Business Model Innovation (HEC Paris)

https://www.coursera.org/learn/business-model

General notes

Business vs strategy

Business model: a description of how a company generates profit

Versus strategy: a business model can be used for competitive analysis, portfolio analysis (corporate strategy), business analysis

Business models

Odyssey 3.14’s business model components

• value proposition (what, for who, price)
• value architecture (how - value chain, resources, competencies)
• profit equation (revenues, costs)

Business model canvas overlap

• customer segments, customer relationships, value proposition = value proposition
• key partners, key activities, key resources, channels = value architecture
• revenue stream, cost structure = profit equation

Innovation

What: Product, process, managerial, business model

Scale: Incremental vs radical

IDEO’s three lenses of innovation (design thinking): desirability, feasibility, viability

How: Anticipate trends; build on customer insights; break an industry belief

Value Proposition (VP)

Often different VPs for different stakeholders

Who? Customer, retailer, third parties, …

What? Products, price

Perceived value vs price/cost

Game changing

JCDecaux: advertising at bus stops → customers: using (bus user), decision making (bus company), paying (advertiser)

Zipcar: differentiate from car ownership (can be lower price and higher value/lower stress)

Value curve

x = value attributes (can be split by customer); y = level of offer (low to high)

Differentiation: create (no surprise), raise (bed quality), eliminiate (receptonist), reduce (room size)

Value Architecture (VA)

How?

Value chain

Can be for a business or an industry

Porter’s original structure:

Porter’s original structure

Each activity adds value

Total of activities > sum

Value produced ≠ cost to produce

Outsourcing: make or buy?

Strategic resources

• Tangible (e.g. financial, physical)
• Intangible (e.g. reputation, technology)
• Human (e.g. skills)

Key competencies

How resources combine → must be rare, non imitable

Profit equation

How much?

Revenue, costs, and capital employed (fixed assets + working capital)

ROCE (return on capital employed) = EBIT / capital employed

14 Directions

• Not exclusive
• Interactive exploration
• Value propositions and value architecture may interact

1: Reduce client price [VP]

1. Can you pare down your offer in such a way as to lower your costs and therefore the price for the client?
2. Are there elements of costs incurred by the client when ordering or using your product or services that you could decrease?
3. Can you offer a part of your product/service for free in order to attract clients?

2: Reduce client’s hassle [VP]

1. Which products or services do clients use in addition to your own?
2. What are the constraints or complications your clients come across whilst using your products or services?
3. How can you minimize these complications?

• Offer a complete solution: payment plan + guarantee + maintenance
• How do clients use your product/service in their value chain? Can you diversify into a different part?

3: Look for non-clients [VP]

1. What pushes potential clients to ignore your offer?
2. In this case, what do these clients do? Where do they go?
3. With what aspects of the offer are your clients always dissatisfied?

• Conscious non-clients: those who actively avoid your product (e.g. minibars)

4: Introduce more functionality or more emotion [VP]

1. Is your product or service essentially functional or emotional?
2. How can you add a positive emotional component to it?
3. Alternatively, how can you go back to its basic functions by removing its emotional content?

5: Search other segments or industries [VP]

1. What are the different segments of your business sector?
2. What are the codes, rules or proposals from other segments that you could integrate into your value proposition?
3. What other business sectors could provide you with inspiration?

• e.g. high cost vs low cost

6: Introduce a third party [VP]

1. Could you identify other stakeholders that could be interested by a contact with your current customers?
2. For whom could you be an intermediary?
3. Could your assets come from a third party (as rooms for Airbnb)?

• e.g. food delivery company linking eaters, restaurants, and riders
• a.k.a. multi-sided platforms
• Often benefit from network effects

7: Modify the revenue stream [VP]

1. Could you invoice your clients differently?
2. Which third parties would be interested in financing all or part of your offer on a quid pro quo basis?
3. Does your offer allow your clients to save or generate income?

• User pay differently (e.g. subscription, freemium); make a third party pay (e.g. advertising); paid savings you create for your customer (e.g. PPA)

8: Introduce technology [VA]

1. Do your competitors use a technology you could integrate?
2. Which are the existing technologies in other sectors that you could use?

9. Modify one or several steps in the value chain [VA]

1. What are the different steps in your value chain?
2. Can you change or redesign the way you bring each step into play?

10. Eliminate or add a step in the value chain [VA]

1. In which way is this step in the value chain useful? Can you eliminate it? What will be the impact in terms of cost and therefore price?
2. Could you add a step to the value chain? What would be the result? Would it bring value to the client?

• e.g. circular economy

11. Leverage strategic resources [VA]

1. What are the strategic resources and competencies?
2. Which resources do you under-exploit? Could you promote them in another way?
3. Have you developed know-how that could be of interest to other companies?

• e.g. flat roofs to solar, gardens

12. Associate with competitors [VA]

1. Who are your competitors?
2. What are their strong points? What are their strategic resources?
3. How are these advantages or resources complementary to yours?
4. How could you associate your strengths and neutralize your weak points?

13. Identify supplementors [VA]

1. Which offers are used by your clients before, during and after they use your offer?
2. Can you integrate these offers in your value proposition? What would be the interest for clients?
3. What would be the interest for the company providing this complementary offer?

• e.g. coffeeshops in book shops

14. Find new resources [VA]

1. What resources could you source outside the company?
2. How can you enlarge your resources base (financial, human, tangibles and intangibles)?

Application

1. Choose an industry
2. Describe the reference offer(s) → draw a value curve (value proposition)
3. Describe the rest of the business model → value arcitecture, profit equation
4. Explore the 14 directions
5. Draw the new value curve, describe the new business model, show how the profit equation has changed

Trends

1. Platforms e.g. Airbnb, Klöckner → trusted third party
2. Big Data (AI)
3. Usage/access over ownership
4. Circular economy
5. Good enough products
6. Free(mium)
7. Experience (the counteract digitisation)
8. Crowd/community-based
9. Targetting the poorest