companys growth.Thus, with any serious organizational change, using a proven process for designing, testing and implementing the new business model will greatly improve the chances of success.