Four Paths to Business Model innovation

Presented By Group: 4S3, Group no. 1

Name Registration No.
Abdallah Mamdouh Baz 19121751
Andrew Rizk Hakeem 20121636
Amr Abdulrahman Debis 20121650
Ehab Ramadan Al-Hashmy 20122081
Sally Khairat Ahmed 20121640
Maryan Ageeb Meshreqi 20121268
Yvette Adel Boules 19221390

Presented to: Professor Dr. REHAF FOULY

 About The Authors

Karan Girotra
 Professor of Operations, Technology and Information Management
(OTIM), is the recipient of the Charles H. Dyson Family Professor of
Management chair, for a 5-year term.
 A Professor at Cornell Tech and in the Johnson School at Cornell
University.
 Karan Girotra

 Karan holds PhD and AM degrees from the Wharton School of the
University of Pennsylvania, and a Bachelor degree from the Indian
Institute of Technology, Delhi.
 He collaborates with companies building new business models in the
areas of urban living, smart transportation and e-commerce, helping
them build rigorous research-based solutions.
 As one of the first business faculty at Cornell Tech, Karan is helping
build a unique new educational institution that fuses technology
with business and creative thinking.
 About The Authors

Serguei Netessine
 Senior Vice Dean for Innovation and Global Initiatives and
Dhirubhai Ambani Professor of Innovation and
Entrepreneurship at the Operations, Information and Decisions
Department at the Wharton School, University of Pennsylvania.
 He received BS/MS degrees in Computer Science and Electrical
Engineering from Moscow Institute of Electronic Technology
and, after working for Motorola and Lucent Technologies, he
also received MS/Ph.D. degrees in Operations Management
from the University of Rochester.
 Serguei Netessine

 His current research focuses on business model innovation

and operational excellence and he worked on these topics
with numerous government and Fortune-500 organizations
including Federal Aviation Administration (USA),
Government of Singapore, Lockheed Martin, Procter &
Gamble, McDonald’s, Rolls Royce, Comcast, Expedia, ABB
and US Air Force.
 He serves on advisory boards of multiple startup companies
and he is an active angel investor.
 Four Paths to Business Model Innovation

 What Mix of Product or Services Should You Offer?

 When Should You Make Your Key Decisions?
 Who Are The Best Decisions Makers?
 Why Do Key Decisions Makers Choose as They Do?
 1 Path
st

What mix of products or services should you offer?

Uncertain demand is a challenge for all business and major
source of risk that will affect, How can we deal with it? , what
are the strategies? To reduce that risk you must make changes
to your company’s mix of products or services.

1) Focus narrowly
2) Search for commonalities across products
3) Create a hedged portfolio
What mix of products or services should you offer?

1) Focus narrowly
Focused business models are most effective when they appeal to distinct market
segments with clearly differentiated needs. Therefore, if your business currently serves
multiple segments, it may be best to subdivide into focused units rather than try to
apply one model.
 
Example: selling Diapers online
What mix of products or services should you offer?

2) Search for commonalities across products

Commonalities are not just shared components among different products. They may
also be the capabilities needed to serve various product, customer, and market
segments.
 
Commonality can carry significant costs if components must be engineered for a wide
range of markets and models.

Example: Volkswagen successes / Amazon Expanding

What mix of products or services should you offer?

3) Create a hedged portfolio:

Just as financial institutions try to create portfolios of investments that will hedge one
another’s risks, companies can select an assortment of products or markets to reduce
the overall riskiness of the business model.

Example: Lan airline

 2nd Path

When Should You Make Your Key Decisions?

 Decisions must often be made before you have enough information to make them
with confidence.
 There are three strategies that, depending on the circumstances, can improve a
business model by changing the timing of decisions.

1) Postpone the decision

2) Change the order of your decisions
3) Split up the key decisions
When Should You Make Your Key Decisions?

1) Postpone the decision

In many industries companies make firm decisions about prices well before they actually sell
anything. This, of course, often exposes them to risk.
Example: price airplane seats early

2) Change the order of your decisions.

Most product development, for example, begins with proposing a solution or a technology for a
customer need. If, after initial investments, the solution proves to be a dud, then it’s back to the
drawing board.

3) Split up the key decisions.

In the past, starting a risky new venture involved putting together a detailed business plan that would
cover all essential pieces of the business model and then executing on the plan. All the key decisions
were made at once and up front.
When Should You Make Your Key Decisions?

 The Lean Startup provides a scientific approach to creating and

managing startups and get a desired product to customers' hands
faster. The Lean Startup method teaches you how to drive a startup-
how to steer, when to turn, and when to persevere-and grow a
business with maximum acceleration. It is a principled approach to
new product development.
 Too many startups begin with an idea for a product that they think
people want.
When Should You Make Your Key Decisions?

 They then spend months, sometimes years, perfecting that product

without ever showing the product, even in a very rudimentary form, to
the prospective customer.
 When they fail to reach broad uptake from customers, it is often
because they never spoke to prospective customers and determined
whether or not the product was interesting. When customers
ultimately communicate, through their indifference, that they don't
care about the idea, the startup fails.
 3rd Path

Who Are the Best Decision Makers?

Many companies find that they can radically improve decision making in
the value chain simply by changing the people who make the calls.

1. Appoint a better-informed decision maker

2. Pass the decision risk to the party that can best manage the
consequences
3. Select the decision maker with the most to gain
 Who Are the Best Decision Makers?

Companies can:
1. Appoint a better-informed decision maker
The whole employee empowerment movement is based on giving
decision rights to the most informed person or organization. Google’s
engineers, for example, have extraordinary freedom to decide what
development projects the company should pursue, because Google
believes they are better informed about technologies and tastes than the
company’s executives are.
 Who Are the Best Decision Makers?

Companies can:
2 .Pass the decision risk to the party that can best manage the consequences
The key to Amazon’s early prosperity was its drop-shipping model, which allowed it to
offer more than a million books while stocking only 2,000 or so of the most popular
titles. For the rest, Amazon forwarded orders to book wholesalers or publishers, who
then often shipped the products directly to customers using Amazon packaging.
 Who Are the Best Decision Makers?

Amazon’s Path
 1996
 Pass the decision risk to the party that can best manage the consequences
 Cash-strapped, the company gets distributors and publishers to carry slow- moving
inventory, rather than stocking the books itself.
 Amazon hosts the websites of Toys “R” Us, Borders, and Target and performs most
site development, order fulfillment, and customer service.
 Who Are the Best Decision Makers?

3. Select the decision maker with the most to gain

 In many business models, key decisions are made by those with less to gain than
others in the chain. A company’s customers, for example, often feel that they gain
less when they buy a company’s products than the company does.
 simply said yes or no to a strong chance of earning more money with no downside.
 There are catches. A company can safely take on more risk only if the relevant
technology is very reliable. And behavioral issues may arise: The savings from
energy-efficient equipment will shrink if cus- tomers decide that they can
economically leave their lights on longer.
 4th Path

Why Do Key Decisions Makers Choose as They Do?

 When decision makers collaborate to create value, they must also be
able to pursue their private objectives without damaging the value
chain. Many business model innovations, therefore, come from
adjusting decision makers’ motivations. There are three ways of doing
this:
1. Change the revenue stream
2. Synchronize the time horizons
3. Integrate the incentives
Why Do Key Decisions Makers Choose as They Do?

1. Change the revenue stream

 Changing the revenue stream to align the interests of a decision’s stakeholders
works best when performance can be fully and unambiguously defined . It would be
difficult to set reasonable performance standards and develop appropriate metrics
 Example US government when they buy aircraft. 

2. Synchronize the time horizons

 sourcing relied on competitive- bidding rituals that ensured low prices and moderate
but acceptable quality. The chosen provider won the business for a relatively short
period of time, after which the bidding process was repeated. But as overseas
sourcing increased, this model developed flaws
Why Do Key Decisions Makers Choose as They Do?

3. Integrate the incentives

 Companies without a trusted intermediary can develop
contractual arrangements and management systems (such as
the famous balanced scorecard) to focus independent agents
on maximizing an agreed- upon outcome.

Example: U.S. health care system

Thank you