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Sustainable growth in a sustained crisis - the business model as a tool to innovate (2012)

Kasper Roldsgaard
Kasper Roldsgaard

Research Festival 2012, April 19-20. Copenhagen, Denmark Includes some examples of business model innovation and examples of companies that haven't innovated their business model.

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Sustainable growth in a sustained crisis - The business model as a tool to innovate Getting the terminology right: Kasper V Roldsgaard In economics, sustainable growth refers to External lecturer, Dott. Mag., M.Sc. increases in profits, adjusted for changes in the CBS Department of Innovation and relationship between revenues and costs, which Organizational Economics (INO) can be sustained over long periods of time The Wedge, office # K3.48 (authors definition, 19-04-2012). 21688671 kro.ino@cbs.dk
Best practice example of non-sustainable growth DSB Financial highlights1999-2011 14000 Total revenues 12000 Profit for the period Amounts in DKK million 10000 (Or loss) 8000 6000 4000 2000 0 -2000 -4000 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Fig. 8. The growing gap of costs. Source: DSB Annual Reports 1999-2011. To close the growing gap, DSB suspends two contracts: a) the Swedish coast line of the Oresund region in 2011 [contract period: 2009-2017] and b) the V辰st region in 2012 [contract period: from 2010 to 2018].
RQ: How can the curves evolution be explained? Financial highlights1999-2011 1200 1000 a Financial result 800 Amounts in DKK million Best case scenario 600 b e 400 200 Indicative trendline: 0 -84.72x + 1023.2 R族 = 0.3825 -200 -400 -600 -800 c -1000 d 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: DSB Annual Reports
Suggestion: Drift with the environment Fluid model- adapt to the situation Agile tactic: Act, then probe. Collect information (but if a crisis Executive domain Expert domain from the market. Analysis: Starting point emerges then act) Inside-out Railway Expert perspective management panel If chaotic Railway Outside-in situation emerges, regulation perspective then act (a) (b) Cynefin framework (Snowden, 2007) Correlated logic Radical logic Distinctive logic Complex Knowable Probe. Adapt prior Analyze. Utilize expectations of data and expert how things work. knowledge. If a chaotic situation Chaotic Known emerges, Act. Then revise if Define laws. then act. required. Just dont Categorize and do nothing. codify standards. Disruptive logic Incremental logic (c) (d) Fig. 18. Fluid model - adapt to the situation. The Cynefin framework is to designed to evaluate complexity science from new and different viewpoints based on the assumption that design choices are influenced by multiple factors in our environment and our past experiences (Snowdon & Boone, 2007). The scheme provides an initial overview to protect the Spanish railway against some of the pitfalls observed in the Scandinavian railway market, while developing forward-looking disruptive ideas. 4
Todays program Search for business model Case examples Business model canvas
Musikbranche, filmbranche, spilbranche, avisbranchen, bogbranche, ejendomsbranche, DONG er i dag nr. 辿t i verden, hvad ang奪r havvind, i kraft af en enest奪ende knowhow, processtyring og forretningsmodel. Men DONG er ikke kapitalst脱rk nok til at fastholde sin andel p奪 et marked, hvor langt st淡rre selskaber k淡rer sig i stilling til kampen om den forventede tidobling af havm淡llekapaciteten i 2020.
1 En model (for at tjene penge) Hvor naiv kan man v脱re? Vi har at g淡re med et kommercielt foretagende, som store amerikanske venturekapitalister, [] og en kinesisk rigmand har investeret millioner af dollar i. De vil se en forretningsmodel. De vil se et afkast. [] Det er forretning med stort F. Kilde: F淡hns, H. Julegave 淡del脱gger forretningsmodel, Facebook fandt en smart model, men en diamantring satte sig fast i forretningens tandhjul. Information, publiceret 11-12-2007 2 Et koncept (for at tjene penge) den forretningsmodel for havm淡lleparker [...] er s奪 smart, at DONGs store tyske konkurrent p奪 det europ脱iske marked [...] annoncerede, at man nu vil rejse kapital til sine vindm淡lleprojekter p奪 lignende m奪de. [Ekspert udtaler:] Den st淡rste kompliment, du kan f奪, det er, n奪r konkurrenterne kopierer dine koncepter. Kilde: Nielsen, J. S., "Schurs show mod Eldrup rammer DONG", 16-03-2012.
N淡gleord: B脱redygtig 淡konomi, psykologi, politk, (kunder, v脱rdi, krise, success, finansiering,..) Forretningsmodel penge (127) Forretningsmodel investering (43) Forretningsmodel krise (44) Forretningsmodel finansiering (13) Forretningsmodel succes (48)
MP3-player/iPod?
Disruptive/game-changing system Game changing value rated by the market
Not if you ask me take a look at this Memory is an enemy Icon of serious play with technology (2007) Author of The Technology of foolishness (1971) Source: www.hu2.com/store/stay-hungry-stay-foolish-sticker.html, January 25 2012
Best practice example of disruptive logic or icon of serious play with technology
Business model inertia Many companies fail not because they do something wrong, but because they keep doing what used to be right thing for too long - and thus suffer from the rigidity of their own business models. (Doz and Kosonen, 2010)
Business model innovation There are many reasons why the incremental innovation doesnt just grow into the [disruptive] world. The strategy is a hindrance to free thinking, at least for the grant portion of the innovation, but perhaps also for the development of new business models for existing services. We can also see that the risk picture becomes much more diffused in the [disruptive] innovation world because we have no experience in these new areas. (p. 616) (Elkj脱r, 2011) Tabula rasa rationality [Disruptive] innovation requires a product or service in terms of tabula rasa, which mentally can be an almost insurmountable barrier in the innovation process. (p. 616) (Elkj脱r, 2011)
Visualizing the curve 3. 4. Searching for an innovation hotspot 2. The business environment itself is a choice variable: firms can select a business environment or be 1. selected by it: they can also shape it.(Teece, 2010) Fig. 16. Visualizing the disruptive curve. Source: Based on Hobcraft P., 2012b, The pathway curve methodology, The Agility Innovation Specialists, Online: http://innovationfitnessdynamics.com/2012/02/14/the-pathway-curve- methodology, Published 2012-02-14, Retrieved 2012-04-03.
Existing INPUT focus? OUTPUT loses design battle Nearly always Nearly always Mostly this design leads to loss of problematic competitiveness over time design option Examples: Spanair, DSBFirst, Nokia design battle Nearly always wins Often under- Transforms industry structure estimated or and/or shifts behavioral trends overlooked design option Examples: Ryanair, AVE, Apple. Possible Evolution of the problem dominant logic
Taxonomy of dominant design logics Track 1 Track 2 Track 3 1. 2. 3. 4. Fig. 14. Dominant design logic. Source: Based on Hobcraft (2012) Your dominating innovation design is?, The Agility Innovation Specialists, Online: http://paul4innovating.com/2012/02/01/your-dominating- innovation-design-is, Published 2012-02-01, Retrieved 2012-04-03.
Progression in small steps We need to solve specific problems BIG BANG HIGH RISK SERIES OF SMALL STEPS Problem-based Black Hole investment strategy investment strategy Examples Examples a. DSBFirst licences a. AVE trains in Spain (lines, rolling stock) b. IC4 trains in Denmark b. Mobile tickets (sms, app..) c. Travelcards (planning) c. Travelcards (realized) The concept of a business model lacks theoretical grounding in economics or in business studies ... [the absence of] business models in economic theory probably stems from the ubiquity of theoretical constructs that have markets solving the problems that in the real world business models are created to solve. Source: Teece, D. (2010:175, emphasis added), Business models, business strategy and innovation, Long Range Planning 43. 18
Why do we exist? Challenging the normal way 19
MANAGEMENT EXERCISE Handouts + posters 20
Business model canvas 21 21
One big idea, multiple perspectives 22

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Sustainable growth in a sustained crisis - the business model as a tool to innovate (2012)

  • 1. Sustainable growth in a sustained crisis - The business model as a tool to innovate Getting the terminology right: Kasper V Roldsgaard In economics, sustainable growth refers to External lecturer, Dott. Mag., M.Sc. increases in profits, adjusted for changes in the CBS Department of Innovation and relationship between revenues and costs, which Organizational Economics (INO) can be sustained over long periods of time The Wedge, office # K3.48 (authors definition, 19-04-2012). 21688671 kro.ino@cbs.dk
  • 2. Best practice example of non-sustainable growth DSB Financial highlights1999-2011 14000 Total revenues 12000 Profit for the period Amounts in DKK million 10000 (Or loss) 8000 6000 4000 2000 0 -2000 -4000 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Fig. 8. The growing gap of costs. Source: DSB Annual Reports 1999-2011. To close the growing gap, DSB suspends two contracts: a) the Swedish coast line of the Oresund region in 2011 [contract period: 2009-2017] and b) the V辰st region in 2012 [contract period: from 2010 to 2018].
  • 3. RQ: How can the curves evolution be explained? Financial highlights1999-2011 1200 1000 a Financial result 800 Amounts in DKK million Best case scenario 600 b e 400 200 Indicative trendline: 0 -84.72x + 1023.2 R族 = 0.3825 -200 -400 -600 -800 c -1000 d 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: DSB Annual Reports
  • 4. Suggestion: Drift with the environment Fluid model- adapt to the situation Agile tactic: Act, then probe. Collect information (but if a crisis Executive domain Expert domain from the market. Analysis: Starting point emerges then act) Inside-out Railway Expert perspective management panel If chaotic Railway Outside-in situation emerges, regulation perspective then act (a) (b) Cynefin framework (Snowden, 2007) Correlated logic Radical logic Distinctive logic Complex Knowable Probe. Adapt prior Analyze. Utilize expectations of data and expert how things work. knowledge. If a chaotic situation Chaotic Known emerges, Act. Then revise if Define laws. then act. required. Just dont Categorize and do nothing. codify standards. Disruptive logic Incremental logic (c) (d) Fig. 18. Fluid model - adapt to the situation. The Cynefin framework is to designed to evaluate complexity science from new and different viewpoints based on the assumption that design choices are influenced by multiple factors in our environment and our past experiences (Snowdon & Boone, 2007). The scheme provides an initial overview to protect the Spanish railway against some of the pitfalls observed in the Scandinavian railway market, while developing forward-looking disruptive ideas. 4
  • 5. Todays program Search for business model Case examples Business model canvas
  • 6. Musikbranche, filmbranche, spilbranche, avisbranchen, bogbranche, ejendomsbranche, DONG er i dag nr. 辿t i verden, hvad ang奪r havvind, i kraft af en enest奪ende knowhow, processtyring og forretningsmodel. Men DONG er ikke kapitalst脱rk nok til at fastholde sin andel p奪 et marked, hvor langt st淡rre selskaber k淡rer sig i stilling til kampen om den forventede tidobling af havm淡llekapaciteten i 2020.
  • 7. 1 En model (for at tjene penge) Hvor naiv kan man v脱re? Vi har at g淡re med et kommercielt foretagende, som store amerikanske venturekapitalister, [] og en kinesisk rigmand har investeret millioner af dollar i. De vil se en forretningsmodel. De vil se et afkast. [] Det er forretning med stort F. Kilde: F淡hns, H. Julegave 淡del脱gger forretningsmodel, Facebook fandt en smart model, men en diamantring satte sig fast i forretningens tandhjul. Information, publiceret 11-12-2007 2 Et koncept (for at tjene penge) den forretningsmodel for havm淡lleparker [...] er s奪 smart, at DONGs store tyske konkurrent p奪 det europ脱iske marked [...] annoncerede, at man nu vil rejse kapital til sine vindm淡lleprojekter p奪 lignende m奪de. [Ekspert udtaler:] Den st淡rste kompliment, du kan f奪, det er, n奪r konkurrenterne kopierer dine koncepter. Kilde: Nielsen, J. S., "Schurs show mod Eldrup rammer DONG", 16-03-2012.
  • 8. N淡gleord: B脱redygtig 淡konomi, psykologi, politk, (kunder, v脱rdi, krise, success, finansiering,..) Forretningsmodel penge (127) Forretningsmodel investering (43) Forretningsmodel krise (44) Forretningsmodel finansiering (13) Forretningsmodel succes (48)
  • 10. Disruptive/game-changing system Game changing value rated by the market
  • 11. Not if you ask me take a look at this Memory is an enemy Icon of serious play with technology (2007) Author of The Technology of foolishness (1971) Source: www.hu2.com/store/stay-hungry-stay-foolish-sticker.html, January 25 2012
  • 12. Best practice example of disruptive logic or icon of serious play with technology
  • 13. Business model inertia Many companies fail not because they do something wrong, but because they keep doing what used to be right thing for too long - and thus suffer from the rigidity of their own business models. (Doz and Kosonen, 2010)
  • 14. Business model innovation There are many reasons why the incremental innovation doesnt just grow into the [disruptive] world. The strategy is a hindrance to free thinking, at least for the grant portion of the innovation, but perhaps also for the development of new business models for existing services. We can also see that the risk picture becomes much more diffused in the [disruptive] innovation world because we have no experience in these new areas. (p. 616) (Elkj脱r, 2011) Tabula rasa rationality [Disruptive] innovation requires a product or service in terms of tabula rasa, which mentally can be an almost insurmountable barrier in the innovation process. (p. 616) (Elkj脱r, 2011)
  • 15. Visualizing the curve 3. 4. Searching for an innovation hotspot 2. The business environment itself is a choice variable: firms can select a business environment or be 1. selected by it: they can also shape it.(Teece, 2010) Fig. 16. Visualizing the disruptive curve. Source: Based on Hobcraft P., 2012b, The pathway curve methodology, The Agility Innovation Specialists, Online: http://innovationfitnessdynamics.com/2012/02/14/the-pathway-curve- methodology, Published 2012-02-14, Retrieved 2012-04-03.
  • 16. Existing INPUT focus? OUTPUT loses design battle Nearly always Nearly always Mostly this design leads to loss of problematic competitiveness over time design option Examples: Spanair, DSBFirst, Nokia design battle Nearly always wins Often under- Transforms industry structure estimated or and/or shifts behavioral trends overlooked design option Examples: Ryanair, AVE, Apple. Possible Evolution of the problem dominant logic
  • 17. Taxonomy of dominant design logics Track 1 Track 2 Track 3 1. 2. 3. 4. Fig. 14. Dominant design logic. Source: Based on Hobcraft (2012) Your dominating innovation design is?, The Agility Innovation Specialists, Online: http://paul4innovating.com/2012/02/01/your-dominating- innovation-design-is, Published 2012-02-01, Retrieved 2012-04-03.
  • 18. Progression in small steps We need to solve specific problems BIG BANG HIGH RISK SERIES OF SMALL STEPS Problem-based Black Hole investment strategy investment strategy Examples Examples a. DSBFirst licences a. AVE trains in Spain (lines, rolling stock) b. IC4 trains in Denmark b. Mobile tickets (sms, app..) c. Travelcards (planning) c. Travelcards (realized) The concept of a business model lacks theoretical grounding in economics or in business studies ... [the absence of] business models in economic theory probably stems from the ubiquity of theoretical constructs that have markets solving the problems that in the real world business models are created to solve. Source: Teece, D. (2010:175, emphasis added), Business models, business strategy and innovation, Long Range Planning 43. 18
  • 19. Why do we exist? Challenging the normal way 19
  • 22. One big idea, multiple perspectives 22