Published on January 9, 2009
A business model approach to value innovation : 1 A business model approach to value innovation Value chain: Production and delivery Customer value Capabilities Price mechanisms Strategy Target market - The flower of service - The value curve Positioning Designing and managing service processes Balancing demand and productive capacity - Crafting servicescape Implementing profitable service strategies A business model approach to value innovation : 2 A business model approach to value innovation Introduction Study background – write this after completion of your paper Problem statement Hypothesis: In a competitive industry, introducing of a different business model enables a company to create more value to its customers and itself. Objective of the study This research attempts to investigate the application of a business model approach to value innovation in services industries. Methodology This study used both primary and secondary information gathering methods. A questionnaire was used to gather information from companies through face to face (or telephone) interviews or mail. A secondary desk research was used to collect relevant information from the Internet, company archives, newspapers, magazines and existing literature. A business model approach to value innovationLiterature review : 3 A business model approach to value innovationLiterature review What is business model? Many authors have discussed the concept of a business model and suggested different approaches for value innovation (see e.g. Shafer et. al., 2005; Magretta, 2002; Chesbrough & Rosenbloom, 2002). From services perspective, Lovelock & Wirts (2007: 125) define a business model as the price mechanism through which a company converts sales into revenues in order to recover costs and generating profits for the creators. From manufacturing sector point of view, others offer a more holistic definition, that is a business model is conceptual tool through which companies (see Magretta, 2002; Chesbrough & Rosenbloom, 2002) : articulate the value proposition Identify a profitable market segment for whom the value proposition is provided define the value chain and processes required to create the value select physical and electronic channels to deliver the value describe the capabilities required to create and deliver the value to end users design the price mechanisms and strategy to capture the profits in a sustainable manner This definition seems also to apply in the services industries. Use figure to illustrate a business model A business model approach to value innovationLiterature review : 4 A business model approach to value innovationLiterature review What is value innovation? Customer value is defined as the difference between the perceived benefits and perceived costs (including non-monetary outlays) (Lovelock, 2006: 131). Eriksson and Penker’s (2000, p. 7) highlight five purposes of a business model: to better understand the key mechanisms of an existing business; to act as a basis for improving the current business structure and operations; to show the structure of an innovated business; to identify outsourcing opportunities and to experiment with a new business concept or to imitate or study a concept used by a competitive company (e.g. benchmarking on the model level). Existing literature shows that many companies use a business model approach to purse value innovation by looking systematically across all elements of their own as well as their competitors’ business models (references). This study follows this approach. A business model approach to value innovation : 5 A business model approach to value innovation Empirical analysis An innovative company in a services industry Market analysis Customers Trends and key drivers for innovation Internal analysis Competitors’ business model analysis How different is the company’s business model its value propositions its value chain, processes its price mechanism its strategy Which components of its business model are key factors for creating value Use tables, graphs, figures in analysis A business model approach to value innovation : 6 A business model approach to value innovation Findings Summaries of your analysis Recommendations May design your ideal business model how the company could be further competitive and innovative References Lovelock, C and Wirtz, J (2007). Services Marketing: People, technology, strategy. 6th Ed. New Jersey, Pearson Prentice Hall. Magretta, J. (2002). Why business models matter. Harvard Business Review, 80 (5): 3-8. Developing CapabilitiesNetworked incubators:Hansen et. Al (2000). HBR : 7 Developing CapabilitiesNetworked incubators:Hansen et. Al (2000). HBR Networked alliance definition: A set of companies linked through alliances to compete in a specific business domain. Five basic motivations behind networks Linking markets Combining and accessing capabilities Diffusing innovation Economies of scale and scope Sharing risks Networked incubators: : 8 Networked incubators: Networked incubators (NI): large corporations which offer basic support to nurture and grow start-ups in exchange for equity stakes. NI combine the of two worlds – the scale and scope of large, established corporations and the entrepreneurial spirit of small venture-capital firms – all while providing unique networking benefits. Characteristics of networked incubators: Incubators encourage entrepreneurship spirit Incubatees (innovators) retain the majority ownership (60%-70%) Incubatees are from inertia and bureaucracy of the incubator Incubators offer preferred rates and terms Offer preferential access to network of companies Contrast with preferential treatment Networking is institutionalized The incubator has mechanisms in place that foster networking It’s Not What You Know- It’s Who You Know Networked incubators : 9 Networked incubators What incubators offer Office space Coaching Funding Information Technology Public Relations Recruiting Legal Accounting Pooled Buying Programs Organized networking Networked incubators in action : 10 Networked incubators in action Hotbank, California A building with offices where entrepreneurs work independently and interact informally at the oval shaped bar Hotbank offers: leased office space funds the incubatees provides basic services (IT systems, PR, recruitment, legal counsel, insurance, employee benefits, and accounting) provides incubatees access to its portfolio of companies including Yahoo! E*Trade and Buy.com advisory board In return Hotbank takes an equity stake ranging from 20% to 40%. NI in South Africa : 11 NI in South Africa Southern African Technology Incubator Network (SATIN) consists of three incubators: Bodibeng Technology Incubator (formerly, BrainWorks) KwaZulu-Natal Innovation Support Center (KZNISC) SoftStart IT Incubator, The Embizeni Innovation Support Centre provides: technical and business support to enable innovators, be they individuals or companies, to take their ideas to market a secure environment in which technologies can be evaluated, developed, optimised and commercialised. Its focus is on the electronics and information and communication technology (ICT) sectors. has a network that includes accredited service providers (e.g. technical, marketing) angel investors, venture capitalists, banks and legal practitioners for issues such as patent registration. links with academic institutions and private sector companies are also being built to allow for the matching of skills with industrial innovation needs http://www.innovation.org.za/ Networked incubators:Hansen et. Al (2000). HBR : 12 Networked incubators:Hansen et. Al (2000). HBR The advantage of networked incubators Dimension Established company Venture capitalists Networked incubators Networked incubators:Hansen et. Al (2000). HBR : 13 Networked incubators:Hansen et. Al (2000). HBR Key requirements for NI 1. Portfolio strategy Synergy in related businesses: the whole is greater than the sum of its parts Avoid broad definition of business Network design Create formal links with external experts Bring outside experts on site Schedule occasional – but - regular meetings Establish process for exchange of information & know-how across companies Implement economic incentives High specialized deal brokers The benefits of two diverse worlds: the scale and scope of large established corporations and the entrepreneurial drive of small start-up firms.