55 Business Models to Revolutionize your Business

JIC, Brno, Dec 2nd 2014

© 2012 Holcim Ltd

Why we are here today

 New, powerful methodology

to systematically develop
innovate business models

 German version*: Bestseller

with more than 4000 copies
sold

 «… a sensation.»
Frankfurter Allgemeine

* Gassmann, Frankenberger und Csik (2013): Geschäftsmodelle entwickeln: 55 innovative

Konzepte mit dem St. Galler Business Model Navigator, Hanser Verlag: München
Quiz question: How to innovate a black sock?
Blacksocks: SockscriptionTM
European sock subscription service and online retailer

 Founded in 1999
 Idea: Receive 3, 4 or 6 deliveries per year
of the identical socks
 Each SockscriptionTM lasts 1 year
 More than 40,000 customers from 74
countries
Quiz question: What is the main difference?

Price per kilogram Price per kilogram

15 CHF 80 CHF
Traditional business model Innovative business model
(sell coffee through retail)

Business model innovation as a key driver of success

CHF: Swiss Franc

Business model innovation is a major source of competitive
advantage which is superior to other forms of innovation

Percent compound annual growth rate over 5 years

6

-1
Product/service Process Business model
innovation innovations innovation

Source: IBM (2006)

Business model innovation is a major source of competitive
advantage which is superior to other forms of innovation

100 Product and service

innovation
80
Process
Innovation priorities

innovation
in percent (%)

60 Business model
innovation

40

20

0
Under- Out-
performer (*) performer (*) (*) CAGR Operating Margin

Source: IBM (2006)

Business model innovation is at the top of the management
agenda

“Business model innovation matters and

More than 50% of executives believe that in future
competition takes place not between products or
it is a top priority of CEOs.”
services, but between business models.
Source: Economist Intelligence Unit (2005)

Business model innovation matters

and it is a top priority of CEOs.
Source: IBM (2006)

More than 60 % of executives believe

that their business model will undergo
fundamental changes in the next 5
years.
Source: IBM (2008)
Evolution of Innovation Management: trend towards Open
Innovation and Business Model Innovation

Solutions

Business
Models FUTURE

Service /
Process
PRESENT

Product /
Technology
PAST

Lonely inventor Corporate Open Innovation Era

Innovation
Source: adapted from O. Gassmann (HSG)
Why is business
model innovation
crucial for a
company’s
success
Business model innovation allows companies to stay in the
game by adapting to changes in their environment
Example of a failed business model – Kodak
Example of a failed business model – Blockbuster
Example of a failed business model – Brockhaus
Source: http://www.brianvellmure.com/wp-content/uploads/2012/05/6951344609_bae7a4977e_z.jpg © 2014 Holcim Ltd
Business model innovation allows companies to escape
cutthroat competition by changing the rules of the game

Source: Kim/Mauborgne (2005)

“The only way to beat the competition is to stop trying to beat

the competition.”
Business model innovation allows companies to escape from
cutthroat competition

Traditional business model: Business model innovation:

 High level of service  No frills approach
 Main airports  Secondary airports
 Hub-and-spoke system  Point-to-point system
Business model innovation allows companies to escape from
cutthroat competition

Traditional business model: Business model innovation:

 100 % outsourced production (Asia)
 Focus on branding/marketing
 Design cycles 2-3 months
 More than 60 per cent of production
in Spain, Portugal and other
nearby countries (Morocco,Turkey)
 Weekly changing collections
Business model innovation allows companies to escape from
cutthroat competition

Traditional business model: Business model innovation:

 Sold through subscription or at  Ad-financed Newspaper (free)
kiosk  Self-services
 High-class quality articles  Low quality articles
German-language free daily newspaper in Switzerland
The competitive advantage of business model innovation
is more sustainable as compared to other forms of innovation

Product and
+ 6.8 process innovation
10
8.5
Business model
premium (%)

8 + 5.9 innovation

6 6.0
1 TSR

2 1.7
5 years0.1
0
3 years 5 years

1 Total
shareholder return (TSR) premium is defined as the percentage by which innovators'
average total shareholder return exceeded that of their industry peers

Source: Business Week / BCG Innovation Survey, 2008; BCG Value Science analysis
Business model innovation allows to capture the value of
technology or product innovation
Business model innovation plays a key role in capturing the
value of product or technology innovation

Traditional business
model
Product / Technology
Innovation X Value

+ =

Business Model
Innovation
Business model innovation plays a key role in capturing the
value of product or technology innovation - Example Xerox

• Cost of machine:
30 000 USD
Product / Technology  no market
Value
Innovation

+ = • Increase in revenues
from 30 million to 2.5
billion USD (1972)
Business Model
Innovation

• Xerography technology • Monthly leasing for

Modell 914 95 USD (including
2000 copies)
Business model innovation plays a key role in capturing the
value of product or technology innovation - Example Apple

Product / Technology
Value
Innovation

+ = • 10 billion USD revenue

after 3 years
MP3 • Market capitalization
Business Model from 2.6 billion USD
Innovation (2002) to 33 billion
USD (2007)
This image cannot currently be display ed.
Business model innovation plays a key role in capturing the
value of product or technology innovation - Example Nespresso

“Trial-and-Error”
- sell capsules in retail stores
- restaurant market
Product / Technology
Value
Innovation

• Patent in 1976 + =
• Turnover 3.2 billion
CHF in 2010
• Over 10 million
Business Model
Nespresso club
Innovation members
Examples of successful business model innovators that
were able to capture the value of new technologies

3-D printer
Internet / Data
Voice over IP
mining

Cloud computing

Genetics
GPS
Internet
Digital
photography

mp3
How can business
models be
innovated in a
systematic way
Even though there is clear evidence that an innovative
business model is one of the major key driver of success…
…companies still put a major emphasis on the development
of new product offerings
 One explanation is a lack of systematic tools to develop
innovative business models

«There are multiple tools and Which methods and tools are used to develop
methods to come up with new business model ideas?
product ideas but nothing to In percent
support idea generation for 100
business models»
80

«Business model innovation 60

is more like a coincidence 60
and connot be initiated
sytematically» 40

20 20
20
«The real innovative
business model ideas can
only be developed by the 0
creative genius» No tools Strategy Brainstorming
tools techniques

Source: Frankenberger et al., (2013), International Journal of Product Development

The goal was to develop a construction methodology
for business model innovation
Research Question:
Are there any recipes that can be used by companies to systematically
generate innovative business model ideas?

Approach:

Define Analyze Extract

Define a theoretical Analyze more than Extract the patterns

framework of how to 350 business model responsible for
describe a BM/BMI innovations from the successful business
last 50 years model innovations
The magic triangle:
Definition of a business model
What is offered to the
customer?

How is the value

Why is the proposition created and
business delivered to the
profitable? customer?
Who is the target
customer segment?

A business model is a blueprint of how a company creates and

captures value.
Definition of a business model innovation

Change in the What,

Who, How and/or Why

Business model Business model innovation

A business model innovation introduces a new logic of how a

company creates and captures value by changing multiple
dimensions of a business model.
 Business Model Innovation Example
Nespresso

Old: Coffee powder (commodity)

New: Coffee capsules and machines
to produce high-end quality espresso

Old: Retail margin

New: Coffee machine is sold at Old: Retail shops
production costs, main revenues: (e.g. supermarket)
Capsules New: Direct selling approach

Old: Mass market

New: High-end households, Office
markets
 Business Model Innovation Example
Dell

Old: Pre-configured computer

New: Mass customized computer

Old: Retail margin

High inventory costs
Positive cash conversion cycle
Component prices as main cost driver
New: Old: Built-to-stock/
Skip retail margin Selling through retail network
Lower inventory costs New: Built-to-order production/
Negative cash conversion cycle Direct selling
Lower component prices

Old: Private users, companies

New: -
 Business Model Innovation Example
Skype
Old: Calls are costly, especially international
New: Free VOIP based video calling /
cheap calls to phones (SkypeOut)

Old: Maintenance of own

Old: Charge for each phone call telecommunication infrastructure
New: 90 % of Skype users New: No own infrastructure, mainly
subscribe to the free version / 10 software development
% of Skype use SkypeOut

Old: Mass market

New: Mass market (especially
global web +smartphone users )
 Business Model Innovation Example
20 Minuten

Free daily
newspaper

• Predominently
outsourced production
• Financed by • Self-service
advertising

• Commuters (18-49 years)

• Advertisers
 5 years of intensive research–

detailed analysis of all major successful business

model innovators in the last 50 years
 Result: 90 percent of business model innovation is a
recombination of 55 business model patterns

Business Model Innovation Map

Source: Gassmann, Frankenberger, Csik (2013)
© 2014 Holcim Ltd
 Business model pattern «Razor and Blade»

What?

The basic product is cheap, or given away free. The

Who?
consumables that are needed to use or operate it, on
the other hand, are expensive and sold at high margins. Why? How?

Standard Oil Gillette Hewlett- Nestlé Apple Amazon Better Nestlé Nestlé
Company (1904) Packard Nespresso iPod/iTunes Kindle Place Special.T BabyNes
(1880) (1984) (1986) (*) (2003) (2007) (2007) (2010) (2012)

(*) reverse ‘Razor and Blade’

Business model pattern «Freemium»

What?

The basic version of an offering is given away for free in

the hope of eventually persuading the customers to pay
Who?
for the premium version.
Why? How?

Hotmail SurveyMonkey LinkedIn Skype Spotify Dropbox

(1996) (1998) (2003) (2003) (2006) (2007)
Business model pattern «Peer-to-Peer»

What?

This model is based on a cooperation that specializes

in mediating between individuals belonging to an Who?

homogeneous group. It is often abbreviated as P2P. Why? How?

eBay Couchsurfing Zopa Airbnb TaskRabbit RelayRides

(1995) (2003) (2005) (2008) (2008) (2010)

Hospitality exchange People list, find, P2P Online and mobile

and social P2P lending and rent lodging carsharing marketplace that allows
networking website marketplace users to outsource small
jobs and tasks to others in
their neighborhood.
 Business model pattern «Self-Service»

What?

A part of the value creation is delivered to the customer in

exchange for a lower price of the service or product. This is
Who?
particularly suited for process steps that add relatively low
perceived value for the customer, but cause high costs. Why? How?

McDonald’s IKEA Accor Mobility BackWerk

(1948) (1956) (1985) Carsharing (1997 ) (2001)

"Super low budget" or "no frills" hotels Self-service bakery

Business model pattern «Subscription»

What?

The customer pays a regular fee, typically on a monthly

Who?
or an annual basis, in order to gain access to a product
or service. Why? How?

Premiere blacksocks Salesforce Jamba Dollar Shave Club

(1990) (1999) (1999) (2004) (2012)

Premium-rate monthly Razors and other personal

Listed Pay TV in Germany and Austria
SMS mobile phone content grooming products by mail.
provider in Germany
The power of creative imitation

What does …

Razor and Blade

Subscription
Self-Service
Peer-to-Peer
Freemium
… mean for your business?
Pattern cards as a practical tool to generate innovative
business model ideas
Pattern cards as a practical tool to generate innovative
business model ideas

Pattern title

Example of business model innovations

using the pattern

Pattern content

Pattern elements
Workshop:
Business Model Pattern Cards
Preparation
 Each company / participant receives six pattern cards

Task
1. Develop a rule-breaking business model innovation ideas:
 Go through the cards one after the other
 Force yourself to develop 5 ideas per card even if you think
this does not fit
 Cluster those ideas into groups
 Decide on the best idea
2. Detail the selected idea by concretizing all dimensions of the
magic triangle: “who, what, how, why”
3. Come up with a name for your innovation and prepare an
elevator pitch to attract investors (5min).
The Business Model Navigator: A systematic approach
for developing innovative business models
Design Realization

Initiation What? Implement-

ation
Analyse the Players Who? Change Drivers
ecosystem Realize the
Why? How?
Old plan
Business Model

Iteration

Test
Ideation What?
Similarity Principle

Iteration
Who? Learning
Adapt the Confrontation Principle through trial and
patterns Why? How? error
Old
Business Model 55 Patterns

Idea selection Adapt

Iteration

Integration What?

Detail the Internal External

Who?
consistency consistency
business Market
model Why?
New
How? introduction
Business Model