Reinventing Your Business Model

A new HBR article(Dec 2008) on business model innovation. "Why is it so difficult for established companies to pull off the new growth that business model innovation can bring? Here's why: They don't understand their current business model well enough to know if it would suit a new opportunity or hinder it, and they don't know how to build a new model when they need it."

Update: Also watch a video interview with Clayton Christensen on the link between disruptive innovation and business model reinvention.

Google Chrome: A small step for ...

Google just released its web browser Chrome. Google has steps in the browser business with a new concept as the Web is moving from pages to applications (with, of course, Google as an important player with Google Aps). The first impression is to perceive this as a direct attack on both MS Internet Explores and Windows. But is Google really interested in head-on competition?

In Nicholas Carr's opinion Google is motivated by something much larger than its congenital hatred of Microsoft. 'It knows that its future, both as a business and as an idea (and Google's always been both), hinges on the continued rapid expansion of the usefulness of the Internet [...]' In line with this, Iyer and Davenport published not too long ago (April 2008) an interesting article about 'Google’s Innovation Machine.'

'Engagement Advertisements’

One of the interesting development with respect to social networking is how the companies providing the platforms will make money ('monetization'). One of the most innovative companies in this area is Facebook (see also its business solutions page targeted at advertisers), which was discussed in an insightful article on CNN Money called 'the Facebook economy'.

Forrester Research analyst Jeremiah Owyang discussed on his blog the launch of a a new product called ‘Engagement Advertisements,’ which should integrate with natural user behaviour. These engagement ads should encourage members to interact with the ads by leaving comments, sharing virtual gifts, or becoming fans.

Osterwalder: Why Business Models Matter

Alex Osterwalder has an interesting blog on business model design and innovation and also shares his slides on this topic on slideshare.net. His latest contribution is "why business model innovation maters," with which he entered the "world's best presentation contest." Thumbs up for Alex.

'User' generated content

What do we watch? How does YouTube make its money? Is it because of the amateur videos with popping bottles or domestic accidents? Or are we sharing last night’s episode of a Viacom show? We may soon find out: ‘Google must divulge YouTube log.’

Managers as designers (part 2/3)

Next to the focus on designing better, more innovative alternatives (Managers as designers: part 1/3), design also has a more formal and systematic side. With this side of design managers are more familiar as organizational design and business process design are traditional management issues.

For example, redesigning organizations with a functional structure into business units per product type or customer segment. The design of organizations covers higher-level issues related to the design of organizational units as well as lower-level issues related to the design of subunits and individual jobs (e.g. Nadler & Tushman, 1997).

Mangers have also been designing and redesigning business processes to improve the customer focus of their organization and to increase the operational efficiency. Davenport and Short (1990) define business process design as the analysis and design of workflows and processes within and between organizations. They differentiate between business processes on the basis of the entities (inter-organisational, inter-functional or inter-personal), objects (physical or informational) and activities (operational or managerial).

Business model management

Business models may be used on a routine basis and in a systematic way as part of managing and operating an organization. This means incorporating business model design and innovation as part of a continuous and integral process in the organization. This is in particular relevant for organizations that deal regularly with introducing new business models and improving established business models. What is require from organizations that may want to do this?

For identifying and formulating business model opportunities and problems, it is helpful that the organization has business model awareness. All persons in the organization should understand what business models are (and what they are not) and what they can mean for the organization. In this way the identification and formulation of business model opportunities and problems can become much more effective and efficient.

It is advisable to experiment with new business models first to test them and to try out different models and variations. Business model experimentation requires fast and flexible cycles between business model design and innovation, implementation, and monitoring and evaluation. The capability to experiment with innovative business models can be an organizational innovation in itself. Moreover, experimentation can also enables an organization to develop the capabilities required by a particular business model and, therefore, be more ready for a full scale roll-out later. One of the advocates of business model experimentation is Chesbrough in his discussion of open business models.

It is also important to take into account that organizations can have multiple business models (sequential and parallel) and need to manage the dependencies. For the business model design and innovation this means that the organization has to take into account where synergies between business models can be created and where trade-offs are required. This may imply that an organization needs an overall business model vision that can guide them with making forward-looking and consistent choices. Mitchell and Coles address in their book ‘The Ultimate Competitive Advantage’ the continuous development of business models and the need for a business model innovation vision.

Managers as designers (part 1/3)

Managers are, or should be, involved in design activities related to managerial and organizational issues. We will take a closer look at different ways in which managers are engaged in design activities.

Managers are confronted with organizational problems: mismatches between the desired and the actual situation of their organization. So problem solving is a core concern for management. Managers can approach these problems with a decision attitude or with a design attitude (Boland & Collopy, 2004). Imagine having to decide upon the introduction of a new service that can either be of low quality at low cost or of high quality at higher costs. Would you do user studies to find out what the customers prefer? Would you calculate the business case for both alternatives? Or would you try to devise an alternative with high quality and low costs? Traditionally, managers are often inclined to pursuit a decision attitude: assuming it is easy to come up with a number of alternative solutions but problematic to decide upon the right solution (Boland & Collopy, 2004). A design attitude to problem solving, in contrast, assumes it is difficult to design a good alternative, but once a truly good solution had been developed, the selection of the alternative becomes easy. For example, for the introduction of tele-health services it may be more useful to design innovative business models, such as a model inspired by the rising interest in wellness, then to calculate an expected ROI based upon current health insurance practices. While managers need both attitudes, the capabilities of managers as designers are often not addressed and also design tools for managers are relatively underdeveloped compared to the decision-making techniques.

IBM study: Business model innovation for telecom providers

The IBM Institute for Business Value study published an interesting study on the telecom industry. Most interesting, according to the study, business model innovation gained prominence in relation to products and services innovation. The transformation of business models by 'redefining their role in the emerging convergent value chain (of IT, media and telecom) and exploring alternative ways of earning revenue' will also require the development of new set of a set of complementary distinctive capabilities for sustainable competitive advantage.

A service-oriented business model

Earlier I wrote about the relation between the business model and the service concept. To continue this line of reasoning, it may be useful two distinguish between two extreme business models: a service-oriented and a product-oriented business model.

One could, for example, take the work of Grönroos (2007) on service management as starting-point for a service-oriented business model. Service marketing addresses how to manage an organization and its customer relationships in service competition. According to Grönroos, this requires appreciating the ‘service perspective’ as a strategic approach and developing a ‘total service offering’. Service management provides a good starting-point for a service-oriented business model because of its focus on service and the customer. A service-orientation means supporting customers’ activities and processes and results in overlapping service production and consumption. The most important characteristic of services is their process nature and the interaction between provider and customer in the service process.

A service-orientation impacts the full business model: the value proposition, the value configuration, and the financial model. A product-oriented value proposition, for example, implies that the core solution is a product that supports providing value-supporting resources, while a service-oriented value proposition implies that the core solution is a service supporting the customer’s value generating processes. Moreover, while a product-orientation focuses on the core solution, the service-orientation takes the total service offering into account. A focus on the core solution implies that additional services may be necessary but are not perceived as being of strategic importance and hidden services are not recognized as value-enhancing. A service-orientation means that an enhanced offering is required to support the customer’s value generating processes, a core solution is necessary but not sufficient.

Finally, note that in reality a business model can be a mix of product and service-orientation and these orientations are more different kinds of logic then different characteristics of the offering. So a physical product can have a service-oriented business model, while a service can have a product-oriented business model.

Government services and business models

Mostly business models are discussed in relation to private firms (and electronic business), but can business models be useful for public firms (and electronic government)?

I think so. While there are large differences between public and private firms, they both have to deliver services to citizens or customers in an effective and efficient manner.

For (new) government services it is also relevant to discuss who the target users and,for example, differentiate between individuals/families and businesses. These services also require discussing the benefits of the services for the users, even when the services are obligatory. Moreover, for the delivery of government services the cooperation between different public organizations is also an important issue. This gets even more complicated when it involves public-private cooperation. Finally, while revenue models are different for government services, it is still important to get value for money.