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my colleague Chris do and myself over started to do a research program that addresses the broad question of how
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firms do business and that is the business model the business model really a system of
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activities that are um interdependent and that create value for the stakeholders of the firm let me give you
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an example Apple so Apple in the old days uh you know produced the designed the hardware
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produced some of the hardware or assembled some of the hardware and then sold that hardware and the value
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creation was through the sale of Hardware enter the iPod that was a profound change in the business model of
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Apple because Apple realized that they can create value for the stakeholders by not just selling a gadget which is
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nicely designed but also create value through the use of the gadget so Apple in introducing the I the iPod profoundly
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changed it business model by having relationship with the music industry the owners of the intellectual property to
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the various songs convincing those Studios to sell by the song not by the CD and then through an electronic store
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iTune enabled people to download selected music and every time and a song was downloaded Apple got a share of the
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um proceeds and therefore the stakeholders of Apple namely the customer it created value for the
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customers created value for the shareholders the owners of apple and obviously for the emplo employees of
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Apple so the business model once again engage is a description of how the firm does business and it is a system of
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activities and when they introduced the iPod new activities were added and and and the value that was created by this
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modified business model was enhanced because there were new stakeholders note that the
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stakeholders um are they span both firm and Industry boundaries who would think that the
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computer company would be in the music business and suddenly Apple was literally in the music business so so
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over the years ER Chris who is now a yeser business school in Barcelona Spain and I have addressed a number of issues
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that relate to the business model for example what are the elements of a business model what is the what are
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activities that descri the content what is the structure how are those activities combined to create a system
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and as importantly the governance of the business model who carries out each activity we ask question how does a
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business model create value what are the fundamental value drivers in the business model and that's where we
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create created the so-called nice business model and we ask managers to ask themselves is our business model
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nice nice stands for novelty lock in complementarity and efficiency and these are the fundamental H value drivers what
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I'd like to talk about today is another aspect of the business model and that is the process by which
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companies go through the design of the business model and much of the work that has been done so far focused on the
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content of what is a business model how does the business model create value and
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so on but very little work has been done on how organizations design the business model
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how do they modify the business model and this applies by the way to early stage organizations you know new
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startups and to establish organizations you know we thought about when if you think about what do managers do
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obviously they have to come up among other things they have to Le the organization and develop the strategy
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how are they going to compete the business model answers a different question how are we going to do
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business so that's the essence of our research program and what I hope to be
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able to share today is the result of a study on the process of developing a business
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model what our research on the process of Designing a business model established is that by building on a
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method techology that was adopted for the purpose of product design by idio which is a leading design company in the
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Bay Area in on the west coast and applying it to the design of the business model we developed a five
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phase process that is embedded in the understanding of the antecedent for the design of the business model so the some
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of the work we have done has established that when a company designs its business
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model it doesn't do it in in a vacuum it doesn't do it it it has to do it um in
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by considering a number of antecedents for example what is the goal of the business model that's one antecedent
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what are some of the templates that other companies have been using and to some extent thoughtfully and mindfully
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adopting some of these templates at another anteceding understanding who are the stakeholders of the organization
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that would benefit from that business model and obviously looking at constraint whether these are Financial
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constraint human capital constraint regulatory constraint or any other set of constraints that would affect what
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the firm can and cannot do H for any one of these reasons I just mentioned so once these antecedents are acknowledged
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and communicated then there is a process that we suggest in that research paper that involves five steps first to
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observe to to to look to do a little bit of an ethnographic study how people use
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your product or your service what what do they like what don't they like when
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do they use it how do they use it who uses it and so forth who make the dying decision how the buying decision is make
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so lots of observation is involved then there's a period phase of synthesis taking all this information that you
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observe trying to pull it together then there is a point of taking this information and generating some
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prototype business model saying this is one idea of how we do business here's
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another idea of how we do business and let's compare them and therefore and and
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refine them as we think about it more rigorously and more definitely and then the last phase in this process would be
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implementation and that observation cycle you know observation synthesis um generation refinement and implementation
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should be an ongoing process it's not a static process it's a dynamic process
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which which The Firm should never sit still and say this is how we do business and we work in silos our our main
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observation here is the need for people in the organization to think in a holistic way not to think in the silos
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to take an broader view of the organization not just of the activity they involved
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in and that we believe based on the research that we have done will create value for all the
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stakeholders in fact this process paper is an attempt to generalize our past research that focused on young emerging
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companies and this was our attempt to move from focusing and empirically examining young emerging go companies to
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establishing to to focusing on multi- business large Global Diversified companies what I'd like to do is give
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you two examples what are the implications of not adopting a process of continuously
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updating and revising your business model look at a company like Blackberry Blackberry dominated the smartphone
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industry in government in business and among consumers everybody Blackberry almost
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became a verb in American society even the president of the United States used the Blackberry and
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blackberry stuck to a particular way of doing business and ignored the changes that
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are happening in telecommunication in the ability of wireless network to transmit videos and
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and other graphical information and they have not adopted the business model and today Blackberry
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is in a in suddenly in Decline and according to some on the verge of bankruptcy another example of a company
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that had not adopted its business model is Nokia that at one point was by far the largest market share holder in terms
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of handset for while communication today they dispose of their handset business and in Decline to
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a very small percentage of the number of the global number of handset that are being sold they've been taken over by
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the likes of Samsung and Apple ER HTC and others going to give you a concrete example of a company that totally
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transformed Itself by transforming a business its business model is IBM IBM historically was a product Center
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centered companies they sold computers they sold disc drives they sold tape drives they sold a number of
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boxes today the vast majority of IBM Revenue comes from Services where the product are means to an end are means to
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deliver the service that's a profound transformation of how IBM does business
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today the most profitable part of the company are not the boxes are the services the largest fraction of the
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revenue of IBM comes from services not from the boxes so IBM is a good example of a global
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multinational a large Diversified firm who has undertaken a profound updating or revision of its
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historical business model and and such enabled it to stay on top We Believe based on the review that
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we have done that we are the first one to focus exclusively on the process of business model Innovation there has been
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a realization that business model Innovation matters but before we did this study no
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one has really rigorously looked at the process of how how you innovate your business model and that's where we
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believe our main contribution lies I think the main there are two main takeaway that I think we should pay
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close attention to first they need to apply design thinking to the design of the business model traditionally design
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thinking has been applied to the design of products and what we have established
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through this research project that the process by which firms design the business model can in it off itself
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create enormous value that's the first thing and the second takeaway that I think is important to to um understand
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and internalize is that that firms need to develop a capability to continuously ask
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themselves how how to tweak our business model how to refine our business model how to revise so this is an
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organizational capability that needs to become part of the DNA of the firm so the business model needs to change as
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the environment in which the firm competes in changes and if it is if there is a realization in the
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organization that each and every one member of the organization needs to look at are we still doing business in a way
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that maximizes the value creation potential and the answer therefore is that designing the business model is no
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longer just a job that the CEO has to do each and every member has to ask thems is the activity that I'm involved in is
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another way to do this activity how do the activi that I'm involved in relate
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to other activities that are going on in our firm that create value for our stakeholders and when I talk about
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stakeholders there are obviously the customers of the firm they are the partners of the firm they are the owners
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of the firm and the employees and managers of the firm to pick a few stakeholders and all of them need to be
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considered in sying through the design of the business model so these are the two main takeaways a again design
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doesn't just apply to product design applies very much to design of how firms
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do business and secondly the point that this has to be a continuous activity that becomes part of the DNA of the
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firm on one hand the impact of the design of the business model on the performance of The Firm has
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been substantial greater than what I would have anticipated exante but what surprised me most is how rare are the
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organizations that we surveyed and talk to where the design of the the process of Designing the the business model is
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part of the DNA of the firm you know very few organization routinely think how can we tweak our business model how
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can we find a better more efficient greater value creating business model and and and that surprised me and and
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and and I think that managers and organizations more generally would benefit by thinking deeper about the
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design and thinking about it not as a one time you know once in two years thinking is is a better way but as an
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ongoing if you will Dynamic capability that the firm has and it's up to the leadership of the company to instill
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that kind of design thinking into the DNA of the firm and the fact that this is rare was a surprise to
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me in our view the perception is that Innovation is about product Innovation and what our study attempts to show that
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Innovation is not limited to the innovation of product that innovation of the very way a company engages in
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business how it interacts with its stakeholders who how are the various activities connected to each other who
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carries out each of the activities because in business model in today's environment where there have been
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enormous advantage in information and communication Technologies the business model of
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companies involves activities that are carried out by other companies and that's very much part of the business
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model of how a modern Corporation operates today and I can give you lots of examples how the various the business
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model of Amazon relies on UPS delivering the delivering the the product that people buy from Amazon and
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most of the product that Amazon sell Amazon doesn't produce or stock it's
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just drop ship from another company so the business model of Amazon involves companies involves activities
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that are happening outside of the boundaries of Amazon in fact outside of the industry that Amazon is in so I
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think the Innovation that is inherent in the Amazon business Market or or I can give you other companies e trades
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business model or or several others is the realization that there is a lot of innovation that can happen on in the way
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companies do business and in fact the there are companies where the entire Innovation is how they do business take
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Price Line price line is revolutionized travel rather than you going to the website of any Airline
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and and and looking at the menu of what they have to offer you it's just the
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opposite you sit there and say I want to travel from A to B and I'm willing to
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pay X dollar to travel from A to B and you airlin make him make me an offer and and that's that's a reverse um you know
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if if you think about it it's kind of a reverse auction in some sense H but in
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many ways it it's a way to create value for the airline to dispose of seats they
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haven't sold because if you fly an empty Street you make no money you might as
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well make some money and and so everybody wins all this is a value creating a business model and there's no
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product there eBay there's no product right they just the business model is where they value creation so so I think
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that that's the major ER phenomena that we want to communicate that Innovation
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is not just about product it's about business models as well and the process
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of developing that business model and that enormous value for the stakeholders is created through the business model
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Innovation what we are engag in now is a fairly massive effort of collecting data
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and addressing a related questions and um and that is focusing on large companies and how
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the business model evolves side by side with the organization the people the incentives and that's because the
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business model focuses kind of on what activities the firm is engaging in order to create value and how that system of
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activities create value how it's connected who does it but there are other elements of the organizations that
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need to be looked at and that's how we see ourselves in the next phase of this
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H research program which as I said we started over 15 years ago [Music]