BIG- Reinventing Business

REINVENT YOUR BUSINESS MODEL

SAI PAVAN KUMAR (12DM139)SAMEER MIRANI (12DM143)SANJUKTA SEN (12DM144)SHREYA (12DM151)SONAM (12DM156)UMANG GOEL (12DM179)

Introduction• Models defined value in new way • Apple• Gillette• Wal-Mart

• Business model innovation (Vs) Product or service innovation• Why is it difficult to pull of new growth that business model

can bring ?• Lack of definition• Understanding existing business model well enough…

BUSINESS MODEL - DEFINITION

Consists of four interlocking elements• Customer value proposition• Profit formula

• Revenue model• Cost structure• Margin model• Resource velocity

• Key Resources• Key Process

How great models are built?

•Ratan Tata provided a safer and affordable alternative for scooter families.•Hilti- selling tool use instead of tools themselves, managing its customers’ tools inventory.•Precision – important attribute.

•Ratan Tata broke the wealth barrier by drastically decreasing the price of the car.•Hilti – Higher margins; asset heavy; monthly payments for tool maintenance, repair and replacement.

• Need to integrate the resources and processes in a unique manner. For e.g..TATA Nano.

1. Creating a customer value proposition

2. Designing a profit formula

3. Identifying key processes and resources

Elements of Successful Business Model

Profit Formul

aKey Process

esKey

Resources

Customer Value

Proposition

Hilti’s Sidestep Commoditization

Traditional Power Tool Company

Hilti’s Tool Fleet Management Service

Sales of Industrial and Power tools and accessories

Customer Value

Proposition

Leasing of Comprehensive fleet of tools to increase the on-site productivity of the contractors

Low margins, High inventory turnover

Profit Formula

Higher margins, asset heavy, monthly payments for maintenance, repair and replacement

Distribution channel, low cost manufacturing plants, R&D

Key Resources

and Processes

Strong direct sales approach, contract management, IT systems for inventory management and warehousing

WHEN WILL THE OLD MODEL WORK?

• Companies don’t always need a new business model to capitalize on game changing opportunity.

• E.g.: P & G with its Swiffer disposable mop satisfied the current business needs • With the existing profit formula• By using most of its key resources and processes• By using the same core metrics, rules and norms.

WHEN IS A NEW MODEL NEEDED?

• When significant changes are required to all the four elements of the existing model.

• 5 strategic circumstances for change

An opportunity to Example

Address the needs of large groups who find existing solutions expensive

Tata Nano for the low income consumers in the existing market.

Capitalize on new technology or leverage existing technologies in mkt

Commercial application for a technology primarily for military use or Apple.

Bring a job to-be-done focus where it doesn’t exist

FedEx: Faster and reliable package receiving by integrating key processes and resources.

CONTD…

A need to ….. Example

Fend off low end disruptors Mini mills threatened the integrated steel mills by making low cost steel.

Responding to shifts in competition Hilti : Switched from selling tools to renting tools.

Creating a new model doesn’t necessarily mean that the old model or existing model is threatening or should be changed but it should complement or reinforce the core business.

Dow Corning•Success of Business model innovation lies in making sure the incumbent business does not prevent the new model from thriving.•Dow Corning realized its Silicone based products were commoditizing and product areas stagnating.•A strategic review revealed that customers in its low end product segment needed basic products at low prices.•A new team was set up to formulate a customer value proposition. It realized that a price reduction calls for a different profit formula with a fundamentally lower cost structure.

Breaking the rules

•In order to standardize the new business, rules such as minimum order quantities, order lead times and fixed credit terms were enforced.•The new venture idea was not warmly received from the organization as a whole.•So, Dow Corning created an entirely new brand –Xiameter with its own identity and culture.

Identifying new competencies•Xiameter was designed from the start as a web-enabled business model•The brand also needed experts who were comfortable making fast decisions.

The secret sauce: Patience

• Companies with new business models should be patient for growth but impatient for profit.• The scale of the operations were kept small but it kept a goal of becoming profitable by the end of year one.• Dow Corning earned back its investment in just 3 months.• Beforehand the company had no online sales but now over 30% of the company’s sales are online.• A majority of the new business was driven from new customers.

CONCLUSION• Companies need to focus on learning and adjusting as much as on

executing.• Patience for growth and impatience for profit( companies with new

business models)• Allow for trial and error and construct a life cycle to deliver the

results. E.g.: Corning• Successful businesses come from enveloping new technology with a

powerful business model.• Great business models can reshape industries and drive spectacular

growth.