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Lecture SeriesWeb: Liberty Fraternity Equality
Anirudh AgrawalPhD Fellow IKL
Anirudh Agrawal [email protected]
Lecture 5
Online ActivismOnline rating and reviewsCo-creationCrowdsourcing
Anirudh Agrawal [email protected]
Lecture 6
Business model AnalysisBusiness Model CanvasCase Kiva vs MYC4Open Innovation
Anirudh Agrawal [email protected]
Business Model
How organizations creates, delivers and captures value
What is the value proposition?What are the target markets? Who are the critical members of the team?Where does competitive advantage exist?Why is there a competitive advantage? When will development, launch and cash flow breakeven occur?
4
Anirudh Agrawal [email protected]
Types of Business Model
Brick-and-mortarCompanies that operate solely offline with traditional business practices
Click-and-mortarCompanies operating with both an online and offline presence
5
Anirudh Agrawal [email protected]
PhysicalAssets
People
Money
Business Model
Market Opportunity
Revenues
Customer Base
Profits
Cash Flow
Intellectual Property
Value Creation
via
Inputs Recipe Target OutputsHow Output
Valued
Intellectual Capital
LicenseRevenues
•IPO
•Merger/ Acquisition
•Dividend Stream
Business Model Analysis
Anirudh Agrawal [email protected]
Business Model Analysis
RevenuesCash flows and their timingRevenue driversExpensesCash flows and their timingInvestment required through cash flow breakevenWorking capitalMaximum financing required and cash flow breakeven timingSensitivity analysisKey success factors
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Anirudh Agrawal [email protected]: Linking Strategy to Operations: Process Models and Innovation by David P. Norton and Randall H. Russell
Courtesy : Mark von RosingMobile: +45 2888 8901E-Mail: [email protected]
B/W Strategy and Operationalization
Anirudh Agrawal [email protected]
Business Model P2P Social Lending
Anirudh Agrawal [email protected]
Cost structure Revenue streams
Key resources
Key activities
Key partners
Value proposition
Costumer relationships
Costumer segments
Channels
Text
Text
Anirudh Agrawal [email protected]
KIVA and MYC4
http://www.youtube.com/user/kivahttp://www.youtube.com/watch?v=_5r8emxTj7w
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Anirudh Agrawal [email protected]
Kiva Background Founded by Matt Flannery and Jessica Jackley in 2005 “Unity” in Swahili Based in San Francisco, CA Mission: “To connect people through lending to alleviate poverty” Non-profit Notable sponsors: Paypal, Linked in, Chevron, Visa 35 employees
Anirudh Agrawal [email protected]
Kiva Business Model
Crowdsourced microloans for entrepreneurs in developing countries
How it works? Borrowers / Entrepreneurs Field Partner KIVA Lender (KIVA users)
Anirudh Agrawal [email protected]
KIVA Process
Field partner post Entrepreneur profile KIVA user selects entrepreneur and makes donation Minimum of $25 KIVA sends money to field partner Field Partner gives money to entrepreneur (interest) Entrepreneur → Field Partner => Kiva → Lender
Anirudh Agrawal [email protected]
MyC4.com
MyC4 is an online platform which facilitates capital exchange for those with the least access to it in the form of loans
African business (Uganda, Kenia, Cote D’ivoire, more to come)in the micro to meso-segment (250 to 25.000 euro)Loan duration 4 to 36 months (average of 12 months)
Fully web2.0 enabled with open APIs in the pipelineStrong community driven approachBid against other investors using the Dutch auction method
Anirudh Agrawal [email protected]
MyC4.com
Investors upload money to MyC4 and start to bidTwo types of users:
Ordinary people like you & me (98% of the users – 50% of the capital)High capital users (private equity, 2% of the users – 50% of the capital)
Investors bid against each other based on interest rateLower interest bids push out high interest bidsMarket decides the best interest rateCharity-like bids are possible (min. 2% p.a.)
Anirudh Agrawal [email protected]
MyC4.com
All sorts of African business are availableFishing and farmingManufacturing/constructionRaw material processing/tradingRetailServices
The investment has to conform to the U.N. Millennium Development GoalsDue diligence of each investment is performed locally
Anirudh Agrawal [email protected]
MyC4 Business Model
Investors
MyC4
Provider/Lender
Business
Investments & repayments
Due diligenceDisbursements
Collecting repayments
Local
Online
Anirudh Agrawal [email protected]
MyC4 – key differentiators
Over 88% to 94% of each Euro reaches the African businessNon-comparable to traditional charity
Highly competitive interest ratesNot just 2% p.a. difference, but more over 20% p.a. difference
People directly see where they invest intoConnects people, creates intimacy
Stimulates local economyMyC4 development center located in Kampala, UgandaPrimary provider (FED) grown to 42 employees out of 3
Anirudh Agrawal [email protected]
MyC4 – benefits and risks
Benefits:High interest rates (over 7% p.a. easily achievable)Solid alternative to charityIt’s fun!
Risks:Currency exchange lossesPolitical/ethnic instability (e.g. Kenia)Loans can be defaulted
Anirudh Agrawal [email protected]
An example of a typical investment on MyC4
Description
Business can specify the wanted interest rate
Insight in total costs
Anirudh Agrawal [email protected]
The Borrowers/Entrepreneurs
Majority: Retail and Agriculture Others: Services, Clothing, Housing,
Transportation, Education, Arts Geographical Distribution:
Africa: Rwanda, Uganda and Kenya Asia: Cambodia and Philippines South America: Ecuador and Peru
Majority of Entrepreneurs are female
Anirudh Agrawal [email protected]
Activity 1
What are the various points in business model where Kiva and MyC4 can have cost overruns?How does IT platforms enhaces the productivity and reach of Kiva and MyC4?How can Kiva and MyC4 leverage Social Media platforms?Discuss in groups of 4 or 5…10 minutes
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Open Innovation
Anirudh Agrawal [email protected]
What is Innovation?
• Change/ Creativity/ Ideation/invention normally towards more
pleasant/efficient than the present
• Methods/Innovations/Inventions/Creativity that reduces the
transaction costs of doing that business…R Coarse
• Better, efficient, productive products, processes, services,
technologies or ideas that are readily available to the markets,
governments and society…Wikipedia
Anirudh Agrawal [email protected]
What is Innovation?
Institutional Innovation
Product-Service Innovation
Organizational Innovation
Organizational EnvironmentOrganizational Boundary
Organizational Structure
Organizational actors
Anirudh Agrawal [email protected]
Types of Innovation?
Structural level innovation (process, systems)Actor level innovation (HR, work methods, team, function-skill level)Organizational boundary level innovationEnvironmental level innovation (region, culture, taste, macro-political-economical)
Anirudh Agrawal [email protected]
Types of Innovation?
Incremental innovationIOS 5.1 to IOS 6.0Windows 7 to Windows 8
Radical InnovationWindows 95Iphone first generation, Ipad1, Ipod 1Inductive charging
Anirudh Agrawal [email protected]
What is closed Innovation?
Schumperters’ viewSystems or architects of Production houses hold the keys of Innovation
Anirudh Agrawal [email protected]
Closed Innovation : OrganizationsHire bright people : Mostly Top ranked university graduates/ PhDs with publications/Post-docs
Put them in special conditions (Well funded Labs, Good Wages Packages)
Research and Develop a range of Ideas
Funnel some of those ideas to product/service stage towards the end-users/ waiting customers
Copied with Pride from the presentation on Open Innovation models by Charles Leadbeater
Anirudh Agrawal [email protected]
Closed Innovation : Assumptions
Knowledge is sticky (only creators of knowledge know everything about the knowledge)Only inventors knows the best use of their inventionsIntellectual Property provides competitive edge , hence it should be protectedInnovation comes from within, self-reflective process ; Users are passive – cannot provide information to the firm on innovation
Copied with Pride from the presentation on Open Innovation models by Charles Leadbeater
Anirudh Agrawal [email protected]
Examples of Closed Innovations
Elite Education : Harvard University (best comes from
best universities)
• Investment gets innovation (you put in resources, you
will get innovation) …sort of a black box model of the
innovation
• Assumption Only NASA can make a Space-Craft to
Mars
Anirudh Agrawal [email protected]
Challenges to Closed Innovation
• Innovation can arise from anywhere : Ex: Google still don’t have a challenge for Facebook or LinkedIn or Twitter
• User can innovate, add value to final product ..empowering end user? Hmmm..
• In a highly networked world, closed innovation can
always have threats (stealing of secrets)
Anirudh Agrawal [email protected]
Anyone among us can be the next Einstein or Edison or Zuckerberg
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Anirudh Agrawal [email protected]
Close Innovation : Need for reforms
• Should Innovation be a closed , blackboxed department, isolated from the environment of the firm
• Should consumer to part of developing the product/ service for the firm..if so how?
• Should there be cross –functional teams?
Marketing + R and D …is it ok?
Anirudh Agrawal [email protected]
Innovation Funnel
25 Sept 2012
42
From the Presentation of Prof Henry Chesbrough UC Berkeley, Open Innovation: Renewing Growth from Industrial R&D, 10th Annual Innovation Convergence, Minneapolis Sept 27, 2004
Anirudh Agrawal [email protected]
What is OPEN Innovation?
Anirudh Agrawal [email protected]
• http://www.youtube.com/watch?v=_GAferFgSF8
• http://www.youtube.com/watch?v=xBEv7ukmz2U
Anirudh Agrawal [email protected]
What is Open Innovation?
• Maximizing return on investment through actively exploiting external ideas and knowledge and internal ideas and knowledge.. Henry Chesbourgh
• Economically important innovations are developed by users and other agents who divide up the tasks and costs of innovation development and then freely reveal their results to the public ..Eric Von Hippel
Anirudh Agrawal [email protected]
External Open Innovation• Purchasing : Buying technologies – IP rights, trademarks, copyrights,
trademarks from external players instead of developing inhouse• Licensing –In : Obtaining the right to exploit technologies by paying
royalties to external partners• Joint Venture : Establishing a JV with other partners to
commercialize technologies• Joint Development : Developing capabilities, products, services and
technologies by outside collaboration such as Firms, Universities, Labs
• Contract R & D : Buying R and D services from Universities, Industries
• Venture Capital : Investing in promising products/services/capabilities through external funding..
• Mergers and Acquisition for capability enhancement• Customer involvement : User driven innovation• External networking : Outsourcing, consultants, experts
Ref: Open innovation management and challenges : Abdul Hadi G, Junbae Lee . Procedia Social and behavioral sciences
Anirudh Agrawal [email protected]
Purchasing• Purchasing : Buying technologies – IP rights, trademarks,
copyrights, trademarks from external players instead of developing in-house
Firms strategy towards make or buy? ROI, Investment, Risks associated, Dominant Logic
Examples : Patent war between Samsumg and Apple or Google maps vs Apple Maps
Example form Social Enterprise perspective : Using first world technologies through special arrangements to solve third world problems of energy, food, water, housing, education, health-care, finance
Anirudh Agrawal [email protected]
Licensing-In• Licensing –In : Obtaining the right to exploit
technologies by paying royalties to external partners
• Examples : Facebook integration in Iphone 5 , Google maps in Iphone 4S
• Example from Social Entrepreneurship Perspective : Royalty on AIDS medicine patent for every medicine sold in third world / royalty to paypal for every donation made to a charity organization
Anirudh Agrawal [email protected]
Joint Venture• Joint Venture : Establishing a JV(a new company) with
other partners to commercialize technologies
• Example : Starting a JV company in a new country to develop market expertise of that country
• Examples : Social entrepreneur can contact a designing firm in Denmark and co-create products for developing world markets or social problems
Anirudh Agrawal [email protected] Sept 2012
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Anirudh Agrawal [email protected]
Joint Development
• Joint Development : Developing capabilities, products, services and technologies by outside collaboration such as Firms, Universities, Labs
• Example : Smart phone development Nokia/Microsoft ; Fundamental science related development : Development of Micro-chip
• Example from social entrepreneurship perspective : Development of base of the pyramid solution at MIT media labs; WRI report .. The next billion
Anirudh Agrawal [email protected]
Contract R and D• Contract R & D : Buying R and D services from
Universities, Industries
• Example: Completing outsourcing capability development , knowledge creation, product innovation aspects of the company to a third party player ; Firms hiring designing firms like IDEO to develop products and capabilities
• Example From social entrepreneurship perspective : UNICEF developed cheap /special energy food packets for the humanitarian disaster areas
Anirudh Agrawal [email protected]
Venture Capital
• Venture Capital : Investing in promising products/services/capabilities through external funding
• Example : Ihubs in Nairobi, VC funded By Google to raise new technologies and dot.coms in Nairobi
• Examples from Social Entrepreneurship Perspective : Gates-Melinda foundation
Anirudh Agrawal [email protected]
Customer Involvement
• Customer involvement : User driven
innovation
• Examples : Apps for Android and IOS
• Examples from Social Entrepreneurship
perspective : www.NIF.org
Anirudh Agrawal [email protected]
External Networking : How can an outsider know more than us?• External networking : Outsourcing, consultants,
experts
• Example : Hiring consultants, experts to bring in new capabilities, insights into the firm without actually creating a ful-time position for it
Anirudh Agrawal [email protected]
Internal Open Innovation
• Selling : Selling inside capabilities
• Licensing Out : Servitization of inside capabilities
• Spin Off : Creating a new organization based on internal capabilities with the parent organizer as the major funder, organizer and mentor
• Open Source : Revealing internal technologies/capabilities to the market without any immediate selfish incentive
Ref: Open innovation management and challenges : Abdul Hadi G, Junbae Lee . Procedia Social and behavioral sciences
Anirudh Agrawal [email protected]
Selling Inside Capabilities
• Selling : Selling inside capabilities
• Example : Selling patents, copyrights, trademarks
Anirudh Agrawal [email protected] Sept 2012
64
Anirudh Agrawal [email protected]
Licensing Out
• Licensing Out : Servitization of inside capabilities
• Example : Google Maps
Anirudh Agrawal [email protected]
Spin Off
• Spin Off : Creating a new organization based on internal capabilities with the parent organization as the major funder , mentor and chief architect
• Example : Intel• Example :
Anirudh Agrawal [email protected] 68
Anirudh Agrawal [email protected]
• Open Source : Revealing internal technologies/capabilities to the market without any immediate selfish incentive
• Example : Opening up Android platform for third party aap development
Anirudh Agrawal [email protected] 70
Anirudh Agrawal [email protected]
Organizations for Open Innovation• Able to set up systematic procedures for
problem solving• Motivation for new knowledge acquisition• Risk Taking, entrepreneurial • Developing capabilities to create knowledge
and capabilities• Team Management
Anirudh Agrawal [email protected]
Factors that Promote Open Innovation
• Organizational Factors– Flexible Organizations– Hierarchy (Flat vs Pyramidal)– Information hoarding vs Information sharing– Service based vs Product based vs Project based
• Market Factors– Lead User innovation– User education and Sensiblization– Price, method of Promotion , place of promotion– Competition
Anirudh Agrawal [email protected]
Open Innovation video..geeky
• http://fora.tv/2008/04/08/MITs_Eric_von_Hippel_Open_Innovation
Anirudh Agrawal [email protected]
Innovators DNA• Associating : technology association, industry association
• Curiosity, Questioning : Why, what, if, But, why not, how, does that, really?
• Observation : Marketing, your customers, your suppliers, your value chain, your employees, your competitors
• Experimenting, Risk, Entrepreneurial MindSet, Never Give Up
• Networking : Individual / Skill based resource management
Anirudh Agrawal [email protected]
Innovators DNA
Anirudh Agrawal [email protected]
Tools for analyzing Innovation
• 4 P analysis• PEST Analysis• Financial or Economic Feasibility Analysis
Profit –loss ROI EBITDA(Earnings before interest taxe depreciation and amortization) IRR NPV
• Porters 5 forces analysis
Anirudh Agrawal [email protected]
Financial and Economic Feasibility Analysis
Profit – Loss
ROI > Return on Investment/ Impact on investment
SROI > Social Return on Investment
NPV > Net Present value
IRR > Internal rate of return/ Discounted Cash Flow
EBITDA
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Anirudh Agrawal [email protected]
Activity 3
• Use of Open Innovation in your bachelors/Masters project
• 10 minutes
Anirudh Agrawal [email protected]
Open Innovation vs Closed InnovationClosed Innovation Principles Open Innovation PrinciplesSmart People get hired, work for Large companies, are PhDs or Ivey League Universities, give them money
Smart People are everywhere, they can work from anywhere for anyone, their motivations are not just money
To profit from Innovation orientation, we must discover it ourselves, develop it ourselves, and get it to market
Firms must be receptive to Innovation surrounding us, innovation can come from both inside and outside firm boundaries
Patents, IP rights, copyrights give us undisputed monopoly in the market
We don’t really have to create innovation in order to profit from it
We must protect our capabilities from others, must not let anyone see or use our capabilities
We can create competitive advantage by letting outsiders use our capabilities and generate revenue as well
http://www.openinnovation.eu/open-innovation/
Anirudh Agrawal [email protected] C 2002 Henry Chesbrough EIRMA SIG III, 2005-10-20
Our current market
Our new market
Other firm´s market
External technology insourcing
Internal technology base
External technology base
From the Presentation of Prof Henry Chesbrough UC Berkeley, Open Innovation: Renewing Growth from Industrial R&D, 10th Annual Innovation Convergence, Minneapolis Sept 27, 2004
Internal/external venture handling
Licence, spin out, divest
Anirudh Agrawal [email protected]
• http://www.youtube.com/watch?v=2UDBaDtwXfI&feature=related
Anirudh Agrawal [email protected]
What have we covered
• Human Rights/Shared Values• Internet – Changing paradigm• Social Movement and Civil Society organizations• Online Activism• Online Rating and Reviews• Co-creation• Crowd sourcing• Business Model Analysis• Kiva vs MyC4• Open Innovation
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