Innovation Management – Business Planning and Writingiss.uni-saarland.de/workspace/documents/ivm-13_business-planning... · Innovation Management – Business Planning and Writing

Innovation Management – Business Planning and Writing Univ.-Prof. Dr.-Ing. Wolfgang Maass Chair in Economics – Information and Service Systems (ISS) Saarland University, Saarbrücken, Germany SS 2012 Wednesdays, 10:00 – 12:00 a.m. Room 0.21, B4 1

Univ.-Prof. Dr.-Ing. Wolfgang Maass

27.07.12 Slide 2

Lecture Agenda

Innovation Management 1.  Introduction 2.  Knowledge Management (1) 3.  Knowledge Management (2) 4.  Guest Lecture 5.  Strategic Innovation Management

Case Study 6.  New Product Development 7.  Creativity Techniques 8.  Planning Product Features 9.  Experimentation Strategies (1) 10.  Experimentation Strategies (2) 11.  Open Innovation 12.  Diffusion and Adoption of Innovation 13.  Business Planning and Writing


Agenda •  Business Model •  Business Model Canvas Main Elements •  Building Blocks

•  Customer Segments •  Value Propositions •  Channels •  Customer Relationships •  Revenue Streams •  Key Resources •  Key Activities •  Key Partnerships •  Cost Structure

•  Transfer of Building Blocks to Business Model Canvas •  Business Model Design Process


27.07.12 Slide 4

Business Models

(Osterwalder, 2011)


27.07.12 Slide 5

Business Model

(Osterwalder & Pigneur, 2010)

Definition Business Model “A business model describes the rationale of how an organization creates, delivers, and captures value”. (Osterwalder & Pigneur, 2010)

Development of a business model tool by Osterwalder & Pigneur: Requirements regarding the tool:

•  Easily understandable by everyone •  People involved in business model are supposed to “talk about the

same things” •  Facilitation of description and discussion regarding the business

model •  Simple and relevant concept, however no oversimplification of

company’s complexity


27.07.12 Slide 6

Business Model Canvas Main Elements

Tool: Business Model Canvas •  Tool consists of nine building blocks of company’s value creation and delivery •  Building blocks are transformed into a business map •  Resembles a painter’s canvas

(Osterwalder & Pigneur, 2010; Business Model Foundry 2011)

Nine building blocks: ①  Customer segments ②  Value propositions ③  Channels ④  Customer relationship

⑤  Revenue streams ⑥  Key resources ⑦  Key activities ⑧  Key partnerships ⑨  Cost structure

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Customer segments

Revenue streams

Cost structure

Key partnerships

Key activities Value

proposition

Key resources

Customer relation-ships

Channels

Compose four main areas of business •  Customers •  Offer •  Infrastructure •  Financial viability


27.07.12 Slide 7

Building Blocks Customer Segments

Customers belong to different segments, if .... ... they require different product offers because of different needs ... they are contacted via different distribution channels … they need different kinds of relationships to the company … their profitabilities are different … their willingness-to-pay is different

①  Customer segments “Defines the different groups of people or organizations an enterprise aims to reach and serve”.

•  Profitable customers are needed for long-term survival of company •  Customers can be grouped into segments to satisfy their needs in a better way •  Company needs to decide which segments to focus on •  Company does not need to serve all segments •  Customer’s needs and customer segmentation: Basis for design of business model •  Question: “For whom are we creating value?”

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Building Blocks Customer Segments

Different types of business models according to customer segments (examples)

Mass market •  No segmentation •  Product is offered for one large group of

consumers •  Similar needs among all customers

•  e.g., consumer electronics sector (flat screen TV)

Niche market •  Focus on specialized customer groups •  Product and communication are

concentrated on small specific segment •  e.g., supplier-buyer relationship (car part

producer dependent of large automobile manufacturer)

Slightly differing segments •  Segments with only slightly differing needs •  Products proposed to different segments

are only slightly different •  e.g., Micro Precision Systems (micro-

mechanical engineering solutions): focuses on watch and medical industry and industrial automation sector.

•  Needs are only slightly different

Diversified •  Two or more completely unrelated

segments are focused •  Very different needs among segments

•  e.g., Amazon: Diversified retail business (particularly private customers) by offering cloud computing services. New customers are web companies.



27.07.12 Slide 9

Building Blocks Value Propositions

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②  Value propositions “Bundle of products and services that create value for a specific customer segment”.

•  Satisfies customer need or provides a solution to his problem •  Customers switch to another company if their value proposition is superior •  One value proposition is offered to one customer segment •  Bundle of benefits which is sold to consumers •  Question: “Which customer needs are we satisfying?”

Values offered to customers can be quantitative or qualitative •  quantitative values:

price of product, speed of service •  qualitative values:

design of product, customer experience


27.07.12 Slide 10

Building Blocks Value Propositions

Examples of elements that can create value to customers

Newness •  Needs that were unknown to customer

are satisfied by value propositions •  No similar product was available

previously •  e.g., smartphones

Customization •  Products and services are tailored to

needs and problems of individual consumers

•  e.g., myMuesli

Brand/Status •  Value is created by using or wearing a

special brand •  e.g., Rolex watch signifies wealth

and high status


Price •  Offering similar value at low price

creates value to price-sensitive consumers

•  Business model needs to be adopted (low costs)

•  e.g., car “Nano” of Indian manufacturer Tata

Convenience/Usability •  Offering products that are easier to use

than previous products can create value

•  Offering convenience and high usability •  e.g., Apple iPod and iTunes

(convenient search, downloading and listening to music)


27.07.12 Slide 11

Building Blocks Channels

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③  Channels “Describes how a company communicates with and reaches its customer segments to deliver a value proposition”.

•  Interface between customers and company: Communication, distribution and sales channels •  Functions of channels are e.g.,

•  raising awareness regarding company’s products •  delivery of value proposition to customers •  enable purchase of products and provision of post-purchase support

•  Questions: “Through which channels do our customer segments want to be reached?” “How are our channels integrated?”

Types of channels •  Direct, e.g.,

•  Web site (Adidas online shop) •  Indirect, e.g.,

•  Retail stores (Adidas store) •  Channels can be owned by the

company or by a partner


27.07.12 Slide 12

Building Blocks Customer Relationships

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④  Customer Relationships “Describes the types of relationships a company establishes with specific customer segments”.

•  Motivation for customer relationships, e.g., acquisition or retention of customers •  Questions:

“What type od relationship does each of our customer segments expect us to establish and maintain with them?” “How are they integrated with the rest of our business model?”

Example: •  Mobile network operators used to conduct

aggressive acquisition strategies (including mobile phones free of charge) regarding customer relationships.

•  Today, customer retention and increase of revenue per customer more important.


27.07.12 Slide 13

Building Blocks Customer Relationships

Examples: Categories of customer relationships Personal assistance •  Relationship based on human interaction •  Customer communicates directly with

employee of company •  e.g., support during sales process via call

center or e-mail

Communities •  Online communities for exchange of

knowledge among users and with company •  Help companies getting feedback from

customers •  e.g., H&M online community

Automated service •  Mix of customer self-service and automated

processes •  Can recognize individual customers (e.g, via

online profile) and offer information according to the customer’ previous orders

•  e.g., MeineBahn.de offers personalized information on collected points of frequent traveler program and possible awards.



27.07.12 Slide 14

Building Blocks Revenue Streams

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⑤  Revenue Streams “Represent the cash a company generates from each customer segment”.

•  Two different types of revenue streams in a business model: •  Transaction revenues (one-time customer payments) •  Recurring revenues (ongoing payments for e.g., support after purchase)

•  Questions: “For what value are our customers really willing to pay?” “How would they prefer to pay?”

Ways to generate revenue streams, e.g., •  Asset sale: Selling physical products (e.g., Audi

sells cars, Amazon.com sells books, consumer electronics among other things)

•  Usage fee: Use of a service (e.g., hotel charges customers for number of nights spent in the room)

•  Subscription fee: Continuous access to a service (e.g., World of Warcraft Online allows access to game at each time of the day for a monthly fee)

•  Licensing: Permission to use protected intellectual property (e.g., technology industries, patent holders sell right to use to other companies for a license fee


27.07.12 Slide 15

Building Blocks Revenue Streams


Pricing mechanisms: for generating revenue streams, can be fixed or dynamic


27.07.12 Slide 16

Building Blocks Key Resources

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⑥  Key Resources “Describes most important assets required to make a business model work”.

•  Type of key resources depend on business model •  e.g., microchip manufacturer: needs expensive production facilities

microchip designer: needs especially human resources •  Question:“What key resources do our value propositions, channels, customer relationships and

revenue streams require?”

Categorization of key resources •  Physical: Assets (machines, buildings)

•  e.g., retailers need many physical resources (Globus: retail stores, Amazon: IT and warehouses)

•  Intellectual: Brands, patents, customer databases •  e.g., Nike: Brand is large resource

•  Human: Needed especially in knowledge-intensive industries

•  e.g., Pharma company Novartis: Needs experienced scientists

•  Financial: Cash, credit lines •  e.g., Ericsson borrows funds from banks to provide

vendor financing


27.07.12 Slide 17

Building Blocks Key Activities

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⑦  Key Activities “Describes most important things a company must do to make its business model work”.

•  Most important actions of company to operate successfully •  Depend on business model

•  PC manufacturer Dell: Key activity is supply chain management •  Consulting company McKinsey: Key activity is problem solving

Categorization of key activities •  Production: Designing, making and delivering of

products •  dominates business model of manufacturing companies •  e.g., automotive companies (Audi, VW)

•  Problem solving: Come up with new solutions to customer’s problems

•  dominates business model of consultancies and hospitals •  e.g., hospitals need to find solutions to illnesses

•  Platform/Network: Can be e.g., a web site •  e.g., Ebay: key activity is maintenance and improvement

of web site


27.07.12 Slide 18

Building Blocks Key Partnerships

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⑧  Key Partnerships “Describes the network of suppliers and partners that make the business model work”.

•  Partnerships are created to e.g., reduction of risk, acquisition of resources, optimization of allocation of resources

Questions: “Who are key partners and key suppliers?” “Which key activities do partners perform?”

Different types of partnerships •  Strategic alliance: Created between companies

which are not competitors •  Coopetition: Created between companies which are

not competitors •  Joint ventures: Created to develop new business,

e.g. in another country •  Buyer-supplier relationship: Created to assure

reliability of suppliers


27.07.12 Slide 19

Building Blocks Cost Structure

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⑨  Cost Structure “Describes all costs incurred to operate a business model”.

•  Creating value and generating revenue incur costs •  Costs depend business model

•  e.g., low cost airlines (e.g., Ryanair) created their business models focusing on low cost structures •  Question: “Which key resources and key activities are most expensive?”

Different types of business model cost structures •  Cost-driven: Minimization of costs wherever possible

•  Maximization of automation •  Extensive outsourcing •  e.g., low cost airlines (Ryanair)

•  Value-driven: Focus on creation of value, however also consider costs

•  High degree personalizes service •  e.g., luxury hotels


27.07.12 Slide 20

Transfer of Building Blocks to Business Model Canvas

Building blocks are basis of Business Model canvas: Elements are transferred to canvas Business Model Canvas is used to discuss business model parts •  Can be printed and pinned at a wall •  People can discuss it and add ideas on post-it’s •  Tool for analysis, discussion and stimulating creativity


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Customer segments

Revenue streams

Cost structure

Key partnerships

Key activities Value

proposition

Key resources

Customer relation-ships

Channels


27.07.12 Slide 21

Example of Business Canvas: Emmas Enkel

Video: Emmas Enkel http://www.emmas-enkel.de/Ueber-Emmas-Enkel

• People with little time (e.g.employed people)

• Elderly people • People who like social contact

• People who like individual service

Revenue from sale of food, beverages and household appliance

Value-driven cost structure

• Food manufacturers

• Suppliers • Credit card companies (Visa & Master Card)

• PayPal

• Selling of food and household appliance

• Comfortable shopping without queuing

• Relaxing shopping with individual service

• Quick shopping from „on the way“

• Easy shopping: Food can brought to people‘s home

• About 4-5 employees • Food store (physical) • Online store

• Individual service

• Counter in store • Via IPad in store • On the way via

smartphone or computer (online store)


27.07.12 Slide 22

Business Model Design Process

Business model design process is composed of five phases:


Mobilize

Prepare for a successful business model design project.

Setting the stage

Assemble elements for business model design. Describe motivation and establish a common language for design and analysis of business models

Understand

Research and analyze elements needed for the business model design effort.

Immersion

Immersion of relevant knowledge regarding customers, technology and environment. Identification of problems and needs.

Design

Generate and test viable business model options, and select the best.

Inquiry

Transform information and ideas into business model prototype (for testing). Best business model design is selected.

Implement

Implement the business model prototype in the field.

Execution

Implementation of the selected business model design

Manage

Adapt and modify the business model in response to market reactions.

Evolution

Continuous monitoring, adapting and transformation of business model. Management structure needs to be set up accordingly.

Objec-tive

Focus

Des-crip-tion


27.07.12 Slide 23

Literature

Books: •  Osterwalder, A. & Pigneur, Y. (2010), Business Model Generation, John Wiley & Sons.

Others: •  Business Model Foundry (2011), http://www.businessmodelgeneration.com/canvas, [20.07.2012]. •  Emmas Enkel (2012), http://www.emmas-enkel.de/, [23.07.2012]. •  Osterwalder, A. (2011), Burn Your Business Plan,

http://www.slideshare.net/Alex.Osterwalder/creativity-world-forum-belgium, [23.07.2012].


Univ.-Prof. Dr.-Ing. Wolfgang Maass Chair in Information and Service Systems Saarland University, Germany

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Innovation Management – Business Planning and Writingiss.uni-saarland.de/workspace/documents/ivm-13_business-planning... · Innovation Management – Business Planning and Writing