00:00:05
my colleague Chris do and myself over
00:00:08
started to do a research program that
00:00:11
addresses the broad question of how
00:00:13
firms do business and that is the
00:00:16
business model the business model really
00:00:18
a system of
00:00:19
activities that are um interdependent
00:00:23
and that create value for the
00:00:25
stakeholders of the firm let me give you
00:00:27
an
00:00:28
example Apple
00:00:30
so Apple in the old days uh you know
00:00:34
produced the designed the hardware
00:00:37
produced some of the hardware or
00:00:38
assembled some of the hardware and then
00:00:40
sold that hardware and the value
00:00:42
creation was through the sale of
00:00:45
Hardware enter the iPod that was a
00:00:49
profound change in the business model of
00:00:52
Apple because Apple realized that they
00:00:56
can create value for the stakeholders
00:01:00
by not just selling a gadget which is
00:01:04
nicely designed but also create value
00:01:08
through the use of the gadget so Apple
00:01:11
in introducing the I the iPod profoundly
00:01:14
changed it business model by having
00:01:18
relationship with the music industry the
00:01:22
owners of the intellectual property to
00:01:24
the various songs convincing those
00:01:26
Studios to sell by the song not by the
00:01:29
CD and then through an electronic store
00:01:34
iTune enabled people to download
00:01:37
selected music and every time and a song
00:01:40
was downloaded Apple got a share of the
00:01:45
um proceeds and therefore the
00:01:49
stakeholders of Apple namely the
00:01:52
customer it created value for the
00:01:54
customers created value for the
00:01:56
shareholders the owners of apple and
00:01:59
obviously for the emplo employees of
00:02:00
Apple so the business model once again
00:02:04
engage is a description of how the firm
00:02:07
does business and it is a system of
00:02:09
activities and when they introduced the
00:02:12
iPod new activities were added and and
00:02:16
and the value that was created by this
00:02:18
modified business
00:02:20
model was enhanced because there were
00:02:24
new stakeholders note that the
00:02:26
stakeholders um are
00:02:30
they span both firm and Industry
00:02:32
boundaries who would think that the
00:02:34
computer company would be in the music
00:02:37
business and suddenly Apple was
00:02:39
literally in the music business so so
00:02:42
over the years ER Chris who is now a
00:02:45
yeser business school in Barcelona Spain
00:02:48
and I have addressed a number of issues
00:02:51
that relate to the business model for
00:02:53
example what are the elements of a
00:02:56
business model what is the what are
00:02:58
activities that descri the content what
00:03:00
is the structure how are those
00:03:02
activities combined to create a system
00:03:05
and as importantly the governance of the
00:03:07
business model who carries out each
00:03:09
activity we ask question how does a
00:03:12
business
00:03:13
model create value what are the
00:03:16
fundamental value drivers in the
00:03:18
business model and that's where we
00:03:20
create created the so-called nice
00:03:23
business model and we ask managers to
00:03:25
ask themselves is our business model
00:03:28
nice nice stands for novelty lock in
00:03:32
complementarity and efficiency and these
00:03:35
are the fundamental H value drivers what
00:03:39
I'd like to talk about
00:03:40
today is another aspect of the business
00:03:43
model and that is the process by which
00:03:46
companies go through the design of the
00:03:49
business model and much of the work that
00:03:52
has been done so far focused on the
00:03:55
content of what is a business model how
00:03:57
does the business model create value and
00:03:59
so on but very little work has been done
00:04:02
on how
00:04:04
organizations design the business model
00:04:06
how do they modify the business model
00:04:09
and this applies by the way to early
00:04:11
stage organizations you know new
00:04:14
startups and to establish organizations
00:04:17
you know we thought about when if you
00:04:19
think about what do managers do
00:04:20
obviously they have to come up among
00:04:22
other things they have to Le the
00:04:23
organization and develop the strategy
00:04:26
how are they going to compete the
00:04:28
business model answers a different
00:04:29
question how are we going to do
00:04:31
business so that's the essence of our
00:04:35
research program and what I hope to be
00:04:37
able to share today is the result of a
00:04:41
study on the process of developing a
00:04:44
business
00:04:48
model what our research on the process
00:04:52
of Designing a business model
00:04:54
established is that by building on a
00:04:59
method techology that was adopted for
00:05:02
the purpose of product design by idio
00:05:04
which is a leading design company in the
00:05:08
Bay
00:05:08
Area in on the west
00:05:11
coast and applying it to the design of
00:05:15
the business model we developed a five
00:05:18
phase process that is embedded in the
00:05:23
understanding of the antecedent for the
00:05:26
design of the business model so the some
00:05:29
of the work we have done has established
00:05:32
that when a company designs its business
00:05:35
model it doesn't do it in in a vacuum it
00:05:38
doesn't do it it it has to do it um in
00:05:42
by considering a number of antecedents
00:05:45
for example what is the goal of the
00:05:46
business model that's one antecedent
00:05:49
what are some of the templates that
00:05:51
other companies have been using and to
00:05:54
some extent thoughtfully and mindfully
00:05:58
adopting some of these templates at
00:05:59
another anteceding understanding who are
00:06:02
the stakeholders of the organization
00:06:05
that would benefit from that business
00:06:07
model and obviously looking at
00:06:09
constraint whether these are Financial
00:06:11
constraint human capital constraint
00:06:14
regulatory constraint or any other set
00:06:16
of constraints that would affect what
00:06:18
the firm can and cannot do H for any one
00:06:22
of these reasons I just mentioned so
00:06:24
once these antecedents are acknowledged
00:06:29
and communicated then there is a process
00:06:33
that we suggest in that research paper
00:06:36
that involves five steps first to
00:06:39
observe to to to look to do a little bit
00:06:41
of an ethnographic study how people use
00:06:44
your product or your service what what
00:06:47
do they like what don't they like when
00:06:49
do they use it how do they use it who
00:06:51
uses it and so forth who make the dying
00:06:53
decision how the buying decision is make
00:06:55
so lots of observation is involved then
00:06:58
there's a period phase of synthesis
00:07:00
taking all this information that you
00:07:02
observe trying to pull it together then
00:07:06
there is a point of taking this
00:07:08
information and generating some
00:07:10
prototype business model saying this is
00:07:13
one idea of how we do business here's
00:07:15
another idea of how we do business and
00:07:17
let's compare them and therefore and and
00:07:19
refine them as we think about it more
00:07:22
rigorously and more definitely and then
00:07:24
the last phase in this process would be
00:07:26
implementation and that observation
00:07:30
cycle you know observation synthesis um
00:07:34
generation refinement and implementation
00:07:36
should be an ongoing process it's not a
00:07:38
static process it's a dynamic process
00:07:41
which which The Firm should never sit
00:07:44
still and say this is how we do business
00:07:46
and we work in silos our our main
00:07:49
observation here is the need for people
00:07:52
in the organization to think in a
00:07:53
holistic way not to think in the silos
00:07:57
to take an broader view of the
00:07:59
organization
00:08:00
not just of the activity they involved
00:08:02
in and that we believe based on the
00:08:04
research that we have done will create
00:08:06
value for all the
00:08:11
stakeholders in fact this process paper
00:08:15
is an attempt to generalize our past
00:08:17
research that focused on young emerging
00:08:19
companies and this was our attempt to
00:08:22
move from focusing and empirically
00:08:26
examining young emerging go companies to
00:08:29
establishing to to focusing on multi-
00:08:33
business large Global Diversified
00:08:40
companies what I'd like to do is give
00:08:42
you two
00:08:43
examples what are the implications of
00:08:47
not adopting a process of continuously
00:08:52
updating and revising your business
00:08:54
model look at a company like Blackberry
00:08:58
Blackberry dominated the smartphone
00:09:00
industry in government in business and
00:09:04
among
00:09:06
consumers everybody Blackberry almost
00:09:08
became a verb in American
00:09:12
society even the president of the United
00:09:14
States used the Blackberry and
00:09:18
blackberry stuck to a particular way of
00:09:21
doing
00:09:22
business and ignored the changes that
00:09:25
are happening in
00:09:27
telecommunication in the ability of
00:09:29
wireless network to transmit videos and
00:09:33
and other graphical
00:09:36
information and they have not adopted
00:09:39
the business model and today Blackberry
00:09:41
is in a in suddenly in Decline and
00:09:44
according to some on the verge of
00:09:47
bankruptcy another example of a company
00:09:49
that had not adopted its business model
00:09:51
is Nokia that at one point was by far
00:09:55
the largest market share holder in terms
00:09:57
of handset for while
00:10:00
communication today they dispose of
00:10:04
their handset business and in Decline to
00:10:08
a very small percentage of the number of
00:10:11
the global number of handset that are
00:10:13
being sold they've been taken over by
00:10:15
the likes of Samsung and Apple ER HTC
00:10:19
and
00:10:20
others going to give you a concrete
00:10:24
example of a company that totally
00:10:27
transformed Itself by transforming a
00:10:29
business its business model is IBM IBM
00:10:32
historically was a product Center
00:10:35
centered companies they sold computers
00:10:38
they sold disc drives they sold tape
00:10:40
drives they sold a number of
00:10:43
boxes today the vast majority of IBM
00:10:46
Revenue comes from Services where the
00:10:49
product are means to an end are means to
00:10:52
deliver the service that's a profound
00:10:54
transformation of how IBM does business
00:10:58
today the most profitable part of the
00:11:00
company are not the boxes are the
00:11:02
services the largest fraction of the
00:11:05
revenue of IBM comes from services not
00:11:09
from the boxes so IBM is a good example
00:11:12
of a global
00:11:15
multinational a large Diversified firm
00:11:19
who has
00:11:21
undertaken a
00:11:23
profound updating or revision of its
00:11:27
historical business model and
00:11:29
and such enabled it to stay on
00:11:35
top We Believe based on the review that
00:11:38
we have done that we are the first one
00:11:42
to focus exclusively on the process of
00:11:45
business model Innovation there has been
00:11:47
a realization that business model
00:11:49
Innovation
00:11:51
matters but before we did this study no
00:11:54
one has really rigorously looked at the
00:11:58
process of how how you innovate your
00:12:00
business model and that's where we
00:12:02
believe our main contribution
00:12:08
lies I think the main there are two main
00:12:12
takeaway that I think we should pay
00:12:14
close attention to first they need to
00:12:18
apply design thinking to the design of
00:12:22
the business model traditionally design
00:12:23
thinking has been applied to the design
00:12:26
of
00:12:27
products and what we have established
00:12:31
through this research project that the
00:12:35
process by which firms design the
00:12:37
business model can in it off itself
00:12:41
create enormous value that's the first
00:12:43
thing and the second takeaway that I
00:12:46
think is important to to um understand
00:12:49
and
00:12:50
internalize is that that firms need to
00:12:53
develop a capability to continuously ask
00:12:57
themselves how how to tweak our business
00:13:00
model how to refine our business model
00:13:03
how to revise so this is an
00:13:05
organizational capability that needs to
00:13:08
become part of the DNA of the firm so
00:13:11
the business model needs to change as
00:13:14
the environment in which the
00:13:16
firm competes in changes and if it is if
00:13:21
there is a realization in the
00:13:22
organization that each and every one
00:13:25
member of the organization needs to look
00:13:27
at are we still doing business in a way
00:13:30
that maximizes the value creation
00:13:32
potential and the answer therefore is
00:13:36
that designing the business model is no
00:13:38
longer just a job that the CEO has to do
00:13:41
each and every member has to ask thems
00:13:43
is the activity that I'm involved in is
00:13:46
another way to do this activity how do
00:13:49
the activi that I'm involved in relate
00:13:51
to other activities that are going on in
00:13:53
our firm that create value for our
00:13:55
stakeholders and when I talk about
00:13:58
stakeholders there are obviously the
00:14:00
customers of the firm they are the
00:14:01
partners of the firm they are the owners
00:14:04
of the firm and the employees and
00:14:07
managers of the firm to pick a few
00:14:09
stakeholders and all of them need to be
00:14:11
considered in sying through the design
00:14:13
of the business model so these are the
00:14:15
two main takeaways a again design
00:14:19
doesn't just apply to product design
00:14:21
applies very much to design of how firms
00:14:24
do business and secondly the point that
00:14:27
this has to be a continuous activity
00:14:30
that becomes part of the DNA of the
00:14:36
firm on one hand
00:14:39
the impact of the design of the business
00:14:42
model on the performance of The Firm has
00:14:46
been substantial greater than what I
00:14:48
would have anticipated exante but what
00:14:51
surprised me most is how rare are the
00:14:55
organizations that we surveyed and talk
00:14:57
to where the design of the the process
00:15:01
of Designing the the business model is
00:15:03
part of the DNA of the firm you know
00:15:06
very few organization routinely think
00:15:09
how can we tweak our business model how
00:15:11
can we find a better more efficient
00:15:14
greater value creating business model
00:15:17
and and and that surprised me and and
00:15:19
and and I think that managers and
00:15:22
organizations more generally would
00:15:24
benefit by thinking deeper about the
00:15:28
design and thinking about it not as a
00:15:31
one time you know once in two years
00:15:33
thinking is is a better way but as an
00:15:35
ongoing if you will Dynamic capability
00:15:38
that the firm has and it's up to the
00:15:41
leadership of the company to instill
00:15:43
that kind of design thinking into the
00:15:46
DNA of the firm and the fact that this
00:15:49
is rare was a surprise to
00:15:55
me in our view the perception is that
00:15:59
Innovation is about product Innovation
00:16:02
and what our study attempts to show that
00:16:06
Innovation is not limited to the
00:16:08
innovation of product that innovation of
00:16:12
the very way a company engages in
00:16:16
business how it interacts with its
00:16:19
stakeholders who how are the various
00:16:22
activities connected to each other who
00:16:25
carries out each of the activities
00:16:27
because in business model in today's
00:16:29
environment where there have been
00:16:31
enormous advantage in information and
00:16:33
communication
00:16:34
Technologies the business model of
00:16:37
companies involves activities that are
00:16:40
carried out by other companies and
00:16:42
that's very much part of the business
00:16:44
model of how a modern Corporation
00:16:46
operates today and I can give you lots
00:16:48
of examples how the various the business
00:16:51
model of Amazon relies on UPS delivering
00:16:57
the delivering the the
00:17:00
product that people buy from Amazon and
00:17:02
most of the product that Amazon sell
00:17:04
Amazon doesn't produce or stock it's
00:17:07
just drop ship from another company so
00:17:10
the business model of Amazon
00:17:12
involves companies involves activities
00:17:15
that are happening outside of the
00:17:18
boundaries of Amazon in fact outside of
00:17:20
the industry that Amazon is in so I
00:17:24
think the Innovation that is inherent in
00:17:27
the Amazon business Market or or I can
00:17:30
give you other companies e trades
00:17:31
business model or or several others is
00:17:34
the
00:17:35
realization that there is a lot of
00:17:37
innovation that can happen on in the way
00:17:40
companies do business and in fact the
00:17:44
there are companies where the entire
00:17:46
Innovation is how they do business take
00:17:49
Price Line price line is revolutionized
00:17:52
travel rather than
00:17:54
you going to the website of any Airline
00:17:58
and and and looking at the menu of what
00:18:00
they have to offer you it's just the
00:18:02
opposite you sit there and say I want to
00:18:04
travel from A to B and I'm willing to
00:18:06
pay X dollar to travel from A to B and
00:18:10
you airlin make him make me an offer and
00:18:13
and that's that's a reverse um you know
00:18:16
if if you think about it it's kind of a
00:18:18
reverse auction in some sense H but in
00:18:22
many ways it it's a way to create value
00:18:25
for the airline to dispose of seats they
00:18:28
haven't sold because if you fly an empty
00:18:30
Street you make no money you might as
00:18:31
well make some money and and so
00:18:33
everybody wins all this is a value
00:18:35
creating a business model and there's no
00:18:39
product there eBay there's no product
00:18:41
right they just the business model is
00:18:44
where they value creation so so I think
00:18:47
that that's the major ER phenomena that
00:18:50
we want to communicate that Innovation
00:18:53
is not just about product it's about
00:18:56
business models as well and the process
00:18:59
of developing that business model and
00:19:01
that enormous value for the stakeholders
00:19:05
is created through the business model
00:19:11
Innovation what we are engag in now is a
00:19:16
fairly massive effort of collecting data
00:19:19
and addressing a related questions and
00:19:22
um and that
00:19:23
is focusing on large companies and how
00:19:28
the business model evolves side by side
00:19:31
with the organization the people the
00:19:34
incentives and that's because the
00:19:36
business model focuses kind of on what
00:19:38
activities the firm is engaging in order
00:19:41
to create value and how that system of
00:19:43
activities create value how it's
00:19:45
connected who does it but there are
00:19:47
other elements of the organizations that
00:19:50
need to be looked at and that's how we
00:19:53
see ourselves in the next phase of this
00:19:56
H research program which as I said we
00:19:58
started over 15 years ago
00:20:07
[Music]
