Generating options for a new Business Model

Geoff Eagleson
How can we generate options for a new Business Model
whether for an organisation in trouble or for one that
senses an inflection point in its performance?

• Unstructured brainstorming is inadequate

• Data mining is of limited value

• Market Research that assesses demand for non-existent products is

dubious

• We know where to look:

– Underexploited resources and capabilities
– Untapped insight into customers
– Future trends
– Our and others’ experiences.

• What we need is a process – it is all about framing. Source: Coyne, Clifford & Dye (2007)
How do I generate options for a new Business Model?

Leverage
the
experiences
of self and
others

Leverage Business Leverage

insights about Model market
future trends options intelligence

Leverage
existing
R&C
 Generating options for a new Business Model
Road Map:

 How can we facilitate option generation? By leveraging:

– Existing Resources and Capabilities

• Audits of Resources and Capabilities
– Market intelligence
• Blue Ocean; Disruptive BMs
– Insights about future trends
• Scenario planning; Visioning; Enacting
– Experiences of self and others
• Reverse engineering; Intuition, Entrepreneurial approach.

Applied to the AGSM in 1988 and an organisation chosen by your residential

team
 Generating options for a new Business Model:
Caveats

• This is not a “numbers game”; this is “Do or die”.

• This is more of an art than a science.

• Beware of exiting your current core too soon. (Estimated to be10% of

revenue stalls by Olson et al. (2008) – Reading 3). That is, make sure
that you understand the real root causes of the decline.

• Personal expectations, agendas and prejudices will play an important

role.
 Generating options for a new Business Model:
Leverage existing Resources.

Resource Strategic Relative Sustainable Value Capture

Importance Strength

Tangible (physical, financial, administrative, legal)

1.
2.
3.

Intangible (IP, reputation, technology, culture)

1.
2.
3.

Human (staff, customers, skills, know-how)

1.
2.
3.
VIRO: Appraising the strategic value of a Resource

 Valuable?
– Relevant to customer needs; contributes to differentiation or cost
advantage

 Imitable?
– At risk of imitation by rivals, durability, mobility, substitutability

 Rare?
– “Are you, or can you aspire to be best in class among the competition?”
(Quinn & Hilmer, 1993)

 Organisation?
– Organizational architecture, property rights, bargaining power,
complementary resources or capabilities
Source: J. Barney, 2007 - Reading 7 in SM 1
 Auditing your resources:
Questions to frame your analysis.

• Identify the operational drivers through a du Pont analysis

• What are your ‘crown jewels’?

• What are your scarce resources?

• “What business are we in?”

• “What business could we be in?”

• “What business should we be in?”

 Generating options for a new Business Model:
Leverage existing Capabilities.

• Analyse the value chain. Product related; customer related;

corporate. (Zook (2007) – Reading 5)

• Expose the asymmetries between your organisation and the

competition. Who uses you rather than a competitor? What
capabilities allow you able to serve these customers differently? (Miller,
Eisenstat & Foote (2002) – Reading 6)

• What is the last function you would outsource?

• Think beyond functions to organisational wide capabilities.

 Capabilities Audit: Start with the Value Chain

Firm Infrastr ucture

Support H uman Resource M anagement

Functions
Technology Development

Procurement
M argins

Primary I nbound Operations Outbound M arketing Service

Functions Logistics Logistics & Sales

A “Core Capability” is a business process, strategically understood (Stalk,

Evans & Shulman, 1992)
 Functional capabilities:

FUNCTION CAPABILITY EXEMPLARS

Corporate Financial management Exxon, GE
Management Strategic control Emerson Electric
Coordinating global SBUs ABB, Shell

R&D Research capability Merck, Xerox

Development of innovative new products Sony, 3M, Intel

Product Design Design capability Apple, Swatch

Manufacturing Efficient volume manufacturing YKK

Continuous Improvement in production Toyota
Flexibility Benetton, Nucor

Marketing Brand management Coke, Proctor &

Gamble

Sales & Distribution Order processing speed & accuracy Amazon.com

Efficiency and speed of distribution Federal Express

Service Customer Service Ritz Carlton

 Organisational capabilities:
• Continuously innovate
– Product and services (3M)
– Processes (Toyota)
• Control
– Processes (McDonald’s)
– Behaviour (Professional service firm)
• Manage information
– Producing new information (J & J)
– Better analysing (Insurance)
– Sourcing and synthesising (Japanese trading houses)
– Learning from experience (Shell)
• Manage long-run structural advantages
– Rivalry proposition (Oz building materials)
– Customer relationships (Pharmas)
– Supplier relationships (Bank insurance)
– Regulation (Merck).
• Renew
– Engagement (Woolworths)
– Development
Sources: Stukey, Doman & Thwaites, 193
Turner & Crawford, 1998S
 Generating options for a new Business Model:
Leverage market intelligence.

• Leverage the asymmetries between your organisation and the

competition:
– Who uses you rather than a competitor? Why? (Miller, Eisenstat & Foote
(2002) – Reading 6)

• Use the Blue Ocean framework

– Change the basis of competition
– Serve those who are non-customers (Kim & Mauborgne (1995) – Reading x in SM 1)

• Devise a disruptive Business Model

– What are the barriers that constrain consumption?
– Who could be customers? (Christensen, Johnson & Rigby (2002) – Reading 4)
Blue Ocean :Yellow Tail’s “strategy canvas”

Wine
Connoisseur Uninformed Who
Drinker

Price-sensitive
Drinker

How

Convenient
Availability
 What did Yellow Tail
Eliminate/Reduce/Raise/Create?

Reduce
Which factors should be
reduced well below
industry standards?

Eliminate
Which of the factors
that the industry takes
for granted should be
eliminated?
A Create
New Which factors should be
Value created that the industry
Curve has never offered?

Raise
Which factors should Eliminated Raised
be raised well above Enological terminology and Price versus budget wines
the industry’s standard? distinctions
Retail Store involvement
Aging qualities

Above-the-line marketing

Reduced Created
Wine complexity Easy drinking

Wine range Ease of selection

Vineyard prestige Fun and adventure

 Leverage market intelligence through a disruptive
Business Model. Basic assumptions:

•The pace of technological progress in almost every industry outstrips the ability of
customers in any given tier of the market to make effective use of the improved
versions of a product. Technologies that aren't good enough to address customers'
needs at one point typically improve to provide more than enough performance for
those same customers at a later point.

•Companies earn attractive profit margins when they stretch their products up-market,
targeting customers in a more demanding tier who are not yet satisfied by existing
offerings. A down-market move toward customers who are already satisfied by
available products yields profit margins that aren't nearly as attractive.

•Innovations that help incumbent companies earn higher margins by selling better
products to their best customers are sustaining, not disruptive. Sustaining innovations
comprise both simple, incremental engineering improvements as well as
breakthrough leaps up the trajectory of performance improvement.

•In contrast to sustaining innovations, disruptive innovations appeal to customers who

are unattractive to the incumbents. Although disruptive innovations typically involve
simple adaptations of known technologies, entrants almost always beat incumbents
at this game because established companies lack the motivation to win.

Source: Christensen, Johnson, & Rigby,(2002) – Reading 4.

 The Model of Disruptive Innovation

Customers not
High satisfied by current
products
Performance

ti ons
n ova
In
in g
u s tain
S Performance that
average customers can utilize

ti o ns
no va
e In Customers over
iv
r upt serviced by current
Dis products
Low
Source: Christensen and Raynor (2003) Time
Generating options for a new Business Model :
Leverage your experience and think like an
entrepreneur.

Sources of ideas for opportunities

%
Prior work 58.3
(previous role / employment,
consulting project)
Network
21.7
(social or business)
Thinking by analogy 11.3
Partner
8.7 Source: Timmons & Spinelli (2003)
 But be aware of cognitive biases:
Novice entrepreneurs look for:
Novel ideas
Based on new technology
Superiority of product or service
Potential to change the industry
Intuitively appealing
Experienced entrepreneurs look for:
Solving customers’ problems
Favourable financial returns:
positive cash flow, quick revenue
generation
Short sales cycles
Manageable risk
Potential for obtaining helpful input /
collaboration from others
Source: Baron & Ensley
(2006)
 What personal attributes help an entrepreneur to
identify opportunities?
• Alertness
A cognitive framework that assists entrepreneurs in being alert to
opportunities. Those who possess such a schema show a tendency to
search for and notice change and market disequilibria, to respond to
information that does not match their current schemas, and to adjust
existing schemas on the basis of such non-matching information.

• Bisociation

20
Personal attributes sought in leaders of new growth
opportunities:

GE under Jeff Immelt requires five traits in the leaders of growth:

– External focus
– Imagination and creativity
– Decisive
– Inclusive
– Deep domain expertise.
 Generating options for a new Business Model :
Leverage the experiences of others.

What do all the following products have in common?

• Cirque de Soleil

• Spider Man movies

• Roller Blades.

The question you ask determines the answer you get.

• Reverse engineer and ask about a great idea: what question would
have enabled me to see this opportunity first?
 Generating options for a new Business Model :
Leverage insights about the future.

What we see

Reality

Possible events
http://www.petatv.com/tvpopup/video.asp?video=tyson_heflin&Player=wm
 The Basic Scenario Planning Process

1. Assess the current situation

8. Implement &
monitor 2. Gather the data

7. Define strategy 3. Identify the

& plans driving forces

6. Assess the 4. Generate

implications alternative
for your org. scenarios
5. Assess the
implications
for your
environment
Consider the AGSM in 1988. What options could it have
considered to proactively transform itself?

• Its core business was the full-time MBA.

• It had been fully funded by the Commonwealth Government but that

funding was expected to be slowly withdrawn.

• It was the first educational institution that was given the right to pay
above award wages from its own income, on the condition that it
instituted a performance management system “with bite”.

• What could it have done to protect its future? What were the options
for a new Business model apart from introducing an Open Learning
Program (the precursor to the EMBA).
 Consider the AGSM in 1988:
Six teams, six tools:

• Resource audit

• Capabilities audit

• Blue Ocean framework

• Disruptive Business Model

• Leverage the experience of self and others

• Scenario planning
 Choose one of the organisations represented in your
team and use a different tool from the one used earlier
to generate options for a new Business Model.

• Resource audit

• Capabilities audit

• Blue Ocean framework

• Disruptive Business Model

• Leverage the experience of self and others

• Scenario planning
 References

Baron & Ensley, 2006

Christensen, C.M. & Raynor, M.E. 2003, The innovator’s solution: creating and
sustaining successful growth, Harvard Business School Publishing, Boston,
Mass.

Coyne, K. P., Clifford, P. G. & Dye, R. 2007, “Breakthrough thinking from inside the
box”, Harvard Business Review, December, pp.71-78.

Stalk, G., Evans, P. & Shulman, L. E. 1992, “Competing on capabilities: the new
rules of corporate strategy”, Harvard Business Review, March-April, pp.57-69.

Stukey, J., Doman, A. & Thwaites, R. 1993,”Distinctive and leveragable

competencies”, in The case for core process design, McKinsey and Company,
pp. 57-75.
Timmons & Spinelli, 2003