SERGUEI NETESSINE

HTTP://WWW.DEFINEYOURCOMPANY.COM

BUSINESS MODEL INNOVATION

http://www.netessine.com/http://www.netessine.com/http://www.netessine.com/http://www.netessine.com/http://www.netessine.com/http://www.renaissanceinnovator.com/http://www.renaissanceinnovator.com/http://www.renaissanceinnovator.com/http://www.renaissanceinnovator.com/http://www.renaissanceinnovator.com/http://www.renaissanceinnovator.com/http://www.renaissanceinnovator.com/

INSEAD © 2014 SERGUEI NETESSINE SIPC 2014 - 2

WHAT WAS EDISON’S KEY INVENTION THAT CHANGED THE WORLD?

INSEAD © 2014 SERGUEI NETESSINE SIPC 2014 - 3

THE REAL INVENTION OF THOMAS EDISON: THE BUSINESS MODEL OF ELECTRICITY

INSEAD © 2014 SERGUEI NETESSINE SIPC 2014 - 4

THE TECHNOLOGY HAS CHANGED…

BUT EDISON’S BUSINESS MODEL IS SUSTAINABLE…

INSEAD © 2014 SERGUEI NETESSINE SIPC 2014 - 5

APPLE VS. XIAOMI

• Huge R&D budget • Complete secrecy • Infrequent product releases • Minimal user feedback • Many middlemen • Huge production quantity

Steve Jobs and Product/Technology Innovation

• Minimal expenditures on innovation • Constant feature updates (every Friday) • Ability to configure OS by user • Direct to consumer, online only • Small batch to test the market • Users invent new features, translate OS

Lei Jun and Business Model Innovation

INSEAD © 2014 SERGUEI NETESSINE SIPC 2014 - 6

BUSINESS MODEL INNOVATION: A DIFFERENT APPROACH TO INNOVATION EXISTING PRODUCTS/TECHNOLOGY

SUPERIOR BUSINESS MODELS TO PROVISION PRODUCTS OR SERVICES TO MARKETS

EXISTING MARKET NEEDS

Business Model Innovation

INSEAD © 2014 SERGUEI NETESSINE SIPC 2014 - 7

BUSINESS MODEL INNOVATIONS HIDING IN PLAIN SIGHT

MORE EXAMPLES ON HTTP://WWW.RENAISSANCEINNOVATOR.COM

http://www.renaissanceinnovator.com/http://www.renaissanceinnovator.com/http://www.renaissanceinnovator.com/http://www.renaissanceinnovator.com/http://www.renaissanceinnovator.com/http://www.renaissanceinnovator.com/http://www.renaissanceinnovator.com/http://www.google.com/url?sa=i&source=images&cd=&cad=rja&uact=8&docid=4jhppYWyj6CAjM&tbnid=sqGkmJW_TrvMPM&ved=0CAgQjRw&url=http://blog.uber.com/2011/12/05/take-ubers-new-logo-for-a-spin/&ei=wx0dU8n-NMnGrAfK6oD4Ag&psig=AFQjCNGEOkP5z3TXHAYxgcFhYOmBMSnOEA&ust=1394503491982182

INSEAD © 2014 SERGUEI NETESSINE SIPC 2014 - 8

► When companies attempt business model innovation, they often focus too much on innovating cost and revenue models.

► But a greater danger to existing business models often comes from risks in demand and supply.

► Key to sustainable business model innovation lies in systemizing risk management opportunities.

Revenue Model

Price

Volume (market Size)

Ancillary Sales

Cost Structure

Direct, Indirect costs

Economies of scale and scope

Resource Velocity

Rate of value output

Lead times, turns, throughput, utilization

Riskiness of Revenues, Costs and Resource Velocity

Sensitivity of profits to changes in price, volume, costs, resource utilization, incentives

HOW TO APPROACH BUSINESS MODEL INNOVATION

INSEAD © 2014 SERGUEI NETESSINE SIPC 2014 - 9

EXAMPLE: THE FAST FASHION BUSINESS MODEL OF INDITEX

Speeding up the timeline from 12 months to 2 weeks.

Design Sourcing Mfg. Distribution Sales Discount

http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/

http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/http://renaissanceinnovator.com/2011/04/23/fast-enough-to-catch-up-with-fashion/

INSEAD © 2014 SERGUEI NETESSINE SIPC 2014 - 10

Everyone: Build To Forecast Timbuk2: Build To Order, Mass Customize

EXAMPLE: DELL OF TRAVEL ACCESSORIES

Manufacture Demand Demand Manufacture

http://renaissanceinnovator.com/2011/04/03/timbuk2/ Source: Case “Where in the World Is Timbuk2? Outsourcing, Offshoring, and Mass Customization” by Cachon, Cattani and Netessine.

http://renaissanceinnovator.com/2011/04/03/timbuk2/http://renaissanceinnovator.com/2011/04/03/timbuk2/

INSEAD © 2014 SERGUEI NETESSINE SIPC 2014 - 11

EXAMPLE: NETAFIM AND THE IRRIGATION DILEMMA

0

100

200

300

400

Revenues (Millions $)

600 Manufacturing efficiency

to be “best drip irrigation

equipment company”

Difficulty with technology

adoption, inability of

customer to pay

Solution provider,

“Helping The World

Grow More With Less”

500

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

2

00

7

20

08

Contracting based on crop yields to transfer risk from customers to the supplier.

Source: Case “Netafim: Migrating from Products to Solutions” by Hau Lee and Guy Michlin.

http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/

http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/http://renaissanceinnovator.com/2012/11/19/when-business-models-trump-technology/

INSEAD © 2014 SERGUEI NETESSINE SIPC 2014 - 12

KEY TAKE-AWAYS ► The Blind Spot of Innovation – Innovation

through Business Models

► Business Model Innovation is game changing, widely applicable, systematic innovation approach requiring minimal investments

► The cost-revenue tradeoff can be misleading: improving productivity often precludes innovation. The risk-return tradeoff is paramount to thinking about sources of sustainable innovation.

INSEAD © 2014 SERGUEI NETESSINE SIPC 2014 - 13

SUMMARY: DIFFERENCES IN INNOVATION APPROACHES

Choose for yourself!

Business Model Innovation Product and Technology

Innovation

Transferable between industries Industry-specific

Possibility to describe/learn the method

Depends on specific individuals/teams

Sustainable/hard to copy Many imitators

Minimal R&D expenditures Large R&D expenditures

INSEAD © 2014 SERGUEI NETESSINE SIPC 2014 - 14

A SUPERIOR WAY TO INNOVATE: BUSINESS MODEL INNOVATION

“How to build risk into your business model”, Girotra and Netessine, Harvard Business Review, May 2011.

Karan Girotra and Serguei Netessine “The risk-driven business model: four questions that will define your company”. Harvard Business Press 2014.

“Four Paths to Business Model Innovation”, Girotra and Netessine, Harvard Business Review, July 2014.

https://twitter.com/snetesin

http://www.linkedin.com/pub/serguei-netessine/2/533/304

http://www.defineyourcompany.com

http://hbr.org/2011/05/how-to-build-risk-into-your-business-model/ar/1http://www.amazon.com/Risk-Driven-Business-Model-Questions-Company/dp/1422191532/http://www.amazon.com/Risk-Driven-Business-Model-Questions-Company/dp/1422191532/http://www.amazon.com/Risk-Driven-Business-Model-Questions-Company/dp/1422191532/http://www.amazon.com/Risk-Driven-Business-Model-Questions-Company/dp/1422191532/http://www.amazon.com/Risk-Driven-Business-Model-Questions-Company/dp/1422191532/http://hbr.org/2014/07/four-paths-to-business-model-innovation/ar/1https://twitter.com/snetesinhttps://twitter.com/snetesinhttps://twitter.com/snetesinhttp://www.linkedin.com/pub/serguei-netessine/2/533/304http://www.linkedin.com/pub/serguei-netessine/2/533/304http://www.linkedin.com/pub/serguei-netessine/2/533/304http://www.linkedin.com/pub/serguei-netessine/2/533/304http://www.renaissanceinnovator.com/