Apple’s Jonathan Ive changed the world with his designs. The Apple devices are more known because of their design, rather than the logo they carry. Looking at the device that was the first stepping stone in this for Apple, the iPod 1, many people claim their is a great deal of resemblance with Braun’s T3 pocketradio, launched in 1958 (nrc). This radio was designed by Dieter Ram, head of product design from 1955-1998.
Ram applied ten principles to good design. According to Ram good design:
- is innovative
- makes a product useful
- is aesthetic
- makes a product understandable
- is unobtrusive
- is honest
- is long-lasting
- is thorough down to the last detail
- is environmentally friendly
- is as little design as possible
Applying these 10 principles to business model design, the following guidelines are derived:
- is innovative
A good business model is unique, and therefore hard to imitate. - makes a product useful
Using the business model, from the company as well as the customer perspective, is easy. - is aesthetic
A good business model does not cause any irritation or confusion. Only well executed business models can be beautiful. - makes a business model understandable
It makes the business model clearly express its function by making use of the user’s intuition. At best, it is self-explanatory. - is unobtrusive
The business model leaves room for the user’s self-expression. Business models fulfilling a purpose are like tools that add to the quality of life of its users. - is honest
An honest business model does not make a product or service seem more valuable than it really is. Influencing and manipulation of customers and users by the business model is not done. - is long-lasting
A good business model avoids being fashionable and therefore never runs the risk of being outdated. - is thorough down to the last detail
In the design sufficient attention has been paid to the details of the design, creating a true experience for customers and users. In the execution of a good business model these should implemented accurately. - is environmentally friendly
Good business model design is aware of its environmental impact and aims to make an important contribution to the preservation of the environment by conserving resources and minimizing physical and visual pollution. - is as little design as possible
Keeping it pure! Everything that is non-essential to a business model should be kept out of its design.
When designing new business models these 10 principle will help you to focus your effort and flow your creativity accordingly to make beautiful, meaningful new business models.
Business model innovation will be the next big differentiator for companies aspiring innovation leadership. Innovation leaders are breaking away from the pack by allocating increasingly more resources to business model innovation1. And they are right. Research has illustrated that more value is to be expected from business model innovation, than from any other form of innovation. Business model innovation has a higher impact on business results.
Guest post by Freek Duppen
As the knowledge partner of the World Innovation Forum, Capgemini Consulting has recently completed its global innovation survey on the current state of innovation. The study offers a unique perspective by looking at the differences in behavior of innovation leaders vis-à-vis laggards across five key areas (strategy, capabilities, technology, innovation function, and spending) in order to identify what drives the success of companies that view themselves as successful innovators.
The study is based on an online survey, generating responses from 375 executives (representing the full range of industries, regions, functional specialties, and seniority) and 13 follow-up interviews – to get a better understanding of the context of the findings and to add depth to the result interpretation.
In summary, this study reveals that:
- Given the strategic priority companies allocate to innovation and their corresponding spending plans, the maturity of their formal innovation governance structure lags behind considerably. To overcome many of the innovation bottlenecks encountered, it is time to establish an innovation function that is able to deal with this kind of innovation governance and decision-making.
- Furthermore, there is an enormous unlocked potential for innovation in the involvement of external parties in the innovation process. Innovation leaders may have out-paced their peers by simply being better at involving external parties, leveraging a much broader innovation network and increasing innovation potential.
- The study also shows that more value, in terms of impact on business results, is to be expected from business model innovation, than from any other form of innovation. Targeting new business opportunities in emerging markets is much more likely to be successful when approached outside of the traditional competitive landscape.
The whole topic of business model innovation receives ever more attention. Looking at what has been published recently still there is a strong tendency to focus on business to consumer (B2C), incl. cases and examples.
Business to business (B2B) seems to be ignored. Odd, because understanding business model innovation in a B2B context and being able to deliver successful models is more challenging, but also much more rewarding.
The Challenges
Most challenging aspect is typically the value chain. By the term value chain not the typical Porter kind of value chain is meant, but a series of interlinked activities, performed by various entities that deliver customer value.
Based on this view a value chain does not exist within companies, but amongst companies active within industries form value chains together.
Typical B2B business model innovation impacts either the positions more closely to the end users (forward business model innovation) or the positions that supply the firm that aims to change its business model (backward business model innovation).
With forward and well as backward business model innovation the current situation will change. Effectively the power within the chain and therefore the margins firms make are about the change. Nobody likes change…
Typically it seems that for most forward business model innovations it is extremely difficult not to disturb current relations with direct customers.
For innovating B2B business models a thorough understanding of all entities active throughout the chain is required. How is value being built up with each stage in the chain? Who is the captain that has most power over rest of the chain? What trends are influencing the value chain? Etc.
The Rewards
Most value chains seem difficult to change. The way firms have done business has not changed within recent years and leadership of companies is reluctant to start experimenting. Only in situations of entering new markets or when competition forces to apply other business models, companies step away from status quo.
Traditionally the B2B side of value chain is one that hasn’t seen much change in financials as well over the last years. Only by competition and crisis companies have been forced to lower their costs via optimization. Margins seem to be stuck; there is no room to be found to improve them.
Via business model innovation companies are able to step out of the margin squeeze and apply new ways they create and capture their value, and with better numbers. The concept is simple:
- backward business model innovation
For all resources and activities that can be sourced in a better way; more efficient, more effective or simply cheaper the cost concerned with that specific element of the business model lowers, having a direct positive impact on margin for the overall business model. Means to improve sourcing can be e.g. via new forms of partnerships. - forward business model innovation
Value builds as the product or service that is created by the value chain becomes closer (in terms of proximity) to the end user. Leapfrogging forward has the potential to extremely grow margins. Coping with some of the challenges mentioned must be taken care off, if the goal is not to upset the current set of companies too much.
Even though the concept is simple the process itself is rather delicate. Deciding when to move forward and engage with others and partners pas proven to be critical to the business model success. If applied wrong there could be damage done to the existing models; if done well B2B business model innovation is extremely rewarding.
As stated in one of the previous posts: coping with a crisis is no sexy business. Traditional approaches to stay financially in shape concentrate around cost cutting, very often leading to reducing headcount by layoffs. Many major companies such as IBM (5000 people), Bombardier (10% of work force), GM, and many others saw themselves forced to let people go. In fear of layoffs at a French Caterpilar site four bosses were even helt hostage for several hours.
There is an other way to cope with market decline and even crisis while building stronger businesses: Business Model Convergence.
Most companies run a portfolio of products and brands, active in various markets, across the globe. In terms of business models they have numerous.
In itself this is not really a problem… as long as markets are growing. When growth seizes to a halt this can become a problem. The organization that needs to deliver all these business models is by all means not the most focused one. Maintaining all the business models is extremely challenging.
When converging business models it becomes apparent that a company basically has a few generic ones that apply to most businesses. Focusing on the implementation and how to run these effectively enables a company to distinguish between the activities that seem important and the ones that are.
Elaborating capabilities around the activities that are truly important grows a organization that understands the most important aspects within the core business models and that is able to implement them flawless.
Companies that aim to simplify their businesses first need to create an overview of all of its’ (most important) business models. From there an assessment needs to be made to highlight the main commonalities and discrepancies and captured into core business models.
Next is to translate the generic business models into implications they brings to functions and functional domains within the organization all the way till the level of concrete actions. Implement those and you will have an organization that is better able at delivering its’ core business models.
Side effect is that the business models that are more distant from the core ones are recognized based upon their true merits which enables them to choose and pursue their own business model without being forced into a core one that will not do the job.
Business Model Convergence is a way to strengthen business by simplification of the portfolio of business models aiming to build stronger businesses based upon outperforming, excellent organizations by focusing, freeing up potential to spur new business growth.
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.
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.
[pro-player]http://www.youtube.com/watch?v=974egVLlwQI[/pro-player]
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
[pro-player]http://www.youtube.com/watch?v=ce9f0JP6eks&feature=fvst[/pro-player]
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.
During the Internet Bubble Business Model was one of the buzz words. Companies did not need a real strategy, a special competence, or even customers. The only thing needed was a web-based Business Model making vague promises about wild profits in a distant future (source Joan Magretta, HBR, 2002). Not strange that the term itself lost most of its power.
Now years further and wiser we know a business model definitely matters. Without a sound Business Model firms can launch as many new products and services they want to, only confusing customers more.
Companies with a sound Business Model know the value proposition, what the target client group is, which channels to use to approach them, what kind and type of relationship to maintain, what capabilities are required in-house or at a partner, how value is configurated, and of course how cost and revenue stream flow.
Having a proper Business Model not only clarifies things for you as a company; it helps to build and manage your reputation among your current and future clients.
