Business Model Innovation in the EU and beyond

Business Model Thinking is coming more and more mainstream. On Friday, I was at a workshop sponsored by the EU commission on Business Model Innovation and Policy Making. Here are my takeaways.

Business Model Innovation on the top of the agenda for policy makers

I’m very happy that the topic we started more than 15 years ago will be part of the future innovation policy of the EU. 15 years is a long time for me as a person, but as the business professor Christoph Zott is pointing out in science and policy making 15 years is a short time particularly when you want to introduce new units analysis to understand how firms outperform or create über-returns with (business model) innovation.

Policy making in need for innovation by xkcd

Business Model Innovators as outperformers

While we as entrepreneurs do not care much about measuring the impact of business model innovation on a societal level, the EU or the OECD, that also participated, want to measure each countries performance on business model innovation and then define policies to foster business model innovation on a governmental level.

Most papers presented at the workshop had a strong focus on the technocratic parts of a business model like Value Creation, Value Capture and Value Proposition but were missing the human side to business, the people who run a business, make the difference in innovation but are also the biggest impediments to change.

Pieter Perett and his team from the University of Applied Science Northwestern Switzerland, who organized the workshop, presented their findings that business model innovation make a strong impact on the long-term performance of firms. They use statistical data to identify business model innovators and they try to calculate if there is a über-return for these business model innovators.

Edward Giesen, Head of BMI at IBM, presented their study on business model innovation. They use a different method. Instead of measuring the impact of business model innovation from statistical data, they interview CEOs on the importance of business model innovation, and they see that companies that are consider themselves as business model innovators are outperforming traditional product or process innovators.

Christian Zott, who published one of the first works on business models in 2001 and is a strong advocate for business models, criticized from a scientist point of view the methods to measure the impact of business model innovation. His main point is that business models are often defined too broadly so it is difficult to understand where the real impact was in the business model.

I liked his criticism a lot from a scientist point of view and his focus on rigidity, however his proposal to focus only on the activities might be rigid but then the concept of business models looses its relevancy and its magic to see new boxes, entrepreneurs have never thought of as points of innovation like the revenue model, the value proposition or the Team & Value side of a business.

Where’s the beef?

Hans-Jörg Bullinger, former Head of the German Fraunhofer-Gesellschaft, criticized that the studies are interesting from a scientific point of view, however, they do not help to overcome our technology bias. His call for action was that we need better tools to design business models for entrepreneurs. Of course, I loved his objection, since this is exactly, what we do with the upcoming tool box for entrepreneurs. Continue reading Business Model Innovation in the EU and beyond

You do not have to be loved by everybody – a great value proposition

Most people want to be liked or even be loved. But a good value proposition for a firm should not attract everybody but only the ones you intend. And that means that a lot of people might even hate you.

Not everybody needs to love youTake the latest controversy about Abercrombie & Fitch, an American retailer for casual wear. See here (forbes.com), here (Los Angeles Times) or here (Daily Mail, UK).

Abercrombie & Fitch offers no women’s XL or XXL because they don’t want big women to wear their brand. Their value proposition is clear: They want the cool kids as customers. They do not consider big women as cool.

Mike Jeffries is the man behind A&F. In an interview with Salon Magazine in 2006 he told, when asked about the emotional experience in his shops:

“It’s almost everything. That’s why we hire good-looking people in our stores. Because good-looking people attract other good-looking people, and we want to market to cool, good-looking people.”

That is the reason why they offer nothing for big ladies. That is their choice. They discriminate big ladies, but you as customers have the choice as well. You are not forced to buy at A&F. I do not buy at A&F because I do like their attitude. However, they have a value proposition that is clearly distinguished from their competitors. And that is what I like and adore. They stick to their mantra even under severe pressure from the public.

Take other firms, Apple or Zara. They also discriminate. Apple’s Operating System is a closed system and either you take or leave it. At Zara, you also have no extra large sizes.

H&M, Dove: The opposite can be right as well

Interestingly, other firms like H&M or Dove have a different approach to big or natural ladies. H&M offers a H&M+ collection for larger women. Continue reading You do not have to be loved by everybody – a great value proposition

It’s time to move

This is an announcement for the subscribers to this blog. In less than two months Google will stop Google Reader. That’s bad but we can’t change it. Unfortunately, over 600 subscribers of this blog still use Google Readers according to our feedburner statistics.

And that is bad. Bad for us, because we loose 600 subscribers that have a huge loyalty to this blog. And bad for you, since you do not get actively informed when we have fresh content. There is only one way to avoid this. You have to move.

  • The fastest way is that you subscribe with your email to the blog. For this service, we use Google Feedburner (hope they keep at least this service). As you know us, we do not publish too many articles so your risk to be spammed is zero. Actually, we look for articles from the community about business model innovation.
  • You move to another RSS reader. There are plenty of articles on the best alternatives to Google Reader like this on from The Verve or from lifehacker.  The best is that you can export your feeds into the new reader easily. Feedly, a favorite of many, has a build-in function to connect with Google Reader and will import all your feeds directly into Feedly. The second alternative is to export your feeds into the new reader. Mashable explains this option. A very clean reader, that is very close to the user experience of Google Reader, is The Old Reader.

So act now!

Hope to see you on another RSS reader or as an email subscriber.

Thank you very much.

Patrick

A request for help

Dear readers

You might have realized that I have written just a few post in the last months. The reason is very simple. I have teamed up with Thomas Meyer, a young,  unconventional bestseller author, Gottschalk & Ash, a design agency and Wolfsburg AG, an innovation agency to develop a toolbox for entrepreneurs.

The work with Thomas and the others is absolutely stunning but also very time consuming since we do not like to stick to the first best solution but thrive for the best.

And this means a lot of iterations and testing. E.g. we decided to write in a thought provoking, easy to read and funny style, Thomas is well known for. But of course, this irritated our sponsor at the beginning. They expected a semi-scientific work adapted to entrepreneurs. However, we thought there are enough boring books out there so we decided to be different and hopefully better.

Bringing the whole team behind the same ideas and values takes time. However, this is extremely important since otherwise we cannot shoot for the stars. Later the customers have to decide if they like what we have developed. But of course, we have tested the toolbox with a variety of entrepreneurs. We used it with social entrepreneurs at the Hub Zurich. Students at the University of St. Gallen developed stunning ideas that made already an impact in the life of other students. We tested it at the Entrepreneurship Summit in Berlin, etc. All of this takes time, but makes the tool box better. Thanks for all the feedback and ideas we got.

The bad news for most of readers is: The toolbox will be in German. The reason is very simple. Since we are German-speakers and live in German-speaking countries, we believe that we have to give something back. We believe that in Germany, Switzerland and Austria we need more, better and more creative startups. And if we can make a small contribution to this, that would be awesome. It is striking that the first ideas about the business model innovation concept emerged in Switzerland at the end of the 1990s. Alex is also Swiss by the way. It is fun to see an idea spreading worldwide from a country most people expect watches to come from but not management trends.

And since we want to foster entrepreneurship in all parts of society we decided to write in plain and simple German with little Fachvokabular (technical vocabulary). This is pretty tricky and needed a lot of creativity to explain the most essentials ideas in a very understandable language. Particularly, since a business model describes briefly all disciplins of businesses (marketing, sales, operation management, financials, HR, leadership) on a card. That is a challenge.

Your help is needed

So here come the two requests:

  • For all German speakers, if you like the idea about the toolbox, please enter your mail in our list so we can inform you about the progress.
  • The second request goes to all experts in business model innovation, strategic innovation management, customer insights via jobs-to-be done technique or entrepreneurial design. If you would like to contribute to this blog, we would love to hear from you. This blog is not my personal blog, but a blog about business model innovations. We look for cases, though provoking ideas, reflection but not for PR material. The average post has around 3.000-5.000 readers but this depends very much on the topic. Most articles are typical “long-readers” and reference articles that attract a lot of traffic via Google. A typical article is “Who says paper is dead?” with almost 9.000 visitors. And of course, the article will be published under the name of the other.

In the next months we have many challenges ahead with our toolbox. One is that we need a publisher who is willing to accept new business models in the publishing industry like publishing under Creative Commons or finding creative ways to bundle the books for teams. Will be an interesting journey.

Thanks for all your support and ideas.

Cheers Patrick

It’s not the price, stupid. It is the value (proposition)

We always hear that the customer is not buying because the price is too high. Is the price important?

Of course, most clients will say yes in any survey or in sales negotiation. Actually, there are departments at your clients that know only two words: Too expensive!! Give me rebates! That is the purchasing department and it is their job to negotiate the price of a purchase. However, is this true, that even for B2B customers only the price is important?

Observe the jobs-to-be-done of your customers. Don’t ask the customers

Let’s take an example from RWE, a huge German utility firm. Let’s take the case they need to purchase electronic testing equipment. Nothing fancy, just a plain vanilla device for 30 to 50 Euro. Traditionally, this purchase would be a C category purchase. C means not critically important to the firm and therefore the firm usually shops around among different suppliers for a good price.

So you would assume that price is the decisive criteria for a firm to purchase from you. And yes, if you survey customers what is important in their decision to purchase C goods, the price will be on top.

So, all B2B marketplaces of the late 1990s and early 2000s like Onvia had the value proposition that price of the goods are the most important criteria for the B2B market. So they offered everything economics told them what to do in a price sensitive market: Make auctions, offer pool buying for larger quantities or make requests for proposals.

Not the price of the good is important but the whole cost of purchasing

However, they had to learn the hard way (most disappeared from the market) that this is not the case. Let’s go back to the testing device of 30 to 50 Euro at RWE. Saving an extra 20% on a purchase of 50 Euro is great. But is it just 10 Euro. But the costs for the internal purchasing process can easily be 150 to 200 Euro for the traditional process according to Karl Czech from RWE purchasing. Continue reading It’s not the price, stupid. It is the value (proposition)

Banking 2.0: Call for help: Ideas for unsolved or badly solved jobs in today’s banking

Dear readers, this time I would like to tap to your collective and swarm intelligence. It’s a bit like open innovation but in a quick and dirty version.

The challenge: boring and uninspiring banking

The challenge is simple. Retail and e-Banking in the current form is quite 1.0. Most eBanking or payment systems use the traditional business model and transferred the traditional model online. So we have a banking 1.0 online. Boring, dull, uninspiring.

Now, the challenge is: What will be banking 2.0 look like?

What would make you say: “Wow, they really got it. You have to try it. It’s cool and just helped me to make my life easier and better.”

Your unsolved or badly solved jobs in personal finance

But before we look at the solutions I would like to raise the questions what are unsolved jobs in your personal finances. What annoys you? What is great and more people should know about? What are needs you think are so obvious, that there should be solutions to it?

Personal finance can anything from cash management, expense management, payments, saving and investing, financing your house or your car, saving for the silver age (pensions) etc… If you have a family, think about your family financial affairs. If you are a patchwork family, what are special jobs there?

Your solutions, please!

The second question is about solutions. What solutions do we need in banking 2.0? What products or services you would love to see?

Please use the comment function for your unsolved-jobs or ideas or the open innovation platform atizo, where I have set up a project “banking 2.0” for us. Please feel free to use both or just the one that suits you most.

Leaving blanks blank: The art of accepting blanks on the canvas

Recently, I spent time at the most international and diverse university of Germany, the Jacobs University in Bremen with Prof. Steven Ney. I did a seminar on entrepreneurial design. The students were trained already to use the canvas and the course was great. However, their inability to leave blanks on the canvas was striking. What do I mean by this?

We do not like blanks. Long pauses in a conversation confuse and stress us. And since we do not like blanks we fill them. In a conversation, we do small talk. On the canvas, we just fill in the blanks with a kind of small talk as well.

We just don't like blanks! by xkcd (Source http://xkcd.com/608/)

Small talk on the canvas is to just fill in something which sounds good, but has no base, no facts supporting it, not even being a smart idea. If we do not know exactly who our customers are, we wirte Business-to-Business customers or advertising in the box to communicate with our customers. B2B sounds sophisticated but for an entrepreneur who wants to build something on top of her canvas, this is useless at best, dangerous at worst.

While small talk is socially accepted and even expected, filling the blanks on the canvas is dangerous since it pretends we have solved this problem and we move on to another building block to fill. That is deadly if you really want to execute your idea into reality. Continue reading Leaving blanks blank: The art of accepting blanks on the canvas

The strange business model of airlines

The airline business is a strange business and in desperate need for business model innovation. On the one hand, more people fly than ever to prices lower than ever. IATA, the industry body, states that the real cost of travel has fallen in the last 40 years by about 60% and the number of travelers increased tenfold. Air freight has grown in this period by a factor of fourteen. (See IATA Vision 2050) That sounds like a very successful industry. Is it? However, on the other hand, airlines are notorious to not even earning their cost of capital and producing unhappy customers.

 

During the 2000s the average airline generated an EBIT margin of just 0.7%. Taken a longer perspective, the figures are as drastic. From 1970 to 2010 the airline industry generated over USD 12,000 billions of revenues in today’s prices, but only a total of USD 19 billion of net post-tax profits; a margin of only 0.1%.

Another dull figures: Around USD 500 billion of investors’ capital is tied up in the airline industry. Normally, investors would expect a return on capital of around 7-8%. Taken the 500 billion that would mean a return of 40 billion annually to cover the cost of capital. But what did the airlines earn? 20 billion or 20 billion less that the capital would have earned elsewhere. The airline industry is a big capital destroyer. Interestingly, other firms along the travel value chain like airports or computer reservation systems earned excess returns. So there is profit in the travel industry but not with the capital-intensive airlines. Airlines are a dismal industry.

So are customers at least happy? Just type in Google the search “airline experience” and enjoy all the customer stories about flights. And watch the film “United breaks Guitars” like 12 million others did on Youtube.

What went wrong and is there a solution to it? And think about it why we all hunt of low prices on traveling while we spent USD 5 for a latte at Starbucks. Why are we so price conscious on travelling and not on coffee?

Here are some thoughts I presented at the 17th international airline conference last fall in Seattle. Thanks to Nawal Taneja, Dietmar Kirchner and Rob Solomon for the kind invitation.

Thesis 1: Airlines are masters of transportation economics, not customer experiences

It seems that all airline managers are great students of economics but not of entrepreneurship and marketing. Since they have a perishable good (empty seats on an upcoming flight are like perishable goods), they believe strongly in variable pricing by exploiting the maximal price customers are willing to pay.

That sounds very reasonable at first, since who wants to argue with economists and their theoretical models, but what airlines have forgotten over time is, that if you treat customers like rational customers then you will get rational customers and extremely price sensible customers in the end.  However, there is a good reason why economics is called a dismal science. So if you follow economists, Continue reading The strange business model of airlines

The hidden cost of Apple’s Business Model

Apple is the poster child of business model innovation. Apple has reinvented several business like music with itunes and the ipod, the telecommunication industry with its iphones and currently, the publishing/news/information industry with the ipad. But success is also associated with costs we should consider.

Apple has a market capitalization of 576.79 billion USD. There are 43’400’000 search results at Google when you look up Apple Business Model Innovation. Apple is the household name for innovation for sexy products and services for which people camp in front of stores to be the first to get the latest gadgets.

But it is also interesting to look at the cost associated with Apple’s success. Take a look at infographics made by mbaonline.com.

Fighting for the next business model in the pets industry

I had in the last months the chance to apply business model thinking & innovation on several, very diverse industries: the airline and travel industry, the pets industry and some time ago on the media industry, particularly newspaper.

In the upcoming three next posts, I will share some insights I gained from using the business model canvas on these industries. The series will start with the pets industry.

A word of warning to all industry experts: I am not an expert for these industries. I’m not a pet industry expert. I am an expert for the process of re-thinking and re-inventing business models.

Pets Industry – A revolution in the making

The following slide deck is my presentation, I gave on January 27th, 2012 in Berlin at the Pets International conference. Enjoy some insights in a very interesting industry where the core is all around living creatures and the close relation we have to them.

Enjoy also my new design of the business model canvas I have created together with Gottschalk & Ash, a designer with the support of the Wolfsburg AG, an innovation incubator in Germany. You will see more in the future.

 

Pets are man’s best and dear friends

Pets are highly emotional and men’s best friends. Pets are members of your family. Sometimes they are treated better then human beings. Continue reading Fighting for the next business model in the pets industry