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The Six Secrets of Business Model Exploration

A Field Guide for Growth Leaders • April 2008A Field Guide for Growth Leaders April 2008

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Purpose of this document

Peer Insight has been practicing business model exploration inservices environments for almost 5 years During that period we haveservices environments for almost 5 years. During that period we havecompleted dozens of projects and collaborated with over 1,000 seniorpractitioners, in 10 countries, from 50 different firms.

When we combine this hands on field experience with our globalWhen we combine this hands-on field experience with our globalresearch program, it provides a clear picture of how differentinnovation methods correlate to project outcomes. This documentrepresents our best advice to business leaders who are consideringhi i f hthis important avenue for growth.

Please direct your questions and comments about this document to:

Gordon HuiTim Ogilvie Gordon HuiVP, ConsultingPeer Insight(703) [email protected]

Tim OgilvieCEOPeer Insight(703) [email protected]

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Four Fundamentals and Six Secrets

Introduction

The emergence of the services economy – and the modern ITsystems upon which it runs – has opened up powerful newopportunities for corporate growth. At Peer Insight, we see that

Can such a complex topic be reduced to a set of protocols, acookbook, so to speak? Our experience in consulting projectsin a wide range of environments proves that it can.opportunities for corporate growth. At Peer Insight, we see that

there are Four Fundamentals for profitable growth in theServices Era:

1. Ability to detect unmet customer needs and design unique customer experiences;

2 Open innovation to engage the best capabilities in

g p

The Six Secrets

Any experienced business reader can tell you that the topic ofinnovation suffers no shortage of hyperbole. For that reason

l i i i ll l h “ i2. Open innovation to engage the best capabilities in the ecosystem;

3. Business model exploration to retain a fair share of the value the firm creates; and

4. Judicious use of technology to make these new offerings scale profitably.

alone, we were initially reluctant to use the term “secrets” inassociation with this guide.

However, our research program has proved that, while businessmodel innovation attempts are frequent, the methods used arecrude and highly variable even among different teams within

This document explores the third of these fundamentalcapabilities, business model exploration. Business modelsare often addressed at a conceptual level, to raise awarenessand promote discussion. Alternatively, we often see business

d l dd d ft th f t t l ti l l l t l i

crude and highly variable, even among different teams withinthe same firm. For the six methods below, we found that only12 of the 100 projects in our recent study used more than half ofthem. Yet, when these so-called secrets were employed, theresults were remarkable. Here are the six methods, in headlineform:

models addressed after-the-fact at an analytical level, to explainwhy a certain firm’s business model works (or doesn’t).

In this document, we wish to address the subject of businessmodels at the design protocols level, proposing a series ofpractical methods that really work when it comes to unlocking

Secret #1 Everyone must speak business modelSecret #2 Use customer priorities as the starting pointSecret #3 Contradict the dominant logicSecret #4 Find a hungry partner to “complete you”Secret #5 The on-ramp is part of the business modelpractical methods that really work when it comes to unlocking

what John Seeley Brown calls the architecture of the revenues.5 p p

Secret #6 ROL (return on learning) always precedes ROI

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Examples of Services Era business models

Services Era business models are manifestations of the FourFundamentals (customer experience, open innovation, businessmodel exploration, and technology). Those fundamentals cantake many different configurations. Below are ten examples ofservices models. One pattern you will see in these innovative

models is how frequently they tend to shift the boundaries ofwhich party does which tasks in a marketplace. This boundaryshifting is usually based on new possibilities created bymodern IT systems.

services models. One pattern you will see in these innovative

Mass customization . . . . . . . .. . . Use IT systems to enable “mass produced, yet customized” services1.

Nature of the innovation Description (+ examples)

a a

Marketing of excess capacity . . .

Marketplace / social media . . .

Info-based targeted offers

y p , yEx: Dell direct build-to-order PCs

Business models, often leveraging ICT, that identify and sell unused capacityEx: Priceline.com, NextJet

Create a meeting place for buyers and sellers, enabling their transactionsEx: eBay, Facebook

Use data mining to develop highly targeted offers based on unique insights

2.

3.

4 Info based targeted offers . . . .

Narrowcasting ad model . . . . . . .

Lock-on through learning . . . . .

Outsourcing

Use data mining to develop highly targeted offers based on unique insightsEx: Progressive Insurance, CapitalOne, Harrah’s

Use data mining to provide advertisers with access to precisely-defined customersEx: Google

Enhanced “targeted marketing” based on accumulating data through IT systemsEx: Amazon collaborative filtering, NetFlix recommendations

Company assumes complexity or specific task(s) on behalf of client

4.

5.

6.

7 Outsourcing . . . . . . . . . . . . . . . .

De-featured versions . . . . . . . . .

Pay-per-use plans . . . . . . . . . . . .

F ti l hi

Company assumes complexity or specific task(s) on behalf of clientEx: IBM IT Outsourcing

Offer services that are more basic versions of an existing service, at lower costEx: Southwest Airlines

On-demand or per-pay-use servicesEx: Sun Grid Computing, Progressive Insurance “TripSense”

P id ti l shi f it l ss t

7.

8.

9.

Fractional ownership . . . . . . . . . Provide partial ownership of a capital assetEx: NetJets

10.

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About the authors and contributors

Tim OgilvieTim is the CEO of Peer Insight and has twenty years ofexperience in business strategy research and analysis.During the early 1990s, he founded Price Waterhouse's

Field Testing with ClientsOur consulting practice lets us take new discoveries and put them intopractice. We have been privileged to know quite a few courageousclients eager to apply leading-edge innovation methods to their new

global benchmarking practice and conducted over 80best practice site visits in 13 countries. Prior to formingPeer Insight he was the CEO of a software firm and apartner in a global strategy consultancy. Tim holds aMasters degree in Computer Integrated Manufacturing

Systems from Georgia Tech, and a BA from the University of Virginia. Timand his wife a Brazilian born artist are raising two young boys but he still

growth opportunities. We should acknowledge the collaborative effortsof several firms, including AARP, Bank of America, Celestica, GE,Hewlett-Packard, Procter & Gamble, Starwood Hotels, Siemens, andUPS, to mention a few.

Gordon HuiGordon is the Partner in charge of Peer Insight’s

and his wife, a Brazilian-born artist, are raising two young boys, but he stillmakes time for running and rock climbing.

g gconsulting practice and directs engagements on avariety of emerging innovation topics, including serviceinnovation, growth platform development and customerexperience design. Gordon has implemented innovationand growth strategies at a number of America’s mostwell-known companies, including Hewlett-Packard,St d d & P ’ d P t & G bl H h ldStandard & Poor’s, and Procter & Gamble. He holds an

MBA from The Wharton School at the University of Pennsylvania and B.S.degrees in Finance and International Business from the University ofMaryland at College Park. In his spare time, Gordon is a budding acousticguitar player and climbs the occasional mountain in Tanzania.

+ + + P 7secret #1 . . . Everyone must speak business model

business model exploration

Despite the importance of emerging economies to mostmodern supply chains, the language to learn in the ServicesEra is not Hindi or Mandarin. . .it’s business models!

As many leading business thinkers are quick to point out, they g q p ,business model mediates the linkage between the technicaland social domain. Every day, the innovation-orientedproduct engineer at Hewlett-Packard not only mustunderstand the language of ink technologies and productroadmaps, he must also be conversant in Adrian Slywotzky’s

i b l d l iperspectives about value capture and value creation.Similarly, the growth-driven brand director at Procter &Gamble cannot simply focus on brand equity pyramids andstage-gate models, she must also think about HenryChesbrough’s theories on open innovation.

Most of the firms that we admire today are not only multi-national corporations, they are also multi-business modelcorporations. Apple, Amazon, IBM, GE. Brave andrelentless explorers of new product and service businessmodels, these firms have their own shared vocabulary andyshared set of cultural experiences, both successes andfailures. They avoid the paradigm of just “sticking to theirknitting”; in fact, they recognize that ripping the knittingapart is the only way to continually foster game-changinginnovation over time.

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The focus of innovation efforts change over time

The transition from product technology tobusiness models as the primary basis forinnovation is a recurring theme across manyindustries. Consider the automotive sector.

RateModel T, Speedometer

(1901)Most basic features of the modern automobile—internal combustion engine, speedometer,automatic transmission, headlamps—werecreated between 1890 and 1910. This period oframpant product innovation coincided with the

ProductInnovation Business Model

Innovation

headlamps(1908)4 Stroke

Engine(1890)

AutoTransmission

(1904)

(1901)

ToyotaScion (2003)

onStar

ElectricIgnition(1910)

p pemergence of many car brands that still existtoday, including Daimler, Cadillac, and Peugeot.

By 1913, the focus of innovation efforts shiftedgreatly towards process innovation. Theapplication of large scale assembly lineProcess

Assembly Line(1914)

Lean Production (1980s)

Japanese cars go premium (1986, 1989)

(1995)

application of large scale, assembly linetechniques to auto manufacturing by Ransom Oldsand Henry Ford ushered in a new era of lower costproduction, resulting in more affordable cars forthe masses. The focus on process innovation anddriving out costs continued into the 80’s, when

Innovation

Hybrids(1990s)

No Haggle Pricing

(1985, 1993)

g ,Japanese management methods focused on leanproduction and quality were widely adopted.

Over the past 20 years, the focus of innovationefforts in the automobile industry hast iti d f ti l ll hi h i

TimeAdapted from Abernathy and Utterback (1978), Grant (2002), Wikipedia 2008

transitioned from operational excellence, which isnow table stakes, to new business models.


Business models have a self-supporting structure, part external and part internal

Most senior executives recognize that the goal of

Creating Value Customer

CustomerExperience

Customer

Most senior executives recognize that the goal ofany successful business model is to make moneyand grow profitably. However, the idea of“getting paid” is only an internal view of businessmodel. Savvy strategy thinkers recognize thatinnovative business models change theCreating Value

(External)Customer

NeedsCustomerOffering

Getting Paid(Internal)

innovative business models change thecompetitive dynamics of a market and mustspecifically account for “creating value”, which isan external-facing activity.

We balance this external perspective of “creatingControlPoints

ValueCapture

(Internal) value” with the internal perspective of “gettingpaid” through the Business Model InnovationDiamond, a sequential approach to fostering newbusiness model development.


First focus on creating value—the external part of your business model developmentThe external perspective of business models begins with anunderstanding of your target customers and their CustomerNeeds. In every business, there are functional needsrelated to cost, quality, and delivery, plus emotional needsdriven by perception or customer behavior. Strong businessmodels avoid the Swiss Army knife approach to customermodels avoid the Swiss Army knife approach to customerneeds, choosing instead to focus on a narrow set ofcustomer-desired outcomes.

A precise understanding of customer needs provides thebuilding blocks for the creation of a targeted CustomerCustomer

CustomerExperience

CustomerCreating Value g gExperience. This is at the heart of your business modelinnovating effort. Can you create a more premiumexperience to drive a new business model in a commoditizedindustry? Howard Schulz of Starbucks says yes. Can youtake out some of the unnecessary components of your

i t d i l d b i d l? Cl t

CustomerNeeds

CustomerOffering

Creating Value(External)

experience to drive a low-end business model? ClaytonChristensen in his three books about disruptive innovationsays yes, yes…and yes!

With a customer experience vision established, the next stepis to enable that experience with a Customer Offering that

ControlPoints

ValueCapture

p gcombines products and services. For some product-centricfirms, building a complete offering that explicitly includesservices can be a substantial paradigm shift. Thedevelopment process is different (it’s not “product”development after all), and corporate performance goalsoften dictate selling more widgets. For other firms, thequestion is not “Should we sell more services?” but, “Are wecreating the right ones?”


Then shift to the internal: getting paid for the value you have createdOnce the “Creating Value” piece of the business model isestablished, then you can transition to the “Getting Paid”part of the Business Model Diamond. This domain has beenthoughtfully considered by a number of people, and we areindebted to strategists like Adrian Slywotzky and thesurvivors of the Dot Com Era (i e not Pets com) for theirsurvivors of the Dot Com Era (i.e. not Pets.com) for theirpioneering efforts.

Any innovative business model has to create barriers to entrythrough strategic Control Points. Simply put, why bothercreating a new business model and spending the money toCustomer

CustomerExperience

Customer g p g yinduce trial if the customers are going to leave right after yourcompetitors copy your hard work? There are a number ofways to lock-in customers. Network effects, loyalty programs,channel, brand. Equally important are control points that lockout your competitor, such as standards or partner networks.

CustomerNeeds

CustomerOffering

Getting Paid

Only when all four of the other facets of the Business ModelDiamond have been accounted for, should senior executivestruly deep dive on Value Capture. The ways to capture valueare numerous. Proven models, including mass customizationand razors to blades are still valid in the Services Era

ControlPoints

ValueCapture

Getting Paid(Internal)

and razors to blades, are still valid in the Services Era.However, the emergence of Web 2.0 suggests that “clickthrough” and marketplace models deserve consideration aswell.

Just remember, you’re not going to capture any value if they g g p yvalue doesn’t already exist. Focus on the external part ofdesigning a business model first.


Congruent facets make a stronger diamond. Consider Southwest: low cost, high value

“The nation’s low fare, high customer

satisfaction airline”

In developing an innovative business model, the goal isnot to drive radical thinking across all five facets.Fostering congruence and mutually reinforcing activityacross the diamond are far more important goals. Justlook at Southwest Airlines.

Low cost, short haul

Customer

CustomerExperience

Customer

Like many other airlines, Southwest focuses on basiccustomer needs: get me there at a low cost, safely, andon time. However, the airline anchors these needsagainst a customer experience of being “the nation’slow fare, high customer satisfaction airline.”* Southwest

Low cost but good quality and on time

“We fly for peanuts”Focus on customer satisfaction

CustomerNeeds

CustomerOffering

does this by providing an offering that focuses on shorthaul, “no frills” flights. They “fly for peanuts”, but theydon’t sacrifice quality, often ranking 1st in unbiasedgovernment and 3rd party surveys of airlines.

To establish control points Southwest locks inControlPoints

ValueCapture

To establish control points, Southwest locks incustomers with its generous Rapid Rewards program,superior customer service, and brand reputation as THElow fare airline. They lock out the competition with lowcost point-to-point airport channels and self-managedreservation systems. And they capture value through aTiered pricing model based

Rapid Rewards programtiered pricing model that results in yield predictabilityand high frequency, quick turnover flights to drivevolume.

Low cost, high value. Sounds easy? Ask United andDelta Do it soon though There may not be anybody

Tiered pricing model based on purchase timing drives yield predictability and value for customers; frequent flights provide options and drive high asset utilization

Customer serviceBrandPoint to point nodesPersonal reservation system

Delta. Do it soon though. There may not be anybodyanswering the phone at those places tomorrow.

* Southwest Airlines 2006 Annual Report

secret #2 . . . Use customer priorities as the starting point


There has been a lot of buzz about the importance ofcustomer experiences. Are we now to believe they are thestarting point for business model innovation, too? Actually,no. The first order of business strategy is customer selection;choosing which customers you wish to serve.

With that done, aspiring business model innovators mustroot themselves deeply in the priorities of those customers,searching for unmet needs upon which to build experiences.Business models built upon the same outsourced marketresearch other firms are using will not drive growthresearch other firms are using will not drive growth.

Even B2B firms are investing in customer insight. PitneyBowes and Intel, to name just two, have full-timeethnography and social research skills on staff to design andexecute observational research programs in support ofinnovation. Both firms go on-site with customers to observetheir workflow and search for weak signals of unmet needs.

Peer Insight teaches our clients to frame their fieldobservations using the atomic structure of customer

i sexperiences:

journey

touch point

1 2 3 4

your direct interaction with the customer

moment of truth

with the customer

a moment of high emotional significance

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Journey mapping helps us isolate the emotional “moments of truth”

Secret #2: Use customer priorities as the starting point

As innovators, we don’t treat the atomic structure ofexperiences as theoretical constructs. We build a map of thecustomer journey and use it to find innovation opportunities.

The mapping process begins with what we know best: our own

hypotheses about the customer’s key business goals (level 3)and their emotional needs (level 4).

This highest level of insight holds the key to discovering themoments of truth. We find these are often upstream in theThe mapping process begins with what we know best: our own

internal business processes (level 0 on the example below)and the touch points we share with a key customer (level 1).Then we work upward from those shared touch points to mapthe customer’s work flow (level 2). From there, we generate

process, where an informal, two-way contract is being madewith the customer. Progressive Insurance’s online quotecomparison utility (known inside Progressive as the “ticker”)is a good example. Right away, it establishes Progressive as afirm with nothing to hide, and which respects your time.

Customer ABC emotional concerns

Customer ABC

4

3business goals

Customer ABC internal process activities

3

2

Shared interactions between Customer ABC

and your firm

Your firm’s internal

1

0process activities

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A good journey map will have 40 to 60 nodes … and tells us where to look


Pink hearts representGreen “clouds” indicate

Once we have mapped the customer journey, weanalyze it for potential moments-of-truth andblind spots (where we can’t see well enough intothe customer’s workflow or emotional journey).

Pink hearts represent the moment-of-truth

Green “clouds” indicate blind spots

In the B2B example at right, there were 2moments of truth (one early, and one late) and 8blind spots. These became the focus areas forfour weeks of field research performed by thed l t tdevelopment team.

A quick glance at the pattern of interactions tellsyou something about the challenge for thiscompany. There is little interaction upstream inthe customer’s work flow (the green nodes). Thenthe customer s work flow (the green nodes). Thena big hand-off occurs, and the work is all on thevendor’s side (the lower set of pink nodes). Notsurprisingly, the primary moment of truth occurswhen control is handed back to the customer (thecluster of pink hearts).

“Lumpy” interaction models such as this one havethe potential to create anxiety for both parties.The business model solutions envisioned by thisfirm include creating greater transparency andestablishing earlier smaller moments of truthestablishing earlier, smaller moments of truth.

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Field research lets us test our hypotheses and arrive at deeper insights


There was a time (the 1990s, to be exact) when business modelswere the exclusive domain of strategists and financial analysts. Inthe Services Era, the social sciences have emerged as a criticalpart of the business model innovation team.

Customer interviews and observation is best done in the subject’snatural environment. Peer Insight social researchers and clientsoften team up to go into the field and perform ride-along researchto understand the user environment in full context. We have foundthe best approach is to have two researchers and a single subjectthe best approach is to have two researchers and a single subject,as the photo at right depicts (the second researcher took thephotograph of Peer Insight’s Katie Waterson and a researchsubject).

We cannot design a unique experience for each customer, so weneed to organize the field insights into patterns and clusters.When we find a cluster that (a) captures a common unmet needand (b) fits the capabilities of the firm, that becomes the focusarea for business model innovation activities. In the picture atright, Tamzyn Peterson of Peer Insight is organizing field researchinto clusters to be used for customer co creationinto clusters to be used for customer co-creation.

Sense-making from qualitative research is a unique skill, one thatyour firm may find unfamiliar at first. It requires an aptitude forpattern recognition that we predict you will grow into quickly. (Infact, humans are far more naturally skilled at pattern recognitionfact, humans are far more naturally skilled at pattern recognitionthan at making precise calculations.)

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Prototype it fast, and customers will show you their priorities … with their actions and expressions


expressions

Business models are not built upon our initial conclusions aboutcustomer priorities, but low-resolution prototypes are.Remember, the best business models base themselves on freshi i h i l d i i hinsights into latent customer needs. Deep insight emergesslowly, based upon trial and error. The photos at right showtesting of early, low-resolution (2D) prototypes with customers,in a B2C setting (upper photo) and a B2B setting (lower). Facialexpressions offer important clues and the B2C setup allowsresearchers to capture both their choices and their feelingsresearchers to capture both their choices and their feelings.

Deep customer insights are the essential starting point forsuccessful business models. For example, when Pfizerdeveloped its smoking cessation program, ActiveStop (lateracquired by J&J), it was based on a subtle but crucial customerq y )insight:

Smokers do not believe they have a health issue. Theybelieve they have made a lifestyle choice, and that oneday they will make a different choice.

This view is held by many smokers, despite the fact that theaverage smoker makes seven attempts to quit before they aresuccessful. Based on this new insight, Pfizer designed itscustomer experience and business model on the basis ofproviding a healthy person with an opportunity to make a newproviding a healthy person with an opportunity to make a newlifestyle choice. (You could think of it as a gym membership foryour lungs.)

secret #3 . . . Contradict the dominant logic


Every organization has a story it tells itself, a story thatexplains why it doesn’t go out of business. HenryChesbrough of UC-Berkeley refers to this as “the dominantlogic of the enterprise.”

What makes the gravitational pull of this story so strong isthat it doesn’t have to be told – people just know it. And byknowing it without challenging its validity, the dominant logiccan be very hard to defy.

Business model innovation requires us to do just that, to defythe dominant beliefs our firm holds dear, even if only in smallways.

Peer Insight uses a structured approach to the challenge ofdefining and then defying the dominant logic of thedefining and then defying the dominant logic of theenterprise. Every business model comprises three flows:

• Physical flows• Information flows• Financial flows

In the Services Era, these three flows of value are often multi-directional, and collectively they create a customerexperience. The most successful business modelexplorations are adept at mapping these flows and changingj h f h lljust enough of them to create a compelling experience.

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Example: The live music market

Secret #3: Contradict the dominant logic

Dominant logic of live music market

Physical flows

How could we contradict these elements? There are usually several ways for each.

Netflix competes successfully with Blockbusterby contradicting several key elements of thetraditional media rental market. Specifically,Netflix wins a key moment of truth by havingno late fees ever Alternate physical flowsys cal lo s

Occurs in established indoor venuesEvents scheduled in eveningsLive band or DJ on stageNew acts appear every few daysAmplified music

no late fees, ever.

GE Aircraft Power has become number one inits market by selling to a different customer(the airline CFO instead of the COO) andmaking a completely new promise: “we’ll lease

p y

Alcoholic beverages are soldInformation flows

Advertised in the mediaAimed at a specific audienceLimited data available in advanceLimited data captured or reused

g p y pthe engines to you and guarantee up-time.”The change from selling engines to providingthrust with a guarantee more than doubledGE’s market share and delivered industryleading profits for nearly a decade.

Alternate information flows

Limited data captured or reusedFinancial flows

Pay a fixed fee to get inSingle-use fee model

Resulting customer experiencePredictable except for the band

The dominant logic of most markets can bedefined by about a dozen key elements. Wecan illustrate the analytical approach we useby making an example of the live musicmarket (see figure at right)

Alternate financial flows

Resulting customer experiencepmarket (see figure at right).

We like to convene perhaps 5-6 people familiarwith the industry to help develop the initialcontradiction frame. Next, for each element,we give them three minutes and ask them towrite 3-5 post-it notes, each with an alternativeapproach (continued on next page)

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Example: The live music market, version 1


Dominant logic How a RAVE! contradicts

Physical flowsOccurs in established indoor venues Occurs in a rented space

that contradicts the dominant logic. Afterthree minutes, each person posts his/hernotes on a board and reads them aloud to thegroup.

Occurs in established indoor venues Occurs in a rented spaceEvents scheduled in eveningsLive band or DJ on stageNew acts appear every few days Novelty from new event/spaceAmplified musicAlcoholic beverages are sold

Within 45 minutes you can easily produce 80-100 contradictory elements. The key tobusiness model exploration is to change thecrucial few that address the customer prioritiesyou believe in Alcoholic beverages are sold

Information flowsAdvertised in the media Info travels person-to-personAimed at a specific audienceLimited data available in advanceLimited data captured or reused

you believe in.

The table at right shows how you can changeonly three elements of the traditional livemusic experience and have a completely newexperience – and a new business model – in

Financial flowsPay a fixed fee to get in Pay a suggested contributionSingle-use fee model

Resulting customer experiencePredictable except for the band Unpredictable on many levels

this case, a rave.

The resulting customer experience is exclusive,unpredictable, dangerous, and exciting – justwhat a lot of young music fans are looking for.

+ + + P 21Secret #3: Contradict the dominant logic

Example: The live music market, version 2

Dominant logic How a Silent Disco contradicts

Physical flowsOccurs in established indoor venues Occur in diverse venues

Another innovation popped up in the livemusic scene in Europe several years ago, thesilent disco. Instead of blasting musicthrough amplified speakers, party-goers dance

Occurs in established indoor venues Occur in diverse venuesEvents scheduled in evenings Occur at many times of dayLive band or DJ on stageNew acts appear every few daysAmplified music Wireless headphonesAlcoholic beverages are sold

to the music playing in their wirelessheadphones.

This permits “loud” parties to occur inotherwise quiet neighborhoods and duringquiet times of the day It also permits party Alcoholic beverages are sold

Information flowsAdvertised in the mediaAimed at a specific audienceLimited data available in advanceLimited data captured or reused

quiet times of the day. It also permits party-goers to remove their headphones and have asocial conversation, something that would benext to impossible in most music clubenvironments.

Financial flowsPay a fee to get inSingle-use fee model

Resulting customer experiencePredictable except for the band Out-of-the-ordinary, more social

(can talk with headphones off)(can talk with headphones off)

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Successful contradiction prepares you for the next phase: combinatorial play


We have found this framework to be extremely intuitive.Client teams can begin using this method successfullywithin minutes The resulting brainstorm generateswithin minutes. The resulting brainstorm generatesdozens of intriguing ways to contradict the currentmodel for a market.

The magic, of course, is in picking and choosing thecrucial few contradictory elements that will create aycompelling customer experience and a viable businessmodel.

This next phase of business model exploration,therefore, resembles combinatorial play. Your

lli i hi ff ( ) h h fgreatest allies in this effort are (1) the strength of yourinsight into customer priorities and (2) the agility ofyour firm and your downstream partner network todevelop and market a compelling solution for morethan it costs to deliver. The business model explorationsecrets that follow will help you meet this challengesecrets that follow will help you meet this challenge.

+ + + P 23secret #4 . . . Find a hungry partner to “complete you”


The best business models combine the capabilities of two ormore large entities in new ways. Finding a large, hungrypartner in your target ecosystem lowers cost, reduces risk,and paves the way for a more “complete” offer that scales.

h f ll d d fThis process is often called open innovation, and it is one ofthose popular concepts that is more easily said than done. Atthe heart of open innovation is the requirement for anorganization to expose its closely-held intellectual propertyto outsiders.

Open innovation, therefore, requires a shared leap of faith.It works best when (1) you choose the partners and (2) youmake the leap of faith as short as possible by using cleverprotocols.

R D i i b i i i i hR&D-centric companies are embracing open innovation withopen arms. Procter & Gamble, Clorox, and IBM’s successesare well-documented. And the significant demand for openinnovation has spawned an entire industry of open innovation“intermediaries”, including Venture2 and Nine Sigma.

Just keep in mind that technology scanning is not the onlyreason to do open innovation. Channel access, early marketfeedback, and customer co-creation are valid reasons too. Ifnothing else, Eric Von Hippel’s work on the role of lead usersin “democratizing innovation,” as well as the success ofGoogle mashups and Wikipedia, are clear evidence that thehungriest partner may be your actual customer.

+ + + P 24Secret #4: Find a hungry partner to “complete you”

Finding hungry partners bridges “creating value” and “getting paid”

Services Era business model development path

Customer selection

1. Which customers do I want to serve?2. How relevant is my brand to those customers? (Which brands are most relevant?)

ControlPoints

CustomerOffering

Value creation

3. What unmet needs do those customers have (including their end user customers)?4. How can I create a compelling customer experience (cX) to meet those needs?5. What assembled capabilities are necessary to fulfill the cX?6. Who are the other actors in the ecosystem?7. What are the possible ways to create value with and for those actors?

Value capture(the architecture of

the revenues)

7. What are the possible ways to create value with and for those actors?

8. Who are the available payers? What payment mechanisms exist?9. What business models are possible? What are the likely costs? Profits?10. How can we create control points to claim a share of the profits?

If you are thinking about open innovation, you have reached akey inflection point in the Business Model Diamond. Havingalready identified the target customer and their unmet needs,you are seeking to create the ideal customer experience througha specific set of customer offerings The decision is no longer

Yes, Apple is everyone’s poster child for innovation today, butthe real lesson to take away from the iPod story is not “make allof your products white” but “make of all of your productspartner-friendly.” We all know that Apple didn’t create digitalmusic but the record label partnerships that allow for 99 centa specific set of customer offerings. The decision is no longer

about what will create value, but how to create value in a waythat allows you to capture it and lock out competitors.

From the perspective of our “Services Era business modeldevelopment path”, you are on questions 6 and 7. A key questionh h h l h l

music, but the record label partnerships that allow for 99 centdownloads has revolutionized the way music is bought and sold.

Several years later, the company continues to pursue uniquepartnerships to innovate the business model. Imagine a worldwhere your iPod records the pace of your jog through your Nike

h d l d l d h h lhere is: how you can share value with your partners? Even Apple,notorious for creating proprietary standards, has gone back tokindergarten and learned how to share.

shoes, and you can instantly download the song that’s playingwhen you visit Starbucks after the workout. You’re in luck; bothof those potential innovations are realities today.

+ + + P 25

When do you partner and when do you not? Use an eco-system map

Secret #4: Find a hungry partner to “complete you”

The decision to partner or not to partner can feel like anextremely complex make-versus-buy decision. We find thatcreating an eco-system map allows senior executives to bettervisualize the opportunities and trade offs of open innovation.

To begin your map first determine what are the key offerings

Ecosystem Map for Nike+iPod

Nike+iPodiTunes

Nike+iPodWebsiteiTunesTo begin your map, first determine what are the key offerings

that fulfill the ideal customer experience and create value. Foreach of these offerings, assess if your capabilities are adequateto develop, produce, and bring to market that product or service.

As you map out the offerings, decide if each offering is core, Core

iTunesSoftware

WebsiteiTunes

iPody p

adjacent, or distant to what you will fundamentally provide tothe target customer. Think twice about partnering (andpotentially giving away IP) on anything that is core. Starbucks,for example, is highly willing to partner to create music or sell icecream, but the coffee retailer never partners on anything relatedt ff t th t i t ll ld i St b k t Adjacent

Nike+ ShoeTransmitter

iPodReceiver

Attachment(R,D,M,C)

to coffee or tea that is actually sold in a Starbucks store.

The figure on the right is an eco-system map for Nike+iPod fromApple’s perspective. For the purposes of illustration, the maphas been simplified, but the point is clear. Anything thatintegrates directly to the iPod and iTunes platforms is core and

Adjacent

Distant

(R,D,M,C)

Nike+Shoe

(R,D,M,S,Di,C)g y p

should be protected by Apple. Any offerings that are related tothe iPod lifestyle are adjacent. Shoes are clearly distant.

For those aspects that cannot be effectively fulfilled by existingcapabilities and that are not core to your business, determine

ho ma be reasonable partners to complete our offering In

Legend: Hungry Partner NeededR: Apple cannot do R&D for the product or service aloneD: Apple cannot Design the product or service aloneM: Apple cannot Manufacture the product or service aloneS: Apple cannot do Sales and Marketing aloneDi: Apple cannot Distribute the product or service alonewho may be reasonable partners to complete your offering. In

addition, think about the implications of eliminating a partner.Dell had a good run with its direct model that disintermediatedretailers.

Di: Apple cannot Distribute the product or service aloneC: Apple cannot provide Customer Service aloneI: Apple cannot provide IT support alone

+ + + P 26

Case example: Progressive TripSense

Secret #4: Find a hungry partner to “complete you”

When it comes to introducing successfulServices Era business models, one of the mostimpressive firms is Progressive Insurance. Thestory of how TripSense came to marketillustrates the step-wise nature of business

The key question became one of enabling real-time “proof” of driving habits.Progressive tested a solution in Houston during 1997 that provided driverswith a GPS system and reported their (a) time and date of use, (b) averagespeed relative to the speed limit, and (c) aggressive braking and acceleration.

illustrates the step wise nature of businessmodel exploration. We will also use it toillustrate a robust approach to identifyingpotential partners in the ecosystem.

In the late-1990s a team at Progressive identified

Unfortunately, the potential customer savings of $300 per year was notenough to offset the $500 cost of a GPS system. But Progressive learned

an unmet need in the auto insurance market.Traditional risk-analysis methods left somedrivers stuck paying higher rates than theirindividual driving habits would require.

Take the case of Greg S a 24 year old softwareTake the case of Greg S., a 24-year-old softwareengineer from Racine, Wisconsin:

about the key elements of a new customer experience, once an affordabledelivery model could be developed.

By 2003, the computing infrastructure in automobiles had changed

“I’m a safe driver – neverhad an accident or aspeeding ticket. But I end

i b dy 3, p g g

sufficiently for a new solution: a small device made for less than $20 could beplugged into the diagnostic port of the automobile (see photo above).Customers must manually sync-up their TripSense device with their laptop tosend the driving data to Progressive. Their incentive to do so? A guaranteed5% discount regardless of their actual driving habits, and greater savings if

up paying an absurdinsurance premium justbecause I’m single, under25, and drive a nice car.”

A team at Progressive set out to see if there wasthe data shows they drive safely. Auto insurance had entered the pay-per-useera, and many Progressive customers co-create their own insurance costs.

A team at Progressive set out to see if there wasa way to let customers like Greg S. pay a variablepremium based on their actual driving habits.


Case example: Progressive TripSense focuses on information-centric value

1. Product-centric value creation questions (omitted for brevity)2. User-centric value creation questions (omitted for brevity)3. Owner- or buyer-centric value creation questions

Does the buyer need help deciding which offering to select?

Progressive TripSense

K16

Let’s analyze TripSense with a view toward how it mightengage prospective partners. Remember steps 6 and 7in the business model development path?

6. Who are the other actors in the ecosystem?7. What are the possible ways to create value with and

Value Creation Opportunity Template

Does the buyer need help deciding which offering to select?Does the buyer need help placing the order?Does the buyer need help financing the purchase of the offering?Is there risk associated with this purchase that the buyer might want

to sell?Does this owner represent an asset that others might wish to reach?

K16171819

20

Peer Insight uses a list of 31 “value creation” questionsto identify potential elements of a business model. Thetable at right shows questions 16 through 31, andindicates whether Progressive would elect to “Keep”th t it f it lf “Sh ” it ith t

for those actors?

4. Information-centric value creation questions

Is the info useful to a downstream (or upstream) process?Is the info useful to a party in a remote location?Does the info have predictive value?Does the info provide historical value?Does the info accrue value over time?

K

KKK

S2122232425

the opportunity for itself or “Share” it with a partner.

You can see that Progressive is primarily interested inthe information value created by TripSense. That isbecause Progressive’s business design is predicatedupon its ability to price risk with greater accuracy than

Is there a secondary audience that values the info?Can we work with the customer to define an information stream that

adds value to them?

5. Value network- or partner-centric value creation questions

Is there an opportunity to consolidate upstream and/or downstream

SK

2627

28

upon its ability to price risk with greater accuracy thanother insurers. TripSense provides a rich data streamfrom which to build competitive advantage.

Question 22 suggests an interesting opportunity:perhaps fleet operators (such as UPS) would want to

tasks into a simpler offering?Is there an opportunity to off-load unattractive portions of the offering

to partners? Are there jobs associated with this system that the operator or owner

may wish to pay others to do?Are there jobs you currently do that the operator or owner may be

willing to take over?

29

30

31

Ssee the driving behavior of their drivers. UPS could bea channel partner or a customer for TripSense.

Question 26 brings to mind another possibility: apolice department might wish to use TripSense torehabilitate dri ers ith too man speeding tickets willing to take over?

K = keep, S = share

rehabilitate drivers with too many speeding tickets.Finally, Progressive off-loaded the manufacturing of theplug-in device (question 29) to a partner.


There are effective ways to protect your IP without formal patent rights

Working with partners means exposing at least some ofyour intellectual property to another entity. In theServices Era, very little of the IP qualifies for formalpatent protections For too many firms the fear of Documentation Prevent the disappearance of the latent

Informal Protection Method Purpose

patent protections. For too many firms, the fear oflosing control of their IP limits their potentialinnovation partners to smaller firms they can dominate.

There are effective ways to protect services IP withoutformal patent rights. There are two categories of IP

Documentation

Confidentiality

Prevent the disappearance of the latent knowledge, increase the effectiveness of the entrepreneur

Prevent the spreading of confidential information to outsiders

formal patent rights. There are two categories of IPprotection that should support your partnershipstrategy:

1. Contractual protections (formal agreements)2. Informal protections (see table at right)

Concealment

Quick innovation pace

Di idi f k

Prevent the spreading of confidential information to outsiders

Stay ahead of imitators and accelerate the development of the business

P i di id l k f h i

The first category is well-understood. The practicalissue many firms face is the frequent delays that occurunder the heading of “legal review.”

The lesser known category is Informal Protections The

Dividing of tasks

Recycling of tasks

Defensive publication

Prevent individual workers from having access to the totality of the business model

Reduce the dependence upon key workers by replicating capability elsewhere

Preclude others from patenting or “owning” theThe lesser-known category is Informal Protections. Thetable at right shows several of the methods PeerInsight uses to help clients protect their services IP.

Defensive publication Preclude others from patenting or owning the same concept

* Source: “IP Management for Services,” Tekes, Finnish Agency for R&D (2007).

secret #5 . . . The on-ramp is part of the business model


A few years back, the New York Lottery had a slogan: “You’vegotta be in to win.” It is even more true of business models:customers have to actually try the experience before anyonecan win.

After 5 years of focusing exclusively on service innovation,customer experience design, and business model innovation,one thing has become clear: not enough attention is paid tocreating an on-ramp to tryout. Too many firms think“Marketing will have to sort that out once we get this amazing

i b ilt ”experience built.”

Products have a far easier path to tryout, and 90% of themfail to meet their ROI hurdle rates. In the case of services,you can’t hold them in your hand or try your friend’s servicebefore you buy one. The on-ramp is one of the most crucialbefore you buy one. The on ramp is one of the most crucialelements to innovate.

The approach taken by GM for it’s OnStar system provides anextreme case of on-ramp investment. GM needed a servicesgrowth platform so badly that it:

• Built the hardware into every GM car• Licensed it to other auto manufacturers for their cars• Gave away the service free for 1 year

Most companies are hungry to explore new business modelsMost companies are hungry to explore new business models,but not that hungry. For a more affordable on-ramp, considerProgressive Insurance, which offers to take $100 off yourannual premiums if you sign up online to receive statements

+ + + P 30Secret #5: The on-ramp is part of the business model

We’re asking our customers to swim upstream

Most business models are d i d t ti i h

Designing the On-ramp to Benefitsonline. Their belief is that they will save more than$100 over the life of a customer if he/she will interactwith Progressive over the Internet.

The most common lament I hear about failed services

use

habitualuse

netpromoter

repeatuseRE

VENU

ES

designed to optimize hereThe most common lament I hear about failed servicesbusiness models is:

“The customers that use it, love it.”

That means too few people were able to make it onto

seeking

tryout

purchase

use

Innovative on-ramps are necessary to enable tryout

p pand up the on-ramp to benefits: awareness, understanding, consideration, tryout, purchase, use, re-use, habitual use, and advocacy.

At Peer Insight, we refer to the table at right as the “fishl dd ” I h h f h dl awareness

BENEFITS

ladder.” It shows the set of hurdles our customers mustovercome, just as a salmon must swim upstream tospawn. For many business models, 99% of the focus ison the green area, where the system is up and running,data is accumulating, and everyone is happy.

A company that understands this issue clearly is Siemens BuildingA successful Services Era offering must address theyellow area with experience elements that arecomforting, exciting, or otherwise rich with meaning.This is not simply a role for marketing. It is a crucialelement of the business model.

A company that understands this issue clearly is Siemens BuildingAutomation. One of their recent innovations is a program thatencourages field technicians to voluntarily enroll in a program to selltime and materials (T&M) add-ons to the facilities managers theysupport. Most field technicians don’t want to become sales people.Without their participation, however, these little T&M jobs werebecoming an annoyance to their customers. (continued on next page)

+ + + P 31Secret #5: The on-ramp is part of the business model

The on-ramp needs elements that are rich with meaning

Siemens designed a clever on-ramp for its field technicians.They created a “Reward Store” filled with nice gifts similar toAmerican Express rewards. Field technicians would earn a bigchunk of points for enrolling in the program, plus another chunkof points whenever they fulfilled a T&M job for a customer.of points whenever they fulfilled a T&M job for a customer.

Most importantly, Siemens sent the program announcement tothe field technicians’ homes – described on a postcard so theirspouse would be able to read it, and displaying gifts that aspouse would find appealing. Within sixty days they reachedover 60% voluntary enrollment in the program, and within sixmonths nearly 25% of the 2500 field technicians had completedat least one T&M job for a customer!

Ultimately, Siemens succeeded in fostering tryout because itrecognized its field technicians as people and found a way torecognized its field technicians as people and found a way tobenefit the technicians and their families as well.

+ + + P 32secret #6 . . . ROL (return on learning) always precedes ROI


Exploring new business models sounds risky, but in factvirtually all large enterprises today already have multiplebusiness models. Unlike GM OnStar, the great majority ofnew business models emerged from small bets that builtsuccess slowly, not go-for-broke propositions.success slowly, not go for broke propositions.

GE Aircraft Power didn’t invent the “sell guaranteed thrust,not engines” business model after walking out of an off-sitestrategy retreat. In his book From the Gut, Jack Welch recallshow it began innocently enough from the acquisition of anengine repair firm. The newly acquired firm was accustomedto working on all types of aircraft engines (notably GE, Pratt &Whitney, and Rolls Royce) and saw no reason to limit theirservices to GE engines just because they had been acquired.

This relationship began a series of modest marketplaceThis relationship began a series of modest marketplaceexperiments by GE Aircraft Power that today looks like awholesale redefinition of the marketplace.

The Batten Institute (part of the University of Virginia’sDarden School of Business) has conducted a study of “growth) y gleaders” – executives who have achieved outstanding growthrelative to their industry – and discovered their penchant forplacing small bets fast.

“Growth leaders are impatient to learn,” notes Jeanne Liedtka,f h h hExecutive Director of the Batten Institute. “They have a nose

for unsolved customer problems, but contrary to popularmyth they are not gamblers. They are just highly

+ + + P 33Secret #6: ROL (return on learning) always precedes ROI

The lesson is clear: Business model innovators must learn before they earn

adept at minimizing their risk by using a technique we callaffordable loss.”

Affordable loss is the process of calculating ‘How much can Iafford to lose to find out if this works?’ According to Batten

established? Can you imagine standing up to the VP of Salesand telling her you want to show her best prospective customera lower price from Allstate?

In fact Progressive first experimented with the ticker in a stateafford to lose to find out if this works? According to Batten,once the growth leader has set his pain threshold – and it isoften quite low – he can focus his efforts on maximizing thelearning from the experiment.

In fact, Progressive first experimented with the ticker in a statewhere they were not yet licensed to write insurance. That’sright, they risked nothing. You could call this approach timid,but we prefer to use Batten’s term: affordable loss.

Today, Progressive’s ticker is one of the signature elements of“We call these experiments learning y g gtheir brand, and an important part of the on-ramp to becominga Progressive customer.

Again and again, the lesson is clear: business model innovatorsmust learn before they earn.

a p a glaunches, since they often are not on alinear path to commercialization,” saysLiedtka. In our research, Peer Insightfound something similar: some of themost successful business modelinnovators make a practice of testingconcepts they do not believe will work (inaddition to testing concepts they dobelieve will work). When we heard theterm learning launch, it immediatelyexplained this fascinating practice

Jeanne LiedtkaExecutive DirectorBatten Instituteexplained this fascinating practice.

Progressive Insurance, for example, has a utility on its websitethat provides competitive quote comparisons (insideProgressive it is referred to as “the ticker”). They find thatProgressive is the low-cost provider about 40% of the time

Batten Institute

Progressive is the low cost provider about 40% of the time.What kind of courage must it have taken to get the ticker


A template for placing small bets fast

At Peer Insight, we are firm believers in the affordable lossconcept. One simple protocol we use is called the 100-day pilot.In this approach, we posit that the project must create a workingprototype experience for at least one live customer within 100days

would be to create a 100-page powerpoint deck and commissiona 100-page market research study.”

The template below shows a typical affordable loss construct fora business model exploration An initial phase might be asdays.

For many large enterprises, this degree of speed andcommitment to a live experience completely shatters thecorporate norms. One client said, “For us, a good 100-day goal

a business model exploration. An initial phase might be asshort as 45 days and require two people. Subsequent phaseswould merit larger teams, greater investment, and morerigorous exit criteria. The point is to place small bets fast.

A. The senior leader establishes:• A clear challenge statement . . . . . . . . . . . . . . . . . . . . . • Diverse membership of 2-4 people . . . . . . . . . . . . . . .• A limited number of hours . . . . . . . . . . . . . . . . . . . . . .

Pilot a self-service solution for expense tracking1 service marketer, 1 IT developerHalf-time for 45 calendar days; not to exceed 200 hours

Example project definitionAffordable loss template

A limited number of hours . . . . . . . . . . . . . . . . . . . . . .• A small expense budget . . . . . . . . . . . . . . . . . . . . . . . .• A tight timeframe . . . . . . . . . . . . . . . . . . . . . . . . . . . . .• Necessary design protocols . . . . . . . . . . . . . . . . . . . . .• An expert coach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .• Exit criteria

• A concrete learning objective . . . . . . . . . . . .

Half time for 45 calendar days; not to exceed 200 hours$10,000 expense budget45 days[proven methods the team has experience with]Staff member from Corporate “Concept Studio”

See if it can be done with less than 2 hours of hand-holding• Defined go/no-go criteria for 2nd phase . . . .• Defined structure for the next phase . . . . . .

B. The team executes the explorationC. Leader and team use the lessons to:

• Achieve the learning objective• Determine whether future investment is warranted• Enter 2nd phase if appropriate

Customer is enthusiastic; team is enthusiastic 90-day development phase; 3FT people; $50,000 expense budget

• Enter 2nd phase if appropriate• Build capability for future experiments


A ‘return on learning’ approach results in engaged, courageous teams

One crucial advantage of taking a Returnon Learning approach to business modelexploration is the effect it has on yourteams. Risk management-based Affordable loss-basedRisk management-based Affordable loss-based

Comparing Two Approaches to Risk Management

The cartoon at right contrasts twoscenarios:

“How is this really going to work?”“H h i i i ?”

senior leader

“I know you can do it.”

It won’t cost that much, and I want to know the answer.

This better work, and if it doesn’t, I’ve got to find out quick and kill it.

“How is this really going to work?”“H h i i i ?”

senior leader

“I know you can do it.”

It won’t cost that much, and I want to know the answer.

This better work, and if it doesn’t, I’ve got to find out quick and kill it.

1. Traditional risk management approach

How many times have you seen the teamat left, worn out by the obvious anxiety oftheir senior leader and agreeing tacitly to

“How much is it going to cost?”“What’s the 5-year ROI?”

“Are you sure?”

“Wow he’s nervous I’d

“Can I help you get access to customers to work with?”“Do you have what you need?”

“How much is it going to cost?”“What’s the 5-year ROI?”

“Are you sure?”

“Wow he’s nervous I’d

“Can I help you get access to customers to work with?”“Do you have what you need?”

management approach2. Affordable loss approach

a a ag g a yjust keep their heads low and let theexperiment die?

The difference between these twoscenarios is the leader and how much he

“Wow, he’s nervous. I’d better just play it safe.”

“I’m going to go for it. This could really work.”

“Wow, he’s nervous. I’d better just play it safe.”

“I’m going to go for it. This could really work.”

perceives is at risk. The growth leader,according to Batten, (1) makes better bets(i.e., hypotheses) and (2) knows how tohedge those bets. Such leaders learnfaster (ROL) and end up with a bigger ROI.

innovation teaminnovation team

+ + + P 36Bonus section . . . Insights from a recent Peer Insight study


Peer Insight recently completed an 18-month formal analysisof business model exploration methods in servicesenvironments. The findings on the pages that followilluminate several of the business model secrets shared inilluminate several of the business model secrets shared inthis field guide.

The research model we use captures practical insights from adiverse group of admired companies and places them in abroader context. Patterns that are not apparent to individualbroader context. Patterns that are not apparent to individualcompanies become strikingly clear when aggregated acrossindustries. This approach has enabled our research team tocreate a steady stream of new-to-the-world insights andleading-edge methods.

+ + + P 37Bonus section: Peer Insight research findings

Peer Insight recently completed formal research into services business models

A recent Peer Insight global research program analyzed 100innovation projects from 42 different firms. We looked at threepossible areas to innovate the business model:

• Channel: Modify the way your services get to market

• Fifteen of fifty-two (29%) “modestly successful” projectsused at least two of the methods; and

• Seven of twenty (35%) “least successful” projects used atleast two of the methods.

• Financial Model: Change the way you get paid• Value Network: Collaborate with partners in a new way

For services firms, we found it is fairly common to exploreaspects of the business model. The table below shows howfrequently the three methods were used on the 100 projects in

Use of at least two types of business model innovation

Figure 2

frequently the three methods were used on the 100 projects inthe research sample.

Used none of the methods 29%

Figure 1Most successful

Modestly successful

Least successful

28

52

20

14

15

14

37

Used at least one method

0% 20% 40% 60% 80% 100%

71%

Least successful

10 20 30 40 50

Number of Projects

20

7 13

Most important the research found that business modelMost important, the research found that business modelexploration correlates positively with project success. Figure2 compares the outcomes for the 100 projects. When wecompared the projects based on which ones used at least twoof the three business model innovation methods we found:

( )

We compared the frequency of the three methods of innovatingthe business model (results are shown in Figure 3). As weexpected, the method used least often was “value network,” anapproach which relies on open innovation protocols.

• Fourteen of the twenty-eight (50%) “most successful”projects used at least two of the methods; Open innovation (which we discussed in Secret #4) is a little

+ + + P 38

Open innovation may help minimize the risk of poor outcomes

Bonus section: Peer Insight research findings

like raising children: simple at the conceptual level andmystifying at the practical level. One research subject said,“Value network innovation brings an initial rush of euphoria, asyou think about what could be accomplished with the rightpartner – followed by deep anxiety ”

successful” outcomes occurred in these latter two categories– 18 out of 19 “least successful” projects that attempted toinnovate the business model. It seems that engaging thevalue network can go a long way toward mitigating the risk ofa failure even though it does not guarantee successpartner – followed by deep anxiety.

Figure 3

Channel 37%

a failure, even though it does not guarantee success.

“most successful” outcomes

13 8

“least successful” outcomes Describing the Data Set

The 100 projects analyzed in this study were all completed

Financial Model

Value Network

48%

32%

• Apple • Medtronic

16

15

10

1

The 100 projects analyzed in this study were all completedin the past 36 months. Forty-two different corporations areincluded, and five different countries served as the primarydevelopment site for at least one project. The corporationsinclude:

0% 10% 20% 30% 40% 50%

Firms that find constructive ways to deal with that anxiety mayearn great rewards. Of the 32 projects that attempted toinnovate the value network way, 15 (47%) were among theprojects with “most successful” outcomes 16 (50%) were

• Apple• Baxter Healthcare• GE• Hewlett-Packard• Intel

• Medtronic• ServiceMaster• Siemens• UPS• York

Two thirds of the innovations were pure services (exampleprojects with most successful outcomes, 16 (50%) wereamong the “modestly successful” and only 1 (3%) was amongthe “least successful”.

By comparison, channel innovations led to “most successful”outcomes in 13 out of 37 (35%) cases, and financial model

Two-thirds of the innovations were pure services (example:AARP Voices of the Civil Rights initiative). The remainingone-third were hybrid services that included products ordevices as part of the offering (example: ProgressiveTripSense pay-per-use insurance requires a plug-in devicefor your car).outco es 3 out o 37 (35%) cases, a d a c al odel

innovations led to “most successful” outcomes in 16 out of 48(33%) cases. Furthermore, the greatest number of “least

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+ + + P 40

Peer Insight

Tim [email protected](703) 314-3123

Gordon [email protected](703) 535-8175

8948625 business model exploration

Documents

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speak business

evenings live

business model

actual driving

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innovative