Innovation and Entrepreneurship

Week 7
Business Model Innovation

Spring 2023

UTS CRICOS 00099F

What is the difference?

Nintendo (est. 1889) Kodak (est. 1888)

Playing Cards → Video Games Photography → Bankrupt 2012

Toyota (est. 1937) Sears (est. 1893)

Textiles → Transport Department Stores → Bankrupt 2018

Siemens (est. 1847) Smith Corona (est. 1886)

Telegraph Systems → Medical Devices Typewriters → Bankrupt 1995 & 2000

3M (est. 1885) Polaroid (est. 1937)

Mining → Office Supplies Photography → Bankrupt 2001

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What is a business model?
Baatz (1996): „[…] how to make money“

Amit/Zott (2001): „A business model depicts the content, structure and governance
of transactions designed so as to create value through the exploitation
of business opportunities“

Teece (2010): „[A] business model defines how the enterprise creates and delivers value to
customers, and then converts payments received to profits”

Describes at a high level of abstraction what are the major business processes, e.g. how
a firm goes about providing value to its customers and derving revenues .

Translates the business idea into an effective business plan

Examples: Multi-Modal Platforms, Freemium, Long-Tail etc.

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Types of innovation
Form Innovation Innovator Country
iPod Steve Jobs/Apple US
Product Ballpoint pen Laszlo Biro Hungary
innovation Velcro Georges de Mestral Switzerland
Computer mouse Douglas Engelbart US
Telephone insurance Peter Wood (RBS) UK
Service
Social networking website Mark Zuckerberg US
innovation
World Wide Web Tim Berners-Lee UK
Moving assembling line Henry Ford US
Process
Float glass process Alistair Pilkington UK
innovation
Hub + spoke delivery system Fred Smith US
YouCook (recipe+fresh food) Beiten/Modjesch Köln
Business “No frills” airline (Southwest) Kelleher/King US
model iTunes Steve Jobs/Apple US
innovation eBay Pierre Omidyar US
IKEA Ingvar Kamprad Sweden

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Why business model innovation?

Business Model Innovation

Competitive Advantage

Process Innovation

Product Innovation

Time Business Model Navigator (BMI Lab)

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Business models and strategy
Technology/Product

Business Model
Design Process
Enables

Business Model

Strategy Adapted from Stähler (2012)

Teece (2010)

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Why business model innovation?
“A mediocre technology pursued within a great business model may be more valuable than a great
technology exploited via a mediocre business model” Chesbrough (2010)

Amit and Zott (2010)

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Why business model innovation?
• Assigns specific emphasis to processes of value creation, i.e. the “value-
creating insight on which the firm turns”
• Enables firms to maintain responsiveness of their offerings, especially during
times of economic change, by explicitly focusing on needs of customers
• Significant investments in R&D not always required, but rather the innovative
recombination and deployment of existing technologies
• For instance, explores how we might increase efficiency and create value by
redeploying our resources by, e.g., outsourcing activities to consumers or other
partners across the supply chain → open innovation

Amit and Zott (2010)

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Dimensions of a Business Model
Value Value Value
Proposition Generation Capture
(What?) (How?) (By what?)

Product-/market Value creation 3 Revenue model

1 2
combination architecture
Product

External Internal

Sources Nature
Value chain step Pricing
Product description Billing model
Resources
Customer benefit
„Make or Buy“-questions Revenue character

Private persons
Market

Value chain partners

Market definition (up-/downstream) Organizations
Market segmentation Customer interface Direct / indirect

(Stähler, 2001)

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Value proposition and product/market fit

Description of benefit, which firm creates for its (potential)

customers or partners i.e., what excites our customers?

Product-/market
1
combination
Product

Describes which product/service

Product description
will be offered, and in which configuration.
Customer benefit

Entails definition of key market; including its key segments

Market

Market definition (segmentation of common customer needs).

Market segmentation
(Stähler, 2001)

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Value proposition and product/market fit

What is the value

proposition?

(Stähler, 2001)

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Value proposition and product/market fit

What is the value

proposition?

(Stähler, 2001)

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Value proposition and product/market fit

What the customer

really wanted (job to be
done)

(Stähler, 2001)

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Value creation architecture
A business model reflects the architecture of the value creation, i.e.
how benefits and value for customers are generated.

Value creation
2
architecture
Internal

Value chain step Presentation of the individual value chain steps,

Resources the used resources as well as “make or buy”-questions.
„Make or Buy“-questions
The external architecture represents value chain partners
External

Value chain partners

(up- or downstream) and describes their relationships to the firm.
(up-/downstream)
Customer interface The customer interface characterizes the distribution and
communication channels to the customer.
(Stähler, 2001)

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Value capture and the revenue model
Description of the means by which the firm earns its money.
Important for the sustainability of the business model!

3 Revenue model

The kind of revenues describes the pricing, the billing model

Nature

Pricing
Billing model and the revenue character (= earnings from direct sales,
Revenue character promotion (dot-coms), other sources…)
Sources

Private persons The sources of the revenues describe from which persons /
Organizations institutions (also subsidies) the payments flow to the firm.
Direct / indirect
(Stähler, 2001)

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Business models and competitive advantage

Product-/market Value creation

1 2 3 Revenue model
combination architecture
Market Product

External Internal

Sources Nature
Product description Value chain step Pricing
Customer benefit Resources Billing model
„Make or Buy“-questions Revenue character

Market definition Value chain partners Private persons

Market segmentation (up-/downstream) Organizations
Customer interface Direct / indirect

All three components must fit together in order to deliver Margin

customer value and generate a competitive advantage

(Stähler, 2001)

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Business model innovation
Business model Innovation

Innovations:

Novel products or processes which, from

user‘s perspective, differ from prior strategy
and can be successfully introduced either
onto the market or within a firm.

Business model innovation

Change in one or more dimensions, resulting in a novel configuration of the

respective elements of the business model and its implementation on the market. (Stähler, 2001)

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Business model patterns

St. Gallen Business Model Navigator – www.bmi-lab.ch

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Business model patterns

Razor and Blade Freemium Robinhood

• Product is very cheap/free,
consumables are expensive
• Basic offering is given away
in the hopes of getting
customers to pay for a
premium version.
• Take from the rich and give to
the poor.
St. Gallen Business Model Navigator – www.bmi-lab.ch

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