Business models

Business Modelsin

Business Model Generation(2010)

Unbundling Business Model

Infrastructure

CustomerRelationship

Product

Innovation

Infrastructure

CustomerRelationship

Product

Innovation

Marc Singer & John Hagel IIIdeveloped the concept in 1999.

http://www.we-magazine.net/we-volume-03/what-the-west-can-learn-from-the-east/

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Previous work (HBR, 1993)by Michael Treacy and Fred Wiersema

Treacy and Wiersema came upwith the concept

of concentrating onone of three value disciplines:

- Operational Excellence- Product Leadership- Customer Intimacy

Unbundling the corporation

This concept highlights that most companies today are an unnatural bundle of three very different types of businesses:

• infrastructure management businesses

• customer relationship businesses

• product innovation and commercialization.

Each of these businesses has very different economics, skill-sets and cultures.

Hence, companies should unbundle them.

http://www.businessmodelalchemist.com/category/unbundling-the-corporation

Separate the business as each of the three businesses need different

requirements.

Trade-offs and conflicts can be minimisedthrough separation.

Osterwalder, A. & Pigneur, Y, 2010: 58

Product Innovation

Customer RelationshipManagement

InfrastructureManagement

Economics

Early market entry enables charging premium prices and acquiring large market share; speed is key

High cost of customer acquisition makes it imperative to gain large wallet share; economies of scope are key

High fixed costs make large volumes essential to achieve low unit costs; economies of scale are key

Culture

Battle for talent; low barriers to entry; many small players thrive

Battle for scope; rapid consolidation; a few big players dominate

Battle for scale; rapid consolidation; a few big players dominate

Competition

Employee centred; coddling the creative stars

Highly service orientated; customer-comes-first mentality

Cost focused; stresses standardization, predictability, and efficiency

Hagel, J. & Singer, M. (1999) in Osterwalder, A. & Pigneur, Y, 2010: 59

Examples:

- Johnson & Johnson (Acuvue)Product Innovation

- Charles TyrwhittCustomer Relationship

- Private BankingInfrastructure

Long Tail Business Model

Concept was first appliedto the media industry

by Chris Anderson (2004)

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traditional business model =sell lots of units of a small numberof hit products.

long tail = sell lots of smaller unitsof greater number of products.

Units

Products

Mass market

Long tail

Examples:

• eBay

• Lulu

• Buckingham English (failed?)

Multi-sided Platform

Multi-sided platformswork by bringing together two

or more distinct but interdependentgroups of customers.

Osterwalder, A. & Pigneur, Y, 2010: 78

Key questions are:

Can we attract sufficient numbers of customersfor each side of the platform?

Which side is more price sensitive?

Can that side be enticed by a subsidized offer?

Will the other side of the platformgenerate sufficient revenues

to cover the subsidies?

Osterwalder, A. & Pigneur, Y, 2010: 79

Sample of Multi-sided Businesses

Examples:

• Metro (newspaper)

• Aps

• Google

Chris Anderson (again)

Free: The Futureof a Radical Price

(2008)

Free!Why $0.00 is the Future of Business

(2008)

Both in Wired Magazine

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Podcast on

Knowledge @ Wharton

in

2009

Also…

Three free models to consider:

1) free offer = based on multi-sided platforms

2) freemium = free basic services withoptional premium services

3) bait and hook =free / inexpensive initial offer

lures customers into repeat purchasesOsterwalder, A. & Pigneur, Y, 2010: 90

Examples:

• Metro / Lady Nightsmulti-sided

• Economistfree + premium

• Vistaprint‘free’ offers

Open Business Models

http://findinggeri.wordpress.com/2011/10/13/open-doors/

Main thinker on topic:Henry Chesbrough

Open is reliant on collaboration.

EnterpriseInside-out

Enterprise

Outside-in

Principles of Innovation

Closed Open

The smart people in our field work for us.We need to work with smart people

both inside and outside our company.

To profit from R&D, we must discover it, & ship it ourselves.

External R&D can create significant value: internal R&D is needed to claim some portion of that.

If we conduct most of the best research in the industry we will win.

We don’t have to originate the researchto benefit from it.

If we create most of the best ideas in the industry, we will win.

If we make the best use of internal and external ideas, we will win.

We should control our innovation process, so that competitors don’t profit from our ideas.

We should profit from others’ use of our innovations, and we should buy others’ (IP) whenever it advances

our own research.

Osterwalder, A. & Pigneur, Y, 2010: 111

Examples:

• Proctor & Gamble• GlaxoSmithKline

• Business Model Generation

• Bionicbuzz

Pharma

Evans, D.S. (2003) Managing the Maze of Multisided Markets [www]. Strategy + Business, # 32. pp. 1-5Available from: http://www.strategy-business.com/media/file/03301.pdf [Accessed 07/01/12].

Hagel, J. & Singer, M. (2000) Unbundling the Corporation. The McKinsey Quarterly, #3. pp. 148-161Available from: http://www.strategyworld.org/unbundling.pdf [Accessed 07/01/12].

knowledge@wharton, (n.d.) How About Free? The Price Point That Is Turning Industries on Their Heads [www]Wharton University of Pennsylvania. Available from: http://knowledge.wharton.upenn.edu/article.cfm?articleid=2169 [Accessed 07/01/12].

n.n. (n.d.) Business Models and Open Innovation. MunkholmPlusRisgaard. Weblog [Online] 10th October 2011.Available from: http://munkholmplusrisgaard.dk/2011/10/10/business-models-and-open-innovation/.[Accessed 07/01/11].

Osterwalder, A. & Pigneur, Y. (2010) Business Model Generation. Hoboken, N.J.: John Wiley & Sons Inc.

Osterwalder, A. (n.d.) Podcast with John Hagel, Co-Chairman of the Deloitte Center for Edge Innovation. Business Model Alchemist. Weblog [Online] 25th January 2008.Available from: http://www.businessmodelalchemist.com/category/unbundling-the-corporation[Accessed 07/01/12] [sic].

Treacy, M. & Wiersema, F. (1993) Customer Intimacy and Other Value Disciplines [www] Harvard Business Review, (January/February), pp. 83-93.Available from: http://www.priconsult.nl/mediapool/77/770108/data/TreacyWiersema.pdf [Accessed 07/01/12]

References