In this webinar, we invite you to hear more about Business Model Innovation and learn a systematic and pragmatic approach. This can help you re-imagine your business model in exciting and sometimes even radical ways.
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Netflix needs urgent change to stop the bleeding and rebuild its business model. It is running out of cash and losing support from customers and shareholders. Management must re-establish its credibility with bold moves. Here is a series of steps and techniques to do that.
1. Reframing: Use the Subtraction Tool to reframe and see new possibilities. Make a list of the major components of the company (patents, products, brand, employees, customers, network, etc.). Now imagine Netflix will merge with a company from another industry. Create a phrase something like this: “Netflix cannot stream movies to customers, but it has all the other components. What company has the ideal set of products that would best fit the remaining resources of Netflix?” For example, would a company in the retail sector have products that would find new growth within the Netflix enterprise? Companies like Path Intelligence might be a good candidate. Perhaps Netflix could merge with a brick and mortar movie theater company like AMC Entertainment and leverage the strengths of each. Perhaps Netflix links up with Research in Motion to leverage its proprietary Blackberry network for streaming data. Use this same approach for all the components, one at a time, to envision new possibilities.
2. Reverse Assumption: This technique helps “break fixedness” about assumptions. List the key business assumptions about Netflix and its industry. For example:
Reverse the assumptions one by one. “Customers stream content to Netflix.” Perhaps the new business model is to offer a service allowing customers to stream information to Netflix which is then re-streamed to others. Perhaps Netflix uses its streaming skills to enter the business-to-business market, servicing banks or other companies that need to move digital content in a unique way. Perhaps customers send DVDs to other customers instead of sending it back to Netflix, saving time and money.
Research in Motion, the maker of Blackberry, must reinvent its business model. Otherwise, it’s the end of the road as many market analysts are predicting. Time is of the essence, so the management team needs to accelerate its search for new directions and pursue them aggressively. Here is a series of steps and techniques to do that.
1. Reframing: Use the Subtraction Tool to reframe and see new possibilities. Make a list of the major components of the company (sales force, products, brand, employees, customers, network, etc.). Now imagine that the company will merge with another company from any industry. Create a phrase something like this: “RIM has no products, but it has all the other components. What company has the ideal set of products that would best fit the remaining resources of RIM?” For example, would a company in data-mining or other information-based services have products that would find new growth within the RIM enterprise? Companies like LexisNexis, Authernative, and Lifelock come to mind. Continue searching for more insights by doing the same exercise for each component.
2. Reverse Assumption: Assumptions get outdated, and this technique helps “break fixedness” about them. List all the obvious business assumptions about RIM and its industry. For example:
Reverse the assumptions one by one. “Consumers want less functionality.” Perhaps the new business model is to create stripped down products used by a different market segment. Perhaps Blackberry becomes a system strictly for young people, not enterprises. Cellphones are replaced by Internet technologies. Imagine if RIM developed a Blackberry approach to Skype.
Companies get better results from innovation by targeting initiatives at the right places. Given limited time, money, and human resources, here are six areas to focus on:
1. Your Value Drivers: What activities across your business model create the most value? Is it operational or commercial? Who is involved and what departments make it happen? Use a corporate innovation method like S.I.T. to reinvent the value driver as well as the resources that deliver it.
Procter & Gamble innovated an intelligent screening system that scanned coffee beans imported from any part of the world and selected the right proportions of each to create the desired taste. This created a huge operational advantage in producing a distinctive product within a commoditized industry.
2. Your Core Competency: What skill sets create strategic assets? Strategic assets are those that deliver a sustainable competitive advantage. By re-inventing these skills and how they are sourced and maintained, companies sustain their advantage.
AkzoNobel, a maker of specialty paint, has a unique ability to color match to near perfection thanks to their skills in chemistry and spectroscopy. Applying innovation methods to the color matching process would uncover new skills or complementary skills to fortify its strategic advantage.
3. Your Potential Acquisitions: Growth through acquisition is expensive and risky. Acquisition stifles innovation and distracts management as it focuses on integration. The answer is to use innovation methods ahead of the deal-making to clarify and enhance valuation.
IBM’s acquisition of Netezza for $1.7 billion seems excessive given the commodization of data warehousing. By applying a corporate innovation method to the target’s core products before the offer would uncover new or hidden sources of deal value. Pre-deal innovation either makes the deal more valuable or creates intellectual property to leverage against other suitors if the deal falls through.
4. Your Customer’s Processes: How does your customer use your product or service? Observe and map out the detailed steps of what customers do when they use it. Use innovation methods to re-invent the way consumers seek and derive value. This will lead to new product concepts that address these new customer behaviors.
Johnson & Johnson’s medical device unit creates detailed heat maps of how surgeons perform complicated procedures. The maps reveal the amount of time for each step, the product used, the degree of difficulty, and risk to the successful outcome. Innovation is targeted at the high difficulty/high risk aspects of the procedure where the most value will be created from breakthrough ideas.
5. Your Brand Reputation: What are you most known for in the industry and in the minds of your customer? Is it superior products, great service to your distributors, fabulous advertising, top people? Use innovation methods on how consumers perceive your brand to strengthen and reinforce brand loyalty.
L’Oreal’s professional products division leads its industry through servicing salons with product support, training, merchandising, and market insights. The use of structured innovation methods of how salons operate and service their customers would create new insights and product development opportunities. Innovating where L’Oreal is regarded as the best in the industry would reinforce its leadership status.
6. Your Strategic Capabilities: How does your company win in the marketplace? What is its “source of authority?” By innovating the way a company competes, it surprises and outmaneuvers the competition.
Barry Jaruzelski and Kevin Dehoff from Booz & Company describe three strategic orientations: Need Seekers, Market Readers, and Technology Drivers. “The most successful companies are those that focus on a particular, narrow set of common and distinct capabilities that enable them to better execute their chosen strategy.” These strategic capabilities can be innovated using systematic methods of ideation.
Business model innovation was one of many hot topics at Innovation Suite 2011. The conference hosted thirty two invitees from nine countries and a variety of companies including GE, Bayer, Kraft, and SAP. On the minds of many was how to create new business models to transform a company and move to higher ground.
Business Model Innovation is defined as follows (from Wikipedia):
Business model innovation results in an entirely different type of company that competes not only on the value proposition of its offerings, but aligns its profit formula, resources and processes to enhance that value proposition, capture new market segments and alienate competitors.
Here are four ways to conceptualize a new business model: