Section 5
Process

Business Model Design Process

 

In this chapter we tie together the concepts and tools from the book to simplify the task of setting up and executing a business model design initiative. We propose a generic business model design process adaptable to your organization’s specific needs.

Every business model design project is unique, and presents its own challenges, obstacles, and critical success factors. Every organization starts from a different point and has its own context and objectives when it begins addressing an issue as fundamental as its business model. Some may be reacting to a crisis situation, some may be seeking new growth potential, some may be in startup mode, and still others may be planning to bring a new product or technology to market.

The process we describe provides a starting point upon which just about any organization can customize its own approach. Our process has five phases: Mobilize, Understand, Design, Implement, and Manage. We describe each of these phases in a general way, then revisit them from the perspective of the established organization, as business model innovation in enterprises already executing on one or more existing business models requires taking additional factors into account.

Business model innovation results from one of four objectives: (1) to satisfy existing but unanswered market needs, (2) to bring new technologies, products, or services to market, (3) to improve, disrupt, or transform an existing market with a better business model, or (4) to create an entirely new market.

In longstanding enterprises, business model innovation efforts typically reflect the existing model and organizational structure. The effort usually has one of four motivations: (1) a crisis with the existing business model (in some cases a “near death” experience), (2) adjusting, improving, or defending the existing model to adapt to a changing environment, (3) bringing new technologies, products, or services to market, or (4) preparing for the future by exploring and testing completely new business models that might eventually replace existing ones.

starting point for business model innovation

Business Model Design and Innovation

Satisfy market: Fulfill an unanswered market need (e.g. Tata car, NetJets, GrameenBank, Lulu.com)

Bring to market: Bring a new technology, product, or service to market or exploit existing intellectual property (IP) (e.g. Xerox 914, Swatch, Nespresso, Red Hat)

Improve market: Improve or disrupt an existing market (e.g. Dell, EFG Bank, Nintendo Wii, IKEA, Bharti Airtel, Skype, Ryanair, Amazon.com retail, better place)

Create market: Create an entirely new type of business (Diners Club, Google)

challenges

• Finding the right model

• Testing the model before a full-scale launch

• Inducing the market to adopt the new model

• Continuously adapting the model in response to market feedback

• Managing uncertainty

Factors Specific to Established Organizations

Reactive: Arising out of a crisis with the existing business model (e.g. IBM in the 1990s, Nintendo Wii, Rolls Royce jet engines)

Adaptive: Adjusting, improving, or defending the existing business model (Nokia “comes with music,” P&G open innovation, Hilti)

Expansive: Launching a new technology, product, or service (e.g. Nespresso, Xerox 914 in the 1960s, iPod/iTunes)

Pro-active/explorative: Preparing for the future (e.g. car2go by Daimler, Amazon Web Services)

challenges

• Developing an appetite for new models

• Aligning old and new models

• Managing vested interests

• Focusing on the long term