EVANGELIZE RESOURCES / David Hole
Business Model Innovation for the masses.
Business Model Innovation is not business case creation What is it and why do I need it?
At Evangelize one of our key product services that we have specialised in is Business Model Innovation.Business Model Innovation (BMI) is often confused with being a Business Case and it really isn’t even the same type of thing.A business case as described by the Prince2 definition contains the following content,
- Executive summary: A short overview of the business case
- Reasons: Motivation for carrying out the project
- Business options: Possibilities for carrying out the project with quantitative and qualitative evaluations
- Expected benefit: List of benefits with reasons and measurements
- Expected dis-benefits: Results that are negatively evaluated by stakeholders or negative side effects
- Timescale: Beginning and end of the project and when the project will pay off
- Cost: Costs of the project and costs that arise after its completion
- Investment appraisal: Information about the return of investment (ROI); cost-benefit analysis
- Major risks: Summary of the largest risks for the project.
Business Model Innovation
Business Models differ from business cases because a Business Model is a way in which organisations capture value. Not only the economic value but also the social values that an organisation can create, and the cultural parameters that will sustain it into the future.Business Models can energise existing products and services with new cost, go to market and business approaches to exploit investment that may have already been made in past budgetary cycles. How this is done varies considerably depending on the organisation, product, service and people involved but there are upwards of 70-80 common models that can be utilised in order to lay siege to that illusive value that often gets hidden deep inside a tried and trusted product or service.A Business Model covers the full end-to-end concept-to-cash process for any product or service. Models also combine strategy with technology and unite the people elements of a company from ideation to delivery.An example of a company that utilises various different models within one all encompassing offering is the Amazon Kindle product.As described by wikipedia,The Amazon Kindle is a series of e-readers designed and marketed by Amazon. Amazon Kindle devices enable users to browse, buy, download, and read e-books, newspapers, magazines and other digital media via wireless networking to the Kindle Store. The hardware platform, developed by Amazon subsidiary Lab126, began as a single device and now comprises a range of devices, including e-readers with E Ink electronic paper displays and Kindle applications on all major computing platforms. All Kindle devices integrate with Kindle Store content, and as of March 2018, the store has over six million e-books available in the United States.
What did Amazon do that differentiates the from the competition?
Amazon Kindle originated from the desire to build a product that would replace a physical book and empower an ecosystem of interchangeable digital documents.Various Business Models were used but significantly most of the models had one thing in common and that was they did not cross over very much into each others touch points from a deployment perspective.The Ecommerce model used The Amazon Kindle e-reader that could only be bought online through Amazon.com and all of the media used by the Kindle devices could only be purchased in the Amazon Kindle shop.The Amazon Kindle e-reader sold through Amazon.com was very competitively priced but to enforce the desire to land and expand the offering Amazon then opened up the format by offering free e-books and other media formats to be used on the Kindle device, the revenue potential from this was far bigger than the price for the physical device. This type of Model is called Razor and Blade and points to Gillette selling a very cheap razor handle but recouping revenue by selling more expensive blades that only fit the razor thus ring fencing the product and locking in customers.Not content with the additional profit made from Razor and Blade modelling Amazon then started to give away free 1-month trial for its premium subscription ”kindle unlimited” which allows the customer unlimited access to media such as e-books, magazines and audio books for a flat fee payable every month. This enables customers to test the service and Amazon to upsell the full subscription to users of the free trial.This type of Model is called Freemium and is probably something you have come across before. Netflix anyone!!I could go on but I think you are getting the point.After such a difficult year in 2020 it is time to start to look at what can be achieved in 2021 by taking a step back and looking at the different ways of approaching products and services to generate hidden revenue.Using the Kindle example above we haven’t even touched on the way that Amazon Leverage customers data (another model of the same name) by collecting the individual interests and purchases of its customers to create cross-selling opportunities with individual marketing and targeting opportunities. Coupled with the “long tail” that allows older and more difficult titles to remain in (Digital) print thus maximising overall profit and a little bit of “revenue sharing, the overall amount of Kindle based Business Models grows to about 7 with 3 more (Subscription, To Sided market, and user designed) bringing the total up to 10 different Business Models that are currently in use for the Amazon Kindle alone..As BMI Lab mention in their book on the Amazon Kindle, they (Amazon) “has a library of millions of digital books. A new Kindle e-book is published every five minutes. Amazon Kindle is offering bestsellers and a vast majority of niche publications on its platform while ensuring that they are competitively priced. Hence it allows them to address a big audience of potential customers through its wide offering and good prices, rather than few high margin products. Individual margins might be low but the sheer majority of transactions add up to a significant revenue“.
So what does all this mean to you?, how can you decide if this is a good approach for your organisation?
2021 has three objectives that are becoming very clear.The first thing is “Organisations are going to have to do more with less“.Budgets for projects and other initiatives are going to be very tight as profits have been diminished throughout the covid pandemic and continue to be for at least the next three months if not longer, certainly until a vaccine is rolled out to provide clients and customers with a little bit more faith in the marketplace.The second thing is “The public’s opinion of technology has changed“.The rate of adoption for technology at the moment is faster than it has ever been because people have had to adopt technology to exist during these past 9 months. Zoom, Skype, Facetime and Teams have become staple diets for most people. They might not like the experience but don’t think that relates to the rate of adoption because it doesn’t. If people “have to adopt technology” they will, regardless of if they like the experience or not.The third thing is more subtle and less obvious. “Never before have so many people worldwide been accepting of change and what it might bring“.The ability for organisations to be able to introduce change into their environments both working and from a product portfolio perspective has never been so advantageous as now.Think about your clients, users, and employees in relation to what they will be thinking over this holiday period. Nearly everyone we have spoken to on the past few months has said that they expect a lot of change in 2021, they might not know what it will be but they are ready for it because of 2020 and all the issues that have arisen during the past year.These three things are all complementary to Business Model innovation and the benefits that arise from implementing business modelling.Now would be a good time to start to think about what you can do with your portfolio of products and services, what you can do to augment existing profit lines and channels, how you can get your employees to contribute more both from a doing and ideation point of view, and finally how you can generate the hidden revenue from your existing product and service lines.This year has seen a lot of innovation but 2021 will see the innovators move away from the competition and their stagnated product and service portfolios with their employees, clients and customers never having been in such a welcoming place both culturally and professionally.
What’s next for your business?
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