Management2.0

Management2.0:
Competitive Advantage through Business
Model Design & Innovation
Guadalajara, June 2007
Alexander Osterwalder, PhD
alex@arvetica.com

change is the process by
which the future invades our
lives
-> Alvin Toffler

first of all: what
are YOUR
concerns?
(buzz groups)

what are YOUR biggest issues and fears
you face in strategic management today?

where do YOU see the largest
opportunities to improve strategic
management today?

tell me about the most
important innovations in your
company

four rings of innovation

business model innovation
product & service innovation
process innovation
technology innovation

which one of your
examples qualify as
business model
innovation?

“B u si e ss m o d e l i n o va ti n m a tte rs” a n d i
n n o t
is a top priority of CEOs

Operating Margin Growth in Excess of
Competitive Peers
compound annual growth rate over five years

[Source: IBM, CEOs are expanding the innovation horizon: important implications for CIOs]

Benefits Cited by Business Model Innovators
percent of respondents

[Source: IBM, Global CEO Study 2006]

Zopa.com: Peer-to-Peer lending

why talk about
business models?

how do you describe a
business model?

how do you
communicate a business
model?

18%
1% 300%
Strategy

Text
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Development plan
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12%
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Words
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through inappropriate means

Ok
Here

Here

CEOs
10°

Managers
60°

Staff
360°

how do you implement a business model?

how do you measure the
success of a business model?

how do you change a business
model and innovate?

what is a business
model?

business model framework

INFRASTRUCTURE OFFER CUSTOMER
PARTNER CUSTOMER
NETWORK RELATIONSHIPS
CORE VALUE CUSTOMER
CAPABILITIES PROPOSITION SEGMENTS
ACTIVITY DISTRIBUTION
CONFIGURATION CHANNELS

COST REVENUE
FINANCE
STRUCTURE STREAMS

a business model describes the value an organization offers to
various customers and portrays the capabilities and partners
required for creating, marketing, and delivering this value and
relationship capital with the goal of generating profitable and
sustainable revenue streams

[Osterwalder (2004) The Business Model Ontology]

you become the new owner of a
soccer cl b …
u

describe YOUR
cl b ’ b u si ess
us n
model

what value proposition do you offer,
to which customer segments?

describing how a wealth management bank acquires its clients

to which customer segments? (model)

OFFER CUSTOMER

VALUE CUSTOMER
PROPOSITION SEGMENTS

value proposition 1 target customer 1
… …

to which customer segments?
(example)

OFFER CUSTOMER

spectacular
fans
offensive football

advertising space &
advertisers
high visibility

… …

how do you reach your customers?

how do you reach your customers? (model)

OFFER CUSTOMER

COMMUNICATION
VALUE CUSTOMER
& DISTRIBUTION
PROPOSITION SEGMENTS
CHANNELS

value proposition 1 channel 1 target customer 1
value proposition 2 channel 2 target customer 2
… … …

how do you reach your customers? (example)

OFFER CUSTOMER

stadium & box office

spectacular club owned TV
fans
offensive football channel

mobile phone TV

advertising space &
sales force advertisers
high visibility

how do you build relationships?

how do you build relationships
with your customers? (model)

OFFER CUSTOMER

VALUE CUSTOMER CUSTOMER
PROPOSITION RELATIONSHIP SEGMENTS

value proposition 1 mechanism 1 target customer 1
value proposition 2 mechanism 2 target customer 2
… … …

how do you build relationships
with your customers?
(example)

OFFER CUSTOMER

personalized
website (ticketing)

spectacular
team blog (RSS) fans
offensive football

…

how do you earn your money with
this business model?

this business model? (model)

OFFER FINANCE

VALUE REVENUE CUSTOMER
PROPOSITION STREAMS SEGMENTS

value proposition 1 revenue stream 1 target customer 1
… … …

this business model? (example)

OFFER FINANCE

ticket sales

spectacular TV channel
fans
offensive football subscriber fees

mobile phone TV
subscriber fees

advertising space &
advertising revenues advertisers
high visibility

the business
models place in a
company

STRATEGY

BUSINESS
MODEL
ORGANIZATION TECHNOLOGY

th e b u si ess m od els p l
n ’ ace i th e com p an y
n

5 forces

customer technological
needs change

BUSINESS
MODEL
legal social
environment environment

competition

the big picture (business model)

the big picture
Partner Network Customer Relationship

• food & beverages • personalized web profile
• ticketing services • newsletter
• promoters • team blog (RSS)
• ad placement • VIP events with team
• telecom operator •…
• TV operator
•…

Core Capability Activity Configuration Value Proposition Distribution Channel Target Customer

• play attractive & win • team management • attractive soccer • stadium • fans (families, etc.)
• event management • 360º event (match, • POS networks • fan groups
games
• brand management • venue management • club website (+online TV) • companies
dining, shopping)
• video images • ticketing • exclusive VIP lounges • club cable TV channel • event/concert organizers
• channel management • VIP relationship • merchandising • mobile phone TV channel • advertisers
• renting out stadium •… •…
management
• video crew •…
•…

Cost Structure Revenue Model

• team & maintenance • Ticket fees & season tickets
• infrastructure management • online TV subscription revenues
• marketing • revenue sharing cable & mobile phone TV
• video • renting out stadium for events
• advertising revenues
• merchandising revenues

value creates revenues

• TV operator
•…


games
dining, shopping)
management
•…



creating value requires infrastructure

• TV operator
•…


games
dining, shopping)
management
•…



infrastructure generates costs

• TV operator
•…


games
dining, shopping)
management
•…



the profit zone

• TV operator
•…


games
dining, shopping)
management
•…


<

the process of
designing innovative
business models

the focus of the
business model
innovator &
designer

PARTNER CUSTOMER
CORE VALUE CUSTOMER

COST REVENUE
STRUCTURE STREAMS

Grameen
Bank
customer
relationships
telecom
operators

micro-credit
village
phone ladies villager
telephony
mobile activity
telephony configuration
source of Grameen
phone ladies
revenue Bank (billing)
billing

telecom mobile phone
infrastructure revenues

content
producers
lifestyle brand
hardware
suppliers

hardware & prod. & softw.
softw. dev. design
iPod Apple stores
brand
e-commerce
management “h i h -e n d ”
g
dealer
iBook
consumer
network
multimedia hardware
rights mgmt distribution multimedia
iTunes
downloads
content
content
distribution

hardware
revenues
cost structure
multimedia
revenues

Amazon Simple Storage Services (S3)

customer
partners relationships

product
selection
content selling stuff mass
Amazon.com
management on the Web customer
distribution
Web2.0
warehousing
Amazon S3 Internet API
companies
& distribution
product
search
A9 product e-commerce
data services Internet
search sites
Amazon.com
data grid

selling stuff
IT infra
data storage
fees
marketing
search engine
revenues

the business
m od el s tool ox
er’ b

1. identify interdisciplinary stakeholders
-> set-up team

do you have to get the IT
team out of their cubicles?

2. understand (business) environment
– > frame problem

various starting points / depending on
context

PARTNER CUSTOMER
CORE VALUE CUSTOMER

COST REVENUE
STRUCTURE STREAMS

[Osterwalder (2004) The Business Model Ontology]

3. suspend reality
-> ideate

4. bring back
reality ->
prototype

5. chose suitable
design
-> decide

6. sketch out projects & workload
-> draw implementation plan

Project Estimated
Area
name workload

10
Project V1
man/days
Value
Proposition 120
Project V2
man/days

Distribution 38
Project C1
Channels man/days

…

7. outline key indicators to
follow
-> choose measures

Target
Project Estimated KPI
Area
name workload (measure) level

10
Project V1
man/days
Value
Proposition 120
Project V2
man/days

Distribution 38
Project C1
Channels man/days

…

8. select the right teams and people
-> make responsible

Target
Project Estimated KPI
Area leader
name workload (measure) level

10
Project V1 Mr. Jan
man/days
Value
Proposition 120
Project V2 Ms. Tee
man/days

Distribution 38
Project C1
Channels man/days

…

9. execute the plan
-> manage implementation & change

10. evaluate, learn and redesign
-> manage improvement

> market boundaries are
not given
> they are reconstructed
by the actions & beliefs
of industry players

RED OCEAN BLUE OCEAN

• create uncontested
• compete in existing
markets
markets
• make competition
• beat the competition
irrelevant
• explore existing demand
• create & capture new
demand
• make the value/cost trad-
off
• break value/cost trad-off
• align with differentiation
• align with differentiation
OR low cost
AND low cost

differentiate your value proposition

working definition value proposition

• a customer value proposition gives an overall view of a
company's bundle of products, services and client
advice.
• it is the sum of the total benefits a customer is
promised to receive in return for a payment (or other
value transfer)

group warm-up

what are the 5 most
important competitive
attributes that
characterize a game
con sol s offer?
e’

(e.g. price, performance, design)

attribute 1
e.g. performance
attribute 2
e.g. price

5 attributes

1

2

1. most important attribute
2. second most important
3. …
4. …
3

4 -

-

1. …
2. …
3. …
4. …
5. …

draw a value proposition

5 - high
b an k’ p erform an ce

3 - medium
s

1 - low

[Kim & Mauborgne (2002) Charting Your Company's Future]

eliminate raise

reduce create

strong & valuable approach, but limited view

Goldcorp

“g eo l g y p rize”
o CUSTOMER
500’ 000 $U S RELATIONSHIPS
exploiting CUSTOMER
mining
mines SEGMENTS
DISTRIBUTION
research
CHANNELS

low costs through REVENUE
open exploration STREAMS

Goldcorp publicly shared all of its geological data and
o ffe re d U S $ 5 0 0 ’ 0 0 i p ri s fo r d e te rm i i g w h e re
0 n ze nn
they might find the next 6 million ounces of gold

from copyright to creative commons

Skype

“eB ay” website
deliver voice & free VoIP & value global
video quality added services (non segmented)
software
internet
development

software large scale
development low margin

free voice-over-IP VoIP telephony &
value-added services

1291 Cityhomes low-cost hotel/rental in New York City

young
curious
Swiss
CUSTOMER
RELATIONSHIPS
apartment
owners

keep down
low cost
DISTRIBUTION the cost
renting out
costs
accommodation
CHANNELS sensible
rooms
New York
find demand

low cost rents

Tecnovate

“im p o rt” yo u n g
CUSTOMER
curious
RELATIONSHIPS
Europeans to
India to work

low-cost multi-
lingual call
keep down European
center
costs corporations
outsourcing

REVENUE
low cost
STREAMS

b u si e ss p ro ce ss o u tso u rci g “u p -si e d o w n ” i In d i
n n d n a

Netflix

independent
profile
films
(niche) movies
large movie specialized
over the
database clientele
Internet
ACTIVITY
Web
CONFIGURATION

COST REVENUE
STRUCTURE STREAMS

online movie rental (with large niche movie database)

from bloated head to the long tail

Alexander Osterwalder, PhD
alex@arvetica.com
www.arvetica.com

all photos from Flickr
under a creative commons license
authors indicated in comment page of ppt

Nobody knows your business environment better than
yourself. We co-design your strategic vision by building
we co-create
on your knowledge. Through group thinking we find the
right answers to the right questions together

Having a great vision is not sufficient - implementation
counts. We help you reconcile long term views with short
we operationalize
term actions. We make strategy everyone's job by
translating it into pragmatic and prioritized projects.

Change does not happen accidentally it has to be
managed. We help you align strategy, people and
we manage change
processes with respect to your organizational culture and
values.

When you stop learning, you stop competing. We scan the
knowledge universe for you, across disciplines and
we build knowledge
industries. We transfer the best methods, tools and
theory in business to your organization.

Specific problems require specific skills that you do not
necessarily dispose of in-house. Through our
we connect
interdisciplinary network we connect you with leading
domain experts.

annex I
business model
template

INFRASTRUCTURE OFFER CUSTOMER
PARTNER CUSTOMER
NETWORK RELATIONSHIP
CORE VALUE TARGET
CAPABILITIES PROPOSITION CUSTOMER
VALUE DISTRIBUTION
CONFIGURATION CHANNEL

COST REVENUE
FINANCE
STRUCTURE STREAMS

a business model describes the value an organization offers to
various customers and portrays the capabilities and partners
required for creating, marketing, and delivering this value and
relationship capital with the goal of generating profitable and
sustainable revenue streams

d e scri i g a co m p a n y’ b u si e ss m o d e l
bn s n

PARTNER CUSTOMER
INFRASTRUCTURE CUSTOMER
NETWORK RELATIONSHIP
OFFER
CORE TARGET
portrays the network of explains the
CAPABILITIES CUSTOMER
cooperative relationships a
agreements with other company establishes
VALUE
companies with its customers
PROPOSITION
outlines the capabilities
describes the
required to run a
customers a company
company's business
wants to offer value to
model DISTRIBUTION
gives an overall view of
VALUE
a company's bundle of CHANNEL
CONFIGURATION
products and services

describes the channels
describes the to communicate and
arrangement of get in touch with
activities and resources customers

sums up the monetary describes the revenue
COST REVENUE
FINANCE
consequences to run a streams through which
STRUCTURE STREAMS
business model money is earned

d e scri i g a co m p a n y’ o ffe r
bn s

OFFER

VALUE
PROPOSITION

value proposition 1
value proposition 2
…

describing who a company offers value to

OFFER CUSTOMER

VALUE TARGET
PROPOSITION CUSTOMER

… …

describing how a company reaches its customers

OFFER CUSTOMER

VALUE DISTRIBUTION TARGET
PROPOSITION CHANNEL CUSTOMER

value proposition 1 distribution channel 1 target customer 1
value proposition 2 distribution channel 2 target customer 2
… … …

describing the relationships a company builds

OFFER CUSTOMER

VALUE CUSTOMER TARGET
PROPOSITION RELATIONSHIP CUSTOMER

value proposition 1 relationship type 1 target customer 1
value proposition 2 relationship type 2 target customer 2
… … …

describing how a company makes money

OFFER FINANCE CUSTOMER

VALUE REVENUE TARGET
PROPOSITION STREAM CUSTOMER

… … …

describing what capabilities are required

INFRASTRUCTURE OFFER

CORE VALUE
CAPABILITIES PROPOSITION

core capability 1 value proposition 1
core capability 2 value proposition 2
… …

describing what activities are required


CORE VALUE VALUE
CAPABILITIES CONFIGURATION PROPOSITION

core capability 1 activity 1 value proposition 1
core capability 2 activity 2 value proposition 2
… … …

describing the partners that leverage the business model


CORE PARTNER VALUE
CAPABILITIES NETWORK PROPOSITION

core capability 1 partner 1 value proposition 1
core capability 2 partner 2 value proposition 2
… … …

describing the costs of a business model

INFRASTRUCTURE FINANCE OFFER

CORE COST VALUE
CAPABILITIES STRUCTURE PROPOSITION

core capability 1 cost account 1 value proposition 1
core capability 2 cost account 2 value proposition 2
… … …

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