REINVENT YOUR BUSINESS MODEL

SAI PAVAN KUMAR (12DM139) SAMEER MIRANI (12DM143) SANJUKTA SEN (12DM144) SHREYA (12DM151) SONAM (12DM156) UMANG GOEL (12DM179)

Introduction
Models defined value in new way
Apple Gillette Wal-Mart

Business model innovation (Vs) Product or service innovation Why is it difficult to pull of new growth that business model can bring ?
Lack of definition Understanding existing business model well enough

BUSINESS MODEL - DEFINITION

Consists of four interlocking elements Customer value proposition Profit formula
Revenue model Cost structure Margin model Resource velocity

Key Resources Key Process

How great models are built?

1. Creating a customer value proposition

Ratan Tata provided a safer and affordable alternative for scooter families. Hilti- selling tool use instead of tools themselves, managing its customers tools inventory. Precision important attribute.
2. Designing a profit formula

Ratan Tata broke the wealth barrier by drastically decreasing the price of the car. Hilti Higher margins; asset heavy; monthly payments for tool maintenance, repair and replacement.
3. Identifying key processes and resources

Need to integrate the resources and processes in a unique manner. For e.g..TATA Nano.

Elements of Successful Business Model Customer Value Proposition

Profit Formula Key Processes

Key Resources

Hiltis Sidestep Commoditization

Traditional Power Tool Company
Sales of Industrial and Power tools and accessories Low margins, High inventory turnover

Hiltis Tool Fleet Management Service

Customer Value Proposition Profit Formula Key Resources and Processes
Leasing of Comprehensive fleet of tools to increase the on-site productivity of the contractors Higher margins, asset heavy, monthly payments for maintenance, repair and replacement Strong direct sales approach, contract management, IT systems for inventory management and warehousing

Distribution channel, low cost manufacturing plants, R&D

WHEN WILL THE OLD MODEL WORK?

Companies dont always need a new business model to capitalize on game changing opportunity. E.g.: P & G with its Swiffer disposable mop satisfied the current business needs
With the existing profit formula By using most of its key resources and processes By using the same core metrics, rules and norms.

WHEN IS A NEW MODEL NEEDED?

When significant changes are required to all the four elements of the existing model. 5 strategic circumstances for change

An opportunity to
Address the needs of large groups who find existing solutions expensive Capitalize on new technology or leverage existing technologies in mkt Bring a job to-be-done focus where it doesnt exist

Example
Tata Nano for the low income consumers in the existing market. Commercial application for a technology primarily for military use or Apple. FedEx: Faster and reliable package receiving by integrating key processes and resources.

CONTD
A need to .. Example

Fend off low end disruptors

Mini mills threatened the integrated steel mills by making low cost steel. Hilti : Switched from selling tools to renting tools.

Responding to shifts in competition

Creating a new model doesnt necessarily mean that the old model or existing model is threatening or should be changed but it should complement or reinforce the core business.

Dow Corning
Success of Business model innovation lies in making sure the incumbent business does not prevent the new model from thriving. Dow Corning realized its Silicone based products were commoditizing and product areas stagnating. A strategic review revealed that customers in its low end product segment needed basic products at low prices. A new team was set up to formulate a customer value proposition. It realized that a price reduction calls for a different profit formula with a fundamentally lower cost structure.

Breaking the rules In order to standardize the new business, rules such as minimum order quantities, order lead times and fixed credit terms were enforced. The new venture idea was not warmly received from the organization as a whole. So, Dow Corning created an entirely new brand Xiameter with its own identity and culture. Identifying new competencies Xiameter was designed from the start as a web-enabled business model The brand also needed experts who were comfortable making fast decisions.

The secret sauce: Patience Companies with new business models should be patient for growth but impatient for profit. The scale of the operations were kept small but it kept a goal of becoming profitable by the end of year one. Dow Corning earned back its investment in just 3 months. Beforehand the company had no online sales but now over 30% of the companys sales are online. A majority of the new business was driven from new customers.

CONCLUSION
Companies need to focus on learning and adjusting as much as on executing. Patience for growth and impatience for profit( companies with new business models) Allow for trial and error and construct a life cycle to deliver the results. E.g.: Corning Successful businesses come from enveloping new technology with a powerful business model. Great business models can reshape industries and drive spectacular growth.