Content M-2: Business model innovation

Question 1

What is a business model?

Answer 1

The architecture of how a firm creates and captures value by offering customers a solution to get a job done.

Question 2

What is a “customer job”?

Answer 2

An important customer need or problem that needs a solution.

Question 3

What are the four components of the business model?

Answer 3

• Customer value proposition
• Key resources
• Key processes
• Profit formula

Question 4

What are reasons for a new business model?

Answer 4

• To seize an opportunity
  > There are potential customers who are currently not served
  > The needs of current customers can be better addressed
  > New technologies bring new possibilities to serve current and potential customers.
• To respond to competitors who acted on such opportunities
  > The efforts of Tesla’s competitors (like Daimler) to replicate parts of Tesla’s business model.

Question 5

What are the four steps of business model transformation?

Answer 5

1. Diagnose the problem
2. See if it can be solved with a new business model
3. See if the necessary resources are available for the new business model
4. If both yes, transform the business model accordingly.

Questions to keep in mind:
- What is the reason for business model transformation?
- Which components will be transformed?

Question 6

Business model transformation > New value proposition: A new customer that goes beyond current solutions in at least one meaningful dimension for doing the customer “job”. What are the dimensions?

Answer 6

• Price: Cheaper solution (low-cost airline)
• Utility: Greater satisfaction (Greater selection of movies songs etc.)
• Convenience: Easier access (home delivery or digital solutions)

Question 7

With business model transformation, also always consider the profit formula. Does the new value proposition imply a change in…

Answer 7

• Revenue items
  > Per-use fee
  > Subscription fee
  > No fee + advertisement revenue (freemium)
• Cost items
  > Suppliers (buying supplies vs. revenue sharing)
  > Inventory (goes down with digital; e.g. Netflix)
  > Distribution (does down with digital)
  > R&D (goes up with digital)
• The logic for making profits (revenues > costs)
  > Know the customer - what do they appreciate & will pay for?

Question 8

Business model transformation > New resources and processes. What to keep into account?

Answer 8

• What resources are needed for the success of the business model?
  > Do we have these resources?
  > If not, how can we obtain them? (e.g. internal development, partnerships)
• What processes are critical for the success of the business model?

Question 9

Things to keep into account when thinking about the firms’ resources in light of business model transformation.

Answer 9

• Does the firm have necessary resources to implement a given business model?
  > A VRIN resource?
  > Or a VRIN combination of resources?
• Can the firm organize or configure its resources in such a way that creates a competitive value proposition, or a better profit formula?

Question 10

Management can be a VRIN resource through:

Answer 10

• Understanding how new technologies can be used for greater customer value.
• Predicting current and future customer priorities
• Constantly evaluating and revising business model components.

Question 11

Business model transformation. What could be some dilemma’s for changing the current business model?

Answer 11

• Organizational resistance - inertia
• Risk of losing current customers
• Risk that the new model will not work

Question 12

Business model transformation. What could be a dilemma for not changing the current business model?

Answer 12

• Risk of losing competitiveness and going down like Polaroid or Blockbuster.

Question 13

A solution for dilemma’s with regard to changing the business model/not changing the business model could possibly be:

Answer 13

Operating with dual business models.

Question 14

Operating with dual business models depends heavily on two dimensions in particular:

Answer 14

• Strategic relatedness between current and new models (how much can the two models share strategic assets of the company?)
  > R&D knowledge
  > Market knowledge
  > Supplier and/or distribution network
  > Brand reputation
• Potential conflicts between current and new models (different requirements of each business model from the organizational assets)
  > Organizational processes
  > R&D decisions
  > Customer markets

GOAL: Separate sources of conflict while integrating sources of potential synergies.

Question 15

What are the different strategies when operating dual business model? (in light of relatedness and potential confict)

Answer 15

• Separation strategy
• Integration strategy
• Phased separation strategy
• Phased integration strategy

Question 16

In light of the four different strategies of operating dual business models; when to use which strategy?

Answer 16

• Low relatedness with high potential conflict:
  > Separate - independent organizational unit –> separation strategy
• High relatedness with low potential conflict:
  > Start the new model alongside the current one to leverage existing strengths, replace gradually –> integration strategy
• Low relatedness with low potential conflict
  > Start the new model alongside the current one to leverage existing strengths, separate gradually –> phased separation strategy
• High relatedness with high potential conflict
  > Start the new model as an independent organizational unit, integrate gradually –> phased integration strategy.

Question 17

Conclusion. Things to keep in mind.

Answer 17

• A business model is useful to the extent that it profitably offers a superior solution to get a “customer job” done than competitors.
• The implications of a new business model to revenues, costs and to the current model should be carefully evaluated.