Bas van Oosterhout’s Business Innovation Blog

Recently the book Business Model Generation has received much attention. For many people it has truly caused a disruption in the way they look at Business Models. Discussing the book and the model it is striking that most people concentrate solely on how to create new business models… For most large corporations this provides challenges, they already have at least one Business Model, but most often many more. Typically Business Model are found within large organizations at the level of a Product-Market Combination.

The slides below provide some first guidance in how to optimize your Business Model; change it to better fit with the inside and outside world. Most important to bear in mind is that a Business Model in term is success is valuated by its’ customers and ecosystems, changing it requires closing the gap with requirements from the outside world and the current Business Model basis. Doing this in a more consistent way will increase performance and strengthen the brand.

View more presentations from basvanoosterhout.

“Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers” is now on the market. You can preview it below or buy it at www.businessmodelgeneration.com

Mid of 2008 I was present at the kickoff in Amsterdam of a new book around Business Model Innovation. Together with Gert Steens, Patrick van der Pijl, and Mick Walvisch the first step on a new book from Alexander Osterwalder and Yves Pigneur was set.

Without going into all detailed steps Alex has made since then I would like to point you to a great initiative.

Alex has started together with Patrick: the Business Model Innovation Hub. The Hub is used as a community which not only reviews the chunks of the book as they come out. It mainly is a place where people with a strong common interest on Business Models meet. Therefore, besides the good stuff Alex produces, a lot interesting content is created by the community itself. Just to tickle your brains a bit:

• Deliberately unsustaining Business Models
• Tools for Business Model Innovation
• Open source licensing
• Business Model Patterns
• …

Just have a look at the presentation and see you at the Hub!

For the last couple of months no news program or website is talking about hardly anything else the the global economic crisis and the effects it has on every kind of business within all sectors. Surviving for many companies suddenly became key rather then expanding portfolios.

Traditionally companies need to grow value in order to keep Mr. Shareholder happy. Growth means higher demand for shares and therefore higher rates. Mr. Shareholder sees his total share value growing.

Most companies have basically two ways to achieve value growth:

• Increase market size and share, by innovation or acquisition
• Reduce costs

The last way is normally not that popular during economic upturn, but is immediately on top of mind during economic downturn. Cost reduction programs tends to be rather spreadsheet driven hunting for the large cost chunks rather than assessing cost versus value.

Together with Daan Giesen I have come to an approach which enables growth by setting a stronger brand experience based on reduction of number of current business models. Organizational functions and capabilities can bebuild around these strong business models, showing opportunities to reduce cost without weakening the organizational capabilities.

Within the coming months more on the Business Model Convergence approach will be shared with you. However, if you cannot wait feel free to use the contact form.

Most probably the title of this post speaks for itself. However, if not, from now on there again will be regular (bi-weekly) new posts. Easy to say that in these rough times the room for innovation within corporate societies is limited, because focus in around restructuring and other cost saving opportunities.

Hopefully the next post will already provide you with some insights on how business model innovation will help you during difficult times of economic downturn. The answer is to be found in driving strategical business model convergence and look for opportunities within your value chains.

According to thought leaders within INSEAD customers are really in the driver’s seat when it comes to making or breaking a brand. Also different consumer trends indicate the same, such as Trendwatching.com for example. In the past people could be earmarked to fit within a certain stereotype, e.g. punkers during the 80’s. During this period brands were successful because the companies behind them choose those brands to grow successful.
People now shop their own identity together where trends are now merely used as an input. They do not fit within one simple box anymore which makes it more difficult to target segments in a traditional way. Furthermore customers become increasingly demanding every day. Failing to meet their expectations results worst case in them scandalizing your firm in public (example: BusinessWeek). They will share their grieves through the internet with the rest of the world more likely than they will call you.

So it is more difficult now to clearly segment customers and they have become more demanding and less forgiving, what can companies do?

Building a strong brand does not necessarily involves bringing the best proposition, product or service, to customers, it involves bringing your propositions consistently to your customers. How? By making sure that every Business Model Building Block is aligned with a clearly defined overall goal. So it not about bringing a product to the market and enhance it along the way to the extend that people do not recognize the initial proposition anymore. This makes customers feel disconnected. They will loose interest and will start doing business elsewhere.
In order to keep the connection with the client vivid firms should really ask themselves or even better their clients what it is they will bring to the market? Which problems will be solved? What pains will be relieved? Doing so and shaping the Business Model around it provides the basis companies need to be consistent to their clients, which will contribute to building their brands and reputation.

For laughter have a look at the complaint about SEARS below.

Working on different client innovation projects and reshaping their Business Models it is often the case that a new project explicits a need to move into a different part of the current value chain. With Value Chains in this case I mean different organizations and enitities, consisting of resources and knowledge stream, all involved in the creation and delivery of value to customers (source: ValueChains.org).

Moving up ahead of the current value chain and tap into it requires organizations most often to work together with different parties, already present in the chain. Strange situations occur that organizations that are presently treated as customers, become in fact new channels for approaching end-users further down the chain. The current customers need to become partners with which driving business is taken to the next level. Of course this sounds more simple than it in fact is. Existing relations need to be re-shaped in way that also for the current customer, so the new channel, the still is a sound basis for doing business. Thinking win-win is key here. In establishing new partnerships companies try to reduce risks as much a possible, preferably in a early stage. Concentrating on possible financial benefits, this results in trying to create a position in which most of the value created together with the partner is heading in your direction. In contrast with this real partnerships first try to build maximum value together, and then divide this between them.

Many people are interested in how a new Value Proposition is created. Of course, understanding this process and being able to execute it, provides a basis for continuously staying ahead of competitors; it would be the Holy Grail of business. In workshops I have used various methods such as Blue Ocean and TRIZ. These methods help to frame thoughts and give directions. What they do not do is provide you with a new Value Proposition gift wrapped.

Creating a new Value Proposition can be done in several ways, each of which differently partitioned into stages. Here is an example of how the creation process is broken down, brought in a very creative way; in an animated Chinese painting style. The movie clip is by Ada Kwok and is presently really popular on youtube. Clicking tot Ada’s website it is clear that the company does graphic business design. Ada has used succesfully as a mechanism to draw traffic to her site. This is yet an other example of how youtube can significantly boost the number of potential customers.
I really like how each of the creation phases is broken down and expresses in the video:

• Imagination
• Visualization
• Formation
• Transformation
• Bring to life

Recently Business Models and Business Model Innovation received increased attention. The term devaluated during the high rise of the Internet Bubble, when all you needed to get venture capital was a new type of Business Model, without any sanity check.

Now in an era of ever increasing competition from emerging markets, re-thinking your Business Model seems very appropriate as being an incumbent player in your market. Difficulty is maintaining the relationship with your current customers while achieving growth. Key is consistently managing your identity.
Traditionally companies focus on technology when driving innovation. This is not strange from a R&D perspective, but what to do with the great new technology created? Will this sell itself?

The answer is NO. Look at examples history provides us with such as Philips’ Video2000 system. With the hindsight from today many people state that Philips did have the superior system, but lacked the capability to successfully sell it, loosing the battle to set to standard to VHS.

This presentation shows the necessity to take Business Model Innovation into account as well as Technology Innovation. Building a portfolio which contains provide a sound basis for future growth and success.

Recently HBR published an article about the difference in competition between the US and Europe and emerging markets, China in the article. Where in the US and Europe most customers demand excellent quality in China the largest segment is the “good enough” segment (62% share of market in 2005). The good enough segment is defined as “products of good quality, produced by local companies for a rapidly expanding group of value-seeking consumers with mid level incomes.” Distinguishment is made between premium, good enough, and low-end market segments.

The difference between “good enough” products and premium products is that “good enough” comes with only a limited number of features, rather than the full range, at a price significantly lower that foreign brands.
The shift in China towards “good enough” comes from two directions: Consumer that see their incomes grow shift from low-end products to the “good enough” segment, and consumers with a higher income move away from expensive foreign brands, towards locally produced products at an acceptable quality level.

What should multinationals seeking way into the Chinese market do when entering the market in China? When the market segment’s state is strong, companies should either maintain their premium status by holding of the “good enough” segment by lower costs and innovating to create a niche position. More interesting is the situation where the premium segment is weak or eroding. Then companies can choose to enter the market either from above, enter the market segment in order to hold off local competitors and the erosion of the premium segment, or enter the market from below. Entering from below means seek an alliance or even merger with a Chinese partner or even develop new products specifically for the Chinese market, applying new business model tailored to the Chinese situation. Doing so they can steel share from Chinese players and become market leader.

This all seams quite far away. After all it is about China. Why would “good enough” not apply in non-emerging markets? A large company like Philips now uses “Sense and Simplicity” for a slogan. Underlining the fact the company produces technological products that enhance life, without the hassle, complexity and frustration. The story goes that the company came to this shift in strategy when managers were given a DVD recorder to try at home. Most of them were no able to install it, let alone use it.
It is probably only a matter of time until more and more customers in the US and EU crave for simplicity, cutting out all features they will not use at a lower price, making the “good enough” market segment expanding far out of China. Consumer Vigilantes are already on the rise when their products and services bought are too complex to install it themselves.