IBM PLUS - FINAL TRAINING MATERIAL by AKETH

Introduction, the need of a new Business Model in the Energy Sector Important changes in the provision and consumption of energy services are reaching a level where energy sector can profoundly change as we know. Flexible demand, distributed generation, energy storage, and advanced power electronics and control devices are creating new options for the provision and consumption of energy services. Arrival at maturity is mediated in all of them by the technological development. A development that allows to activate energy consumers in developed countries, which is facilitating access to energy in developing countries, and which allows "tight oil" to flood the oil markets. This in turn is opening new markets, or radically transforming existing ones. The activation of the consumer changes the balance in the electricity markets, in the approximate background to what happens in others, in which it is a customer the one who leads the market. The possibility of giving access to energy to the more than 1,200 million people who do not have, besides correcting a serious social injustice, creates an enormous market of millions of euros per year. Finally, the competitiveness of "tight oil" is radically changing the productive structure of the oil market and with it the main players, as well as its economic and geopolitical implications. Faced with these disruptive changes, companies are forced to rethink their strategy to survive. They must find new business models that fit in this new situation, if they want to continue to stay in the market with the strength of new agents, and they must have longterm vision to anticipate possible interruptions.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE

Entrepreneurial Training

UNIT 1 Idea generation and Feasibility assessment UNIT 2 Commercialization and IP issues UNIT 3 Team Building UNIT 4 Sources of Finance UNIT 5 Market Roll out

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE

Entrepreneurial Training SUMMARY OF THE MODULE During this training module learners will get familiar with basic concepts regarding the first steps to ensure their business growth. They will be informed about the importance of feasibility assessment while generating the core idea, the empowerment of the relations among staff members, the IP rights and how those indicate the commercialization processes. Moreover, the learners are expected to define different sources of funding related to their needs and be able to plan the launch of their innovative product/service in the digital era.

OBJECTIVES  Get familiar with the techniques of idea generation and refinement which applies to energy sector enterprises.  Learn the basics of model of assessment (novelty / variety / quality / quantity).  Be informed about the IP rights (Patents / Copyright / Industrial design rights / Trademarks etc.).  Evaluate commercialization methods in order to choose the most appropriate.  Comprehend the importance of interpersonal relations in an organization  Be able to identify the basics of team building and select which technique refers to their business.  Manage the main finance resources and approach the stakeholders.  Learn how to develop a successful rollout plan.

…

DURATION

15h

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA GENERATION AND FEASIBILITY ASSESSMENT

Innovation is a process through which a new product, technique or useful service is obtained from the generation of new ideas and their development (Gee, 1981; Jordá Borrell, 2007), which in time provides new solutions to problems and becomes useful for people, companies or society (Comisión Europea, 1995; Lyons et al., 2007). Therefore, innovation starts with the proposal and generation of new ideas and finishes with the use and commercial exploitation of the outcomes (Tonnessen, 2005). Innovation is one of the intangible assets of any company and it may be a relevant factor for the achievement of a competitive sustainable advantage of companies in the market (de Benito Valencia, 2000). Broadly speaking, innovation is taken as the main factor to improve productivity or efficiency in companies, as well as quality of products, decrease in the production costs, or even manufacturing time. UNIT OBJECTIVE During this unit learners will understand how to develop a business idea related to the energy market and get it to the operational stage. The process includes a brief introductioninto the techniques of idea generation and refinementalong with ways to assess the practicability of the business.

KEYWORDS  Innovation  Invention  Fuzzy front end  Creativity  Idea generation  Cohesiveness / Cohesion  Idea assessment  Feasibilitystudy

The European Commission support for the production of this publication does not constitute an endorsement of the contents which reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA GENERATION AND FEASIBILITY ASSESSMENT

RECORD OFCONTENTS IDEA GENERATION AND FEASIBILITY ASSESSMENT INNOVATION VS INVENTION TYPES OF INNOVATION

THE IMPORTANCE OF INNOVATION

INNOVATION IN THE ENERGY SECTOR

THE “FUZZY FRONT END”

THE ROLE OF CREATIVITY IN INNOVATION

IDEA GENERATION

WHERE DO IDEAS COME FROM?

TECHNIQUES OF IDEA GENERATION

IDEA ASSESSMENT & FEASIBILITY STUDY

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1.1

MODULE 1

INNOVATION VS INVENTION

“

If you want something new, you have to stop doing something old Peter F. Drucker

No matter the enterprise sector, the place, the objectives and the manpower in moderncompanies, there is a great debate about Innovation and Invention. It may seem that thosetwo notions go hand in hand and it is not always understandable that these notions are twocompletely different ones. When trying to define innovation by searching in the relevant scientific bibliography theremay come of dozens of definitions. An interesting and business oriented definition is theone adopted by National Bureau of Economic Research (2008):

“

Innovation is the design, invention, development, and/or implementation of new or altered products, services, processes, systems, organizational structures, or business models for the purpose of creating new value for customers and financial returns for the firm

This definition is interesting as it recognizes that innovation is closely linked to added value for both consumers and businesses. On the other hand, in the business world, invention is a unique or novel device, method,composition or process that can be patented in order to protect the inventor’s intellectual property rights by law.

Differences between Innovation and Invention

Thomas Edison was an inventor and invented phonograph (the first device that couldrecord the spoken voice and play it back). Steve Jobs was an innovator as his world‐famousiPod wasn’t the first portable music device (Walkman by SONY was the first one). Invention

Innovation

create a product or introduce a process for the first time

improve or make a significant contribution to an existing product, process or service

Scientific skills

Set of marketing, technical and strategic skills

Limited to R & D department.

Spread across the organization.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

INNOVATION VS INVENTION

But what European Union “thinks” about innovation?

Innovation is vital to European competitiveness in the global economy. The EU is implementing policies and programmes that support the development of innovation to increase investment in research and development, and to better convert research into improved goods, services, or processes for the market. As highlighted by EU Industrial Policy, industry is crucial for EU competitiveness and innovation is a key factor in this regard. Industry accounts for 80% of Europe's exports. Some 65% of private sector research and development (R&D) investment comes from manufacturing. Therefore, industrial modernisation in Europe must be broad‐reaching and include:  the successful commercialization of product and service innovations  the industrial exploitation of innovative manufacturing technologies  innovative business models Studies show that those companies who prioritise innovation are also those who experience the highest increase in turnover (Innobarometer, 2014):  some 79% of companies that introduced at least one innovation since 2011 experienced an increase of their turnover by more than 25% by 2014. Small and medium‐sized enterprises (SMEs) are a particular target for innovation policy. The smaller the company is, the more it faces constraints to innovation or to the commercialization of its innovations.  some 63% of companies with between 1 and 9 employees declared having introduced at least one innovation since 2011, compared to 85% of companies with 500 employees or more.  some 71% of companies with between 1 and 9 employees encountered difficulties commercialising their innovations due to a lack of financial resources, compared to 48% of companies with 500 employees or more. Source:https://ec.europa.eu/growth/industry/innovation_el

“

Innovation is taking two things that already exist and putting them together in a new way Tom Freston

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1.1 .1

MODULE 1

INNOVATION VS INVENTION

TYPES OF INNOVATION

Innovation Nature [OECD. 2005]

Innovation can be considered as something to be developed in either an incremental way (improvement of existing products) or a radical one (generation of something new) (Bessant, Caffyn and Gallagher, 2001). The two ways suggest the main classification of innovation in any business context related to the nature of innovation. According to Terziovski (2007) innovations can be classified by (Tidd, Bessant and Pavitt, 2005):  The nature, where three types of innovation nature defined: incremental, radical, disruptive (Terziovski, M. 2007)  The type, where four types of innovation are distinguished: product or service innovations, process innovations, marketing innovations and organizational innovations  The degree of novelty, where three degrees of novelty are distinguished: new to the firm, new to the market and new to the world (OECD. 2005)

Innovation nature

Characteristic

Incremental

Incremental innovations build on existing knowledge and occur continuously in the organization. These innovations lead to small improvements in products, services or processes.

Radical

Radical innovations produce fundamental changes in products, services or processes.

Disruptive

In their most extreme form, innovations can even change the basis of society, for example the transformations resulting from today’s computing technologies

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

INNOVATION VS INVENTION

TYPES OF INNOVATION

Type of Innovation [OECD. 2005]

Type of innovation

Characteristic

Product or service innovation

A product innovation is the introduction of a product or service that is new or significantly improved with respect to its characteristics or intended uses.

Process innovation

A process innovation is the implementation of a new or significantly improved production or delivery method. Process innovations can be intended to decrease unit costs of production or delivery, to increase quality, or to produce or deliver new or significantly improved products.

Marketing innovation

A marketing innovation is the implementation of a new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing. Marketing innovations are aimed at better addressing customer needs, opening up new markets, or newly positioning a firm’s product on the market, with the objective of increasing the firm’s sales.

Organizational innovation

An organizational innovation is the implementation of a new organizational method in the firm’s business practices, workplace organization or external relations. Organizational innovations can be intended to increase a firm’s performance by reducing administrative costs or transaction costs, improving workplace satisfaction (and thus labour productivity), gaining access to nontradable assets (such as noncodified external knowledge) or reducing costs of supplies.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

INNOVATION VS INVENTION

TYPES OF INNOVATION

Degree of Novelty [OECD. 2005]

Degree of Novelty

Characteristic

New to the firm

The minimum entry level for a innovation is that it must be new to the firm. A product, process, marketing method or organizational method may already have been implemented by other firms, but if it is new to the firm (or in case of products and processes: significantly improved), then it is an innovation for that firm.

New to the market

Innovations are new to the market when the firm is the first to introduce the innovation on its market. The market is simply defined as the firm and its competitors and it can include a geographic region or product line. The geographical scope of new to the market is thus subject to the firm’s own view of its operating market and thus may include both domestic and international firms.

New to the world

An innovation is new to the world when the firm is the first to introduce the innovation for all markets and industries, domestic and international. New to the world therefore implies a qualitatively greater degree of novelty than new to the market.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1.1 .2

MODULE 1 INNOVATION VS INVENTION THE IMPORTANCE OF INNOVATION

Modern businesses operate in a world of galloping change especially regarding technology but also regarding competition and resources. The volatile business environment throughout the world creates new problems, risk and opportunities that demand a positive, creative and innovative response. Enterprises and organizations need to mobilize in order to be competitive and integrate innovation as a way to add value to their firm regarding consumers’ satisfaction. Innovation is the basis of all competitionadvantages, the means of anticipating and meeting customer’s needs and the methodof utilizationof technology. Innovation is the successful development of competitive advantage and as such, it is the key to entrepreneurship. Given the volatile business and economic environment, innovation offers competitive advantage to enterprises and organizations by:  contributing to their adaptability,  increasing productivity and profitability,  increasing flexibility in the production process,  enhancing product/service quality,  creating new market segments. An enterprise with innovation culture realizes the positive impacts in two main ways:  Innovation relates to the expertise of the enterprise and therefore its ability to develop and promote new products  Innovation leads to higher end products that renders the pre‐existing products non‐ competitive

“

Entrepreneurs need to be dreamers and managers, artists and engineers, designers and product developers—all at the same time Dt Ogilvie

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1.1 .3

MODULE 1

INNOVATION VS INVENTION

INNOVATION IN THE ENERGY SECTOR

“

This is potentially the most significant period of innovation in the energy sector since the Edison light bulb” Matt Rogers

The terms “business model” and “strategy” are being used by millions of people during the last 2 decades but their definitions are still confusing, because very often they are poorly defined. According to Peter Seddon and Geoffrey Lewis in the paper "Strategy and Business Models: What's the Difference?", the more carefully one compares the sets of concepts discussed by the experts on business models and the experts on strategy, the more one concludes that the two sets of concepts are substantially the same. The main conclusions of this work are:  Strategies would be treated as grounded firmly in the real world, whereas business models would be treated as abstractions of firms’ real‐world strategies.  Strategy is more concerned with competition between firms, while business models are more concerned with the “core logic” of the business.  The business model can be considered as an abstract representation of some aspect of a firm’s strategy.  You need much more information to represent a firm’s strategy than to represent a business model.  Unlimited number of different models one can build based on the one firm’s strategy.  The business model is not specific to any one firm.  The strategy can be considered as a particular firm’s plan for making superior return on investment.  And at the end, it is considered than business models come first. They may be thought of as known successful building blocks for conceptualizing and building strategy. You can mix and match various combinations of business models to create new strategies for new and existing businesses.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1.2

MODULE 1 THE “FUZZY FRONT END”

The front end of innovation, or what is often called the Fuzzy Front End (FFE), presents one of the greatest opportunities for improving the overall innovation process (Koen et al., 2001). As a term was popularly introduced in the ‘90s and referred mainly to the technicalities of the term. The Fuzzy Front End (FFE) is the beginning of product engineering development. It may be considered as something happening before the development of product or service. However, it should be regarded as part of the developmental process since, according to Cooper, it largely defines the success or failure of the output. It includes all activities from the search for new opportunities through the formation of a germ of an idea to the development of a precise concept. The Fuzzy Front End phase ends when an organization approves and begins formal development of the concept. The FFE is characterized as chaotic, experimental, unpredictable and unstructured. It is also considered the most creative stage of the whole innovation process and the most time‐ conxuming. Some argue that the fuzziness needs to be structured in order for the productive stage to occur, while others argue that FFE has to remain fuzzy and chaotic, in order for the ideas to remain creative. But the truth lies somewhere between those two directions, as the FFE should be balanced between creative scopes and well‐structured idea pipelines.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

THE “FUZZY FRONT END”

The starting points for the FFE are the following two: a) the ideas and b) the opportunities. More specifically and according to Koen et al., there can be distinguished five different front‐end elements (not necessarily in a particular order):     

Opportunity Identification Opportunity Analysis Idea Genesis Idea Selection Idea and Technology Development

Differences between the Fuzzy Front End and the Product Development Process

Fuzzy Front End

Nature of Work

Commercialization date

Funding

Revenue expectations

Activity

Product Development Process

Experimental, often chaotic. Difficult to plan. Eureka moments.

Structured, disciplined and goaloriented with a project plan.

Unpredictable

Definable.

Variable. In the beginning phases, many projects may be “bootlegged,” while others will need funding to proceed.

Budgeted.

Often uncertain. Sometimes done with a great deal of speculation.

Believable and with increasing certainty, analysis and documentation as the product release date gets closer.

Both individual and team in areas to minimize risk and optimize potential.

Multifunctional product and/or process development team.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

The innovation process may be broken into three parts: the Fuzzy Front End (FFE),

THE “FUZZY FRONT END”

1.3

MODULE 1

THE ROLE OF CREATIVITY IN INNOVATION

“

Creativity is more than mere imagination. It is imagination inseparably coupled with both intent and effort Alexander Faickney Osborn

Creativity may be seen as the starting point for innovation. Those two values go hand in hand, since there is no innovation without creativity. However there is one necessary condition for creative ideas to become innovation. It is the implementation of creative ideas that introduces innovation (RangaBabu et al., 2013).

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

“

THE ROLE OF CREATIVITY IN INNOVATION

Creativity is an abstract skill that can be described as the ability to generate new ideas by combining, changing, or reapplying existing ideas and the ability to look at things from a different perspective and freedom of restrictions by rules and written or unwritten norms

Innovation and creativity are two different values that inspite of being related to one another, they are described through opposite notions. While creativity is subjective and nonmeasurable, innovation is completely measurable, replicable and scalable. Both values are required in the new entrepreneurial environment. What may be considered of greatest importance is the implementation of innovation inside the business. However organizations often seek creativity as an abstract notion. The optimal is to create a culture inside the entrepreneurship that supports both these values and apply them when appropriate.

“

Creativity is also an attitude, the ability to accept change and newness, a willingness to play with ideas and possibilities, a flexibility of outlook, the habit of enjoying the good, while looking for ways to improve it

Contrary to the mythology and according to scientists who specialize in the history of technology and inventions, very few of creative and innovative excellence are produced with a single stroke of brilliance or in a frenzy of rapid activity. Much closer to the real truth are the stories of companies which had to take the invention away from the inventor in order to market it because the inventor would have kept on tweaking it and fiddling with it, always trying to make it a little better. The process of creative production can be really hard and with a constant research for idea improvement. Entrepreneurs are primarily interested in developing new products/services, in processor markets, and in the ability to bring something new, product, processes or markets. The entrepreneur indulges in original thinking more than any other person thinks and he is able to produce solutions beyond the common knowledge. Entrepreneurs are inclined to be more adaptable and are prepared to consider a range of alternative approaches. They challenge the status quo, which can sometimes bring them into conflict with their colleagues (RangaBabu et al., 2013). Innovation is the process that combines ideas and knowledge into new value. What is more is that there is no innovation without creativity. Without innovation an enterprise and what it provides quickly become obsolete.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1.4

MODULE 1 IDEA GENERATION

Idea generation (ideation) is critical to the design and marketing of new products, to marketing strategy, and to the creation of effective advertising copy. In new product development, for example, idea generation is a key component of the front end of the process, often called the “fuzzy front end” and recognized as one of the highest leverage points for a firm (Toubia, 2006).

“

Thinking is the most important human skill both for individuals and society. We can do much better if we treat thinking as a skill Edward de Bono

1.4.1

IDEA GENERATION

WHERE DO IDEAS COME FROM?

Ever since the day mathematician Archimedes ran home naked screaming "Eureka!", we have been calling the act of spontaneous comprehension the "Eureka effect," or "Aha! moments". Scientists have used brain imaging experiments to try to locate where the Ahas! come from. While our understanding of creativity is indeed primitive, the more we know about the way the mind operates the better we can be at cultivating creative habits of mind (Hughes, 2014). Cognitive psychologists and scientists, such as Jonathan Schooler, argue that big ideas come when people are sidetracked: going for a walk, taking a shower, thinking about something else and not when they are hardworking on a problem (Honan, 2016). That can be understood as one school of thought about where ideas come from. Ideas exist somewhere out there waiting for someone to pick them up like if Keith Richards woke up in the middle of the night with the main riff from “Satisfaction” fullyformed in his head. The European Commission support for the production of this publication does not constitute an endorsement of the contents which reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA GENERATION

WHERE DO IDEAS COME FROM?

However, there is a second school of thought, about idea generation, that supports the perception of ideas as the product of hard work and thoughtful concentration. In this point of view there are no such spontaneous revelation moments. However the truth lies somewhere in the middle. Ideas are being produced by the interaction between the conscious work and preparation, and some sort of serendipity. The preparation period of consciously working on a problem, is followed by a second phase, that of incubation. Incubation is the relaxed state where big ideas will come from. This is the unconscious free to work. The incubation procedure may lead to an Aha! moment but creative and innovative ideas are also characterized by their owners. A creative does not have the ability to produce ideas more easily than the nonsocreative, but has the ability to trust his ideas, or to trust oneself to realize them. What separates the creative from the notsocreative is the willingness to take risks with ideas, to push both the idea and the self beyond the safe and comfortable (Wax, n.d.).

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1.4.2

MODULE 1

IDEA GENERATION

TECHNIQUES OF IDEA GENERATION

“

The best ideas come as jokes. Make your thinking as funny as possible David Ogilvy

In general, problemsolving of creative nature will undoubtedly lead to an impasse through the period of conscious work on the problem. Despite the knowledge acquired during the preparation period, what creative thinking requires is the development of an idea generation system. Authors, song writers, artists etc. usually form their own templates and patterns in order to ease their idea productivity. Many great thinkers and innovators have incorporated analogies to help them come up with a new theory or idea. According to the analogy theory, making analogies requires thinking across traditional mental categories and it is very likely that the application of an analogy may lead to a radically new idea. There are different Idea generation techniques to help one come up with new ideas. The bestknown ideageneration methods have evolved from “brainstorming,” developed by Osborn (1957) in the 1950s. Through the years a lot more have been developed. Among the most appropriate and common used idea generation techniques in the enterprise/business and especially in the Energy sector are:  Brainstorming  Reverse Brainistorming  Osborne catalogue  Six thinking hats  Lotus blossom

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA GENERATION TECHNIQUES OF IDEA GENERATION Brainstorming

Collaborative thinking has existed since Neanderthals decided to venture out of their singlefamily caves and employed cultural buffering to assure group survival. But Brainstorming (with a capital “b”) as a specific practice following a defined process was very much a product of Osborn’s studies. Brainstorming is the base for a lot of the group creativity techniques aiding to the idea generation. The prerequisites for brainstorming are the existence of a group of individuals or a team and a specific problem. What the group members look for is to provide as many possible ideas as they can without any concern about judging the idea in the first place. Ideas should come up spontaneously, whether crazy or moderate. Brainstorming is the first step in the exploration phase of a new idea or project, so it is It is important to embrace all ideas and possibilities. An important factor in the effectiveness of a brainstorming session is the choice of a proper "mix" of participants, depending on the subject of the discussion. Participants firstly should be encouraged to go for quantity and not quality of ideas. Moreover it is important to evaluate on each other’s ideas and to combine and improve what is set on the table. Other rules for brainstorming according to Osborn include creating an environment where team members are not criticized for their ideas. Ideas can be evaluated after the brainstorming session but judgments during the process will only alienate team members.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA GENERATION

TECHNIQUES OF IDEA GENERATION

What should be taken into account in business environment is that a brainstorming session may not be the most appropriate way to tackle a problem, but it is the most appropriate way to gather new and different ideas for solutions (Damoulianou, 2007). Furthermore there are several factors that can lead to ineffectiveness in group brainstorming. A brief list of such factors is described below: 

Ideas are judged too soon, sometimes even before being shared



Focus is incorrectly guided in quality and not in quantity



“Wild” ideas are not encouraged



Criticism is set as a default mode and leads to premature evaluation



Nobody guides and facilitates the brainstorming session. However the person facilitating the session should not be a superior and should be able to create the appropriate environment among group members



There is not clear analysis of the specific problem



There is the feeling that ideas come with a copyright



Members do not evaluate on each other’s ideas

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA GENERATION

TECHNIQUES OF IDEA GENERATION Reverse Brainstorming

Not all problems have solutions that can be faced directly. Asking questions of “how to solve the problem” does not necessarily lead to an answer and more likely would not help getting creative results. So when it is difficult to identify solutions to the problem directly, it is advised to try Reverse Brainstorming (Elmansy, 2015). Reverse brainstorming combines brainstorming and reversal techniques by asking questions that lead to the causes of the problem and elaborate on them. How to follow the steps of Reverse Brainstorming: 1. Clearly identify the problem or challenge, and write it down. 2. Reverse the problem or challenge by asking, "How could I possibly cause the problem?" or "How could I possibly achieve the opposite effect?" 3. Brainstorm the reverse problem to generate reverse solution ideas. Allow the brainstorm ideas to flow freely. Do not reject anything at this stage. 4. Once you have brainstormed all the ideas to solve the reverse problem, now reverse these into solution ideas for the original problem or challenge. 5. Evaluate these solution ideas. Can you see a potential solution? Can you see attributes of a potential solution?

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA GENERATION TECHNIQUES OF IDEA GENERATION Osborne Catalogue Alexander Faickney Osborn used to say that creativity is now something we can turn on and off, like a faucet, but it is an experience and expression in our lives that must be nurtured. This nurturing process means that creativity is at once a skill, an art, and a lifestyle. Following his beliefs Osborn created a checklist of several questions that, as he thought, will stimulate the creative thinking. Osborn Checklist (Everup, 2016): 

Put to other uses? As it is? If modified?



Adapt? Is there anything else like this? What does this tell you? Is the past comparable?



Modify? Give it a new angle? Alter the colour, sound, odour, meaning, motion, and shape?



Magnify? Can anything be added, time, frequency, height,

length,

strength?

Can

duplicated,

multiplied or exaggerated? 

Minify? Can anything be taken away? Made smaller? Lowered? Shortened? Lightened? Omitted? Broken up?



Substitute? Different ingredients used? Other material? Other processes? Other place? Other approach? Other tone of voice? Someone else?



Rearrange?

Swap

components?

Alter

the

pattern,

sequence or layout? Change the pace or schedule? Transpose cause and effect? 

Reverse? Opposites? Backwards? Reverse roles? Change shoes? Turn tables? Turn other cheek? Transpose “+/ “?



Combine? Combine units, purposes, appeals or ideas? A blend, alloy, or an ensemble?

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA GENERATION

TECHNIQUES OF IDEA GENERATION A derivation of the Osborn Checklist was later thought up by Bob Eberle (and written by Michael Michalko), known by the acronym SCAMPER: 

Substitute

–

Components,

materials,

people. 

Combine

–

Mix,

combine

with

other

assemblies or services, integrate. 

Adapt – Alter, change function, use part of another element.



Modify – Increase or reduce in scale, change

shape,

modify

attributes

(e.g.

color). 

Put to another use.



Eliminate

–

Remove

elements,

simplify,

reduce to core functionality 

Reverse – Turn inside out or upside down

Six Thinking Hats Six Thinking Hats is a system designed by Edward de Bono which describes a tool for group discussion and individual thinking involving six colored hats. "Six Thinking Hats" and the associated idea parallel thinking provide a means for groups to plan thinking processes in a detailed and cohesive way, and in doing so to think together more effectively. The main benefits of the Six Thinking Hats method are the following: 

allows you to say things without risk



generates understanding that there are multiple



perspectives on an issue



is a convenient mechanism for “switching gears”



focuses thinking



leads to more creative thinking



improves communication and



improves decision making

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA GENERATION TECHNIQUES OF IDEA GENERATION

The White Hat calls for information known or needed. "The facts, just the facts."

The Yellow Hat symbolizes brightness and optimism. Under this hat you explore the positives and probe for value and benefit.

The Six Thinking Hats

The Black Hat is judgment the devil's advocate or why something may not work. Spot the difficulties and dangers; where things might go wrong. Probably the most powerful and useful of the Hats but a problem if overused. The Red Hat signifies feelings, hunches and intuition. When using this hat you can express emotions and feelings and share fears, likes, dislikes, loves, and hates. The Green Hat focuses on creativity; the possibilities, alternatives, and new ideas. It's an opportunity to express new concepts and new perceptions. The Blue Hat is used to manage the thinking process. It's the control mechanism that ensures the Six Thinking Hats® guidelines are observed.

Here are the main steps of the six Thinking Hats technique that a team must follow in order to proceed: 1. List the questions that represent the hats 2. Walkthrough each question as a team 3. Modify the approach The European Commission support for the production of this publication does not constitute an endorsement of the contents which reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA GENERATION

Motorola used Six Thinking Hats and Lateral Thinking to develop a hightech, handheld communications device

CASE STUDY

TECHNIQUES OF IDEA GENERATION

Motorola is a global leader in communications technologies. Motorola already manufactured a product for people who make time management a priority. Another product targeted people whose top priority is keeping in touch with friends and relatives. A third product, often purchased by the rich and famous, was aimed at "status seekers." But in 2002, Motorola wanted to create a "product for the future." The company planned a threeday event for its product managers with the focus of developing a new hightech, handheld device for people who want cutting edge technology, but don't want to spend more than $800. To ensure that the event went as smoothly as possible, Motorola decided to enlist the help of Master Trainer Jay Wenberg. On the first day, consumer profiles, based on exhaustive research, were constructed for each existing product. Product presentation and framing with regional perspective was offered to the group. The goal of the first day was for product managers to gain detailed understanding of each product's target market. They discussed every aspect of the consumers' traits, including age, income, educational background, cultural beliefs and daily habits. This gave the managers a detailed picture of Motorola's customers. The second day began with a "technology soak," which defined the capabilities and limitations of existing technology. Then Jay gave an overview of the Six Thinking Hats and Lateral Thinking. He led the group through a Green Hat session in order to generate ideas for the "product for the future." During the Green Hat session, the group used the Lateral Thinking technique of Reverse Provocation to challenge the physical limitations of technology. Jay handed out trinkets from a dime store to assist in a Random Objects exercise. After all Green Hat ideas had been offered, each one was evaluated using Yellow and Black Hat thinking. Finally, the group used Red Hat thinking to prioritize the best ideas. The European Commission support for the production of this publication does not constitute an endorsement of the contents which reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA GENERATION TECHNIQUES OF IDEA GENERATION

Motorola used Six Thinking Hats and Lateral Thinking to develop a hightech, handheld communications device

CASE STUDY

The final result of the Green Hat session was a technologically advanced product called the Accompli. The device functioned as a mobile business tool or "virtual office" complete with a full keyboard. Its wireless network connection provided fast Internet access across the globe. In addition, consumers could install additional business applications on the Accompli and even play an assortment of games. The group then took the White Hat information gathered from the consumer profiles to practice a "day in the life" of an Accompli owner. They discussed how consumers might use the new device from the time they woke up to the time they went to bed. The team noted all the additional features the Accompli might need to make the user's life easier. For instance, could it have an alarm? Could it play MP3 music files? What should the greeting sound like? The group dissected the consumer's day hour by hour to ensure that the Accompli was the idea product for the target market. At the end of the event, the product managers were excited about the outcome of their hard work, and even people who didn't attend the event heard about its success. Shortly thereafter, Motorola introduced the Accompli in North America, Europe and Asia. Challenges: Create an ultra hightech device with the price tag of less than $800 Methods: Use Concept Generation, Concept Extraction, Reverse Provocation, Random Object and Six Thinking Hats to develop the ideal product Results: Motorola develops and markets the Accompli 009 Personal Communicator

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA GENERATION

TECHNIQUES OF IDEA GENERATION Lotus Blossom The Lotus Blossom is a Japanese technique that focuses the power of brainstorming on areas of interest. It does so through the use of a visual representation of ideas through a structured way (Riley, 2017). A core word or idea is placed in the center of the Lotus Blossom, with eight words stemming from the core word surrounding it (AH in the example, below). Each of these eight words is then moved to corresponding “petals” around the core box. The process can be repeated with each petal, opening further into more petals. The guidelines for Lotus Blossom are: 1. Write the central problem in the center of the diagram. 2. Write

the

significant

components

subject

the

themes,

dimensions

surrounding

your circles

labeled A to H surrounding the central theme.

List

The

optimal

number

themes for a manageable diagram is between six and eight. If you have more

than

eight,

make

additional

diagrams. Ask questions like: What are my specific objectives? What are the constants in my problem? If my subject were a book, what would the chapter headings be? What are the dimensions of my problem? 3. Use the ideas written in the circles as the central themes for the surrounding lotus blossom petals or boxes. Thus, the idea or application you wrote in Circle A would become the central theme for the lower middle box A. It now becomes the basis for generating eight new ideas or applications. 4. Continue the process until the lotus blossom diagram is completed.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA GENERATION

The Website Breakdown

CASE STUDY

TECHNIQUES OF IDEA GENERATION

By applying the Lotus Blossom idea generation technique to the website launch of a fictitious business, the result is presented in the following diagram:

Explaining the diagram the fictitious entrepreneur could:  improve the look and feel of the site to give it a more contemporary feel. 

improve the speed of the site.



add web coupons that could be redeemed in the store.



look for opportunities at crosssite promotion.



pay for web advertisements



have new types of signs in the store



allow people to order products from the site and pickup from the store



allow people to return items to the store that were purchased on the site

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1.5

MODULE 1

IDEA ASSESSMENT & FEASIBILITY STUDY

Even though there are plenty ideas and ideation is relatively abundant, what is more is to be able to implement these ideas. Developing a new and innovative idea is rather difficult. To know when an idea worth to be a business is even more difficult and the idea should be checked regarding its viability in the relevant market. The procedure following the idea generation is that of idea assessment. The idea assessment process should take place before there is enough information to build a business case, and determines whether the idea can enter the conceptualization phase. The first step to evaluate an idea is to clearly and concisely capture the principal concept and the points that set it apart from other business ideas. Moreover, business project ideas need to be fleshed out and evaluated to determine the strengths and weaknesses of each step of the process (Roe, 2017). A feasibility study highlights the important information that needs further consideration and development before proceeding in the market.

Differences between Idea Assessment and Feasibility Study

At this point it should be made clear that the idea assessment and the feasibility study, while both include the evaluation of an idea, are two different processes.

Idea Assessment

Feasibility Study

Before the conceptualization

After the conceptualization

Helps at forming the business idea

Evaluates the business idea concerning the market

Unofficial process

Official process

All teammembers participating in the idea generation

Experts in decision making and strategy planning (internal staff or external collaborators)

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA ASSESSMENT & FEASIBILITY STUDY

Often, after the completion of a study, a determination may be made not to proceed with the project. A good feasibility study sample will include(Scheid, 2014): 

Project Problems – Does the study include risk or problematic areas that need to be addressed and are they clearly identified?



The Outcome – Ever study should identify the process, product, client request, and goal and how they will affect the outcome; positively or negatively. Will outcomes be beneficial or deterrent?



Alternatives – Are possible alternatives available or suggested and researched?



Assessment – The assessment part of your feasibility study should include risk management and controls, solutions, if the project is feasible, and how the project should be implemented.

Start a new business Develop the concept for your venue

Develop a preliminary marketing plan

Evaluate technical feasibility Evaluate technical feasibility How will product be produced Determine fixed production costs Determine variable production costs Establish a price structure for your product & service

Research customers & markets Assess market size, segments and trends

Test your product or service

Evaluate the competition

Develop a sales forecast

Flesh out your marketing plan

Market through traditional distribution channels Market direct to the consumer Market to the government

Market in foreign markets Market through specialty channels The European Commission support for the production of this publication does not constitute an endorsement of the contents which reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA ASSESSMENT & FEASIBILITY STUDY

There is a great number of available methods and tools for idea assesment. Some may provide a professional approach while others may seem more casual and randomized. What is their main concept of such methods and tools, is to ask the right questions or focus to specific areas in order to determine the readiness of the idea, regardless the focus of the business. Here, there is a brief list of such methods and tools:      

SWOT Analysis Pareto Analysis Value Analysis Costbenefit Analysis Checklist for Idea Evaluation Novelty, Attractiveness, Feasibility study (NAF)

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA ASSESSMENT & FEASIBILITY STUDY SWOT Analysis

SWOT Analysis is a useful and a very popular technique used in business context to help understand strenghts and weaknesses and identify opportunities and threats. It was introduced in the 60s’ by Albert S. Humphrey and quickly gained the business world as an evaluation and strategy tool. The application of SWOT analysis is a simple procedure that may be applied by asking the following questions: Strengths   

  

What advantages does your organization have? What do you do better than anyone else? What unique or lowestcost resources can you draw upon that others can't? What do people in your market see as your strengths? What factors mean that you "get the sale"? What is your organization's Unique Selling Proposition (USP)?

Opportunities 

SWOT Analysis



What good opportunities can you spot? What interesting trends are you aware of?

Weaknesses    

What What What likely What

could you improve? should you avoid? are people in your market to see as weaknesses? factors lose you sales?

Threats   

  

What obstacles do you face? What are your competitors doing? Are quality standards or specifications for your job, products or services changing? Is changing technology threatening your position? Do you have bad debt or cash flow problems? Could any of your weaknesses seriously threaten your business?

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA ASSESSMENT & FEASIBILITY STUDY

…

CASE STUDY

Strengths and weaknesses are often internal to the organization, while opportunities and threats generally relate to external factors. When looking at opportunities and threats, other analysis like PEST can help to ensure that all external factors are taken into account. SWOT can be used to better understanding the competitive position of an organisation. However one condition when carrying out SWOT analysis is to stay realistic and rigorous.

Over the past decade, the global solar electricity market has experienced very high growth rates. This growth in photovoltaic (PV) has been generated by welltargeted national market assistance programmes around the world and the development of a more positive legal framework. Europe has achieved a strong position in PV research over the past years. Below there is the application of SWOT Analysis in the Photovoltaic technologies in Europe as an example.

Science & Technology

Strengths  Very good position in PV academic research  Excellent research and manufacturing capabilities and capacities in industry

 Market & Industry

SWOT Analysis in Photovoltaic Technologies in Europe

  

Close cooperation between industry and research laboratories High production levels: 193 MW in 2003 (+43%) Good public acceptance of PV technologies Strong, worldlevel silicon wafer industry

Weaknesses  Fragmentation of national R&D programmes  Only $56 M (€46 M) spent in 2003 on R&D programmes, less than Japan and USA  Absence of manufacturing issues in R&D programme  PV cells market excessively linked to national programmes for grid connected PV systems

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

Policies & Measures S&T M&I

IDEA ASSESSMENT & FEASIBILITY STUDY Very limited market deployment programmes from the Member States  Too much public control of R&D policies  Lack of harmonisation of the Member States’ policies and regulatory frameworks Threats 



Preparation of European standards and codes for PV systems

Opportunities  Take advantage of strong public support for PV to launch extensive programmes of experimentation, development and implementation of PV plants  Use the good expertise in nanotechnologies in Europe to gain a competitive advantage  Open new markets by electrifying rural dwellings in developing, Mediterranean countries eager to cooperate with Europe  Develop a specifi c PV grade Silicon supply chain



Europe does not take advantage of its current expertise (no worldclass and farreachingprogrammes, fragmented funding)



The strength of Japan’s production facilities in PV industries in view of the envisaged capacity in the European countries Stronger competition from developing Asian countries entering the market



P&M

Source: Directorate‐General for Research Sustainable Energy Systems, 2005

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA ASSESSMENT & FEASIBILITY STUDY Pareto Analysis

Pareto Analysis is a simple technique for prioritizing possible changes by identifying the problems that will be resolved by making these changes. By using this approach, you can prioritize the individual changes that will most improve the situation. Pareto Analysis follows, what is known as, thePareto principle (also known as the 80/20 rule, the law of the vital few, or the principle of factor sparsity). According to that principle, developed by Joseph M. Juran, a vast majority of events (80%), either positive or negative, are produced by a few key causes (20%). Pareto analysis is simple to use: 1. 2. 3. 4.

Listing all relevant problems and available options Grouping options that are solving the same larger problem Applying an appropriate score to each group Working on the group with the highest score Value Analysis

…

CASE STUDY

Value analysis can be defined as a process of systematic systematic, formal and organized process of analysis and evaluation. It can be applied for analyzing a product or process, to determine the real value of each component, when looking for cost savings or to determine components that may be optimized. A Value Analysis depends on firstly understanding the functionality and viability of a product or service according to the needs of the customer. The main concern when conducting a VA is to identify and eliminate product and service features that add no true value to the customer or the product but incur cost to the process of manufacturing or provision of the service (Rich and Holweg, 2000).

A manufacturer of domestic water heaters conducted a VA analysis. It found that the customer derived value from the cost efficiency and reliability of the product. In addition, the company found that the largest source of failures resulted from internal moving parts that failed frequently. The VA exercise resulted in a decrease in these moving parts (valves etc.) and a replacement of other problem items with more cost effective alternatives. The reliability of the product has resulted in no complaints from customers and a reduction of moving parts to only three parts.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA ASSESSMENT & FEASIBILITY STUDY Costbenefit Analysis Benefitcost analysis (BCA) is a method for evaluating a project or investment by comparing the economic benefits with the economic costs of the activity. BCA is often applied even to everyday life, since it is relatively easy to use, provides reasonable and defensible data and is easily verifiable and recreated. What insures the quality of a decision based on CBA is the depth of analysis of benefits and costs connected with idea. Moreover, a Benefitcost analysis can be carried out using both financial costs and benefits and some intangible items. In such a case it should be understood that intangible, nonfinancial items are mainly subjective factors that can influence accordingly the analysis. The method is usually run in three steps: 1. Definition of all elements causing costs of idea implementation (includes if possible direct, indirect, financial and social costs). 2. Definition of all elements causing benefits of idea implementation (includes if possible direct, indirect, financial and social benefits). 3. Comparison of sum of all costs with the sum of all benefits.

Novelty, Attractiveness, Feasibility study, NAF This method is a quick and easy way of assessing new ideas for three issues: novelty, appeal and practicality. Method is especially appropriate before further development of idea. The method is applicable individually or in group and in many different areas. By its application each mentioned item should be scored in a scale from 1 to 10. 1. Novelty How novel is the idea? If it isn't novel for this situation, it probably isn't very creative 2. Attractiveness How attractive is this as a solution? Does it completely solve the problem? Or is it only a partial solution? 3. Feasibility How feasibly is it to put this into practice? It may have been a really attractive solution to use a time machine, but is it really feasible? All three scores are summarized and then ideas are ranked.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

IDEA ASSESSMENT & FEASIBILITY STUDY Checklist for Idea Evaluation There is a wide range of available checklists according to different criteria and appropriate for different markets. However below there is a selection of general questions and some more relevant to the energy sector.

POSSIBLE QUESTIONS / CHECKLIST Is your idea legal? What is its environmental impact? Is it safe? Is it high quality? Will it have wide social acceptance? Will it have any negative impact? Who is your competition? Does your product require the assistance of existing products/services? Is there just one product/service or a line of products/services? Will pricing be competitive? Does your idea fit into a trend? Is there a (real) need for it? Is it seasonal? Is it a fad, or does it have longterm value? Who will buy it? Does it need instructions? Is your idea an original, new concept, or is it a new combination or adaptation? Are there any problems the idea might create? What are the changes involved?

One may easily create his/her own list of questions and criteria considering the type of business. What is more, all these questions provide important guidance and help to the strategy and marketing planning.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

Bessant, J., Caffyn, S. and Gallagher, M. (2001). An evolutionary model of continuous improvement behaviour. Technovation, 21(2), pp.6777.

Jennings, S. (2016). Innovation in the energy utilities sector. [online] Pwc Energy Spotlight. Available at: http://pwc.blogs.com/energy_spotlight/2016/05/i nnovationintheenergyutilitiessector.html [Accessed 15 May 2017].

Boer, H. and Gertsen, F. (2003). From continuous improvement to continuous innovation: a (retro)(per)spective. International Journal of Technology Management, 26(8), pp.805827. Damoulianou, C. (2007). "Brainstorming" means new ideas, not a meeting for decision making. Kathimerini. (in greek) DirectorateGeneral for Research Sustainable Energy Systems (2005). Strengths, Weaknesses, Opportunities and Threats in Energy Research. Belgium: European Communities. Elmansy, R. (2015). Design Thinking Tools: Reverse Brainstorming. [online] Designorate. Available at: http://www.designorate.com/designthinkingtools reversebrainstorming/ [Accessed 11 May 2017]. Everup. (2016). The Osborn Checklist: A Creativity Method from the Originator of Brainstorming Everup. [online] Available at: http://www.everup.com/2016/01/29/alexosborn checklisttraditionalbrainstorming/ [Accessed 5 May 2017]. Hofstrand, D. (2009). Idea Assessment and Business Development Process. Ag Decision Maker. Honan, D. (2016). The Aha! Phenomenon: Where Do Big Ideas Come From?. [online] Big Think. Available at: http://bigthink.com/thinktank/the ahaphenomenonwheredoescreativitycomefrom [Accessed 15 May 2017]. Hughes, V. (2014). Where Do New Ideas Come From?. [online] Phenomena. Available at: http://phenomena.nationalgeographic.com/2014/0 6/18/wheredonewideascomefrom/ [Accessed 7 May 2017].

Koen, P., Ajamian, G., Burkart, R., Clamen, A., Davidson, J., D’Amore, R., Elkins, C., Herald, K., Incorvia, M., Johnson, A., Karol, R., Seibert, R., Slavejkov, A. and Wagner, K. (2001). Providing Clarity and a Common Language to the "Fuzzy Front End". Industrial Research Institute, pp.46 55. Look ahead GE The Economist. (2014). How is innovation changing the energy sector? Insights from a panel discussion with key energy experts. [online] Available at: http://gelookahead.economist.com/howis innovationchangingtheenergysector/ [Accessed 9 May 2017]. MarinGarcia, J., AznarMas, L., & Gonzalez LadróndeGuevara, F. (2011). Innovation Types and Talent Management for Innovation. WPOM Working Papers on Operations Management, 2(2), 2531. doi:http://dx.doi.org/10.4995/wpom.v2i2.926 Mindtools.com. (2017). SWOT Analysis: Discover New Opportunities, Manage and Eliminate Threats. [online] Available at: https://www.mindtools.com/pages/article/newTM C_05.htm [Accessed 10 May 2017]. OECD. 2005. Oslo Manual: The Measurement of Scientific and Technological Activities– Guidelines for Collecting and Interpreting Technological Innovation Data. 3rd Edition. Paris: OECD. Pandey, N. (n.d.). Assessing Feasibility of Business Ideas.

Viability

and

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

RangaBabu, R., Murali Krishna, M. and Swathi, A. (2013). The Role of Creativity and Innovation in Entrpreneurship. Innovative Journal of Business and Management, pp.112115.

Varjonen, V. (2006). Management of Early Phases in Innovation Process: A Case Study of Commercializing Technology in a Small Enterprise, Masters Thesis, Helsinki University of Technology.

Rich, N. and Holweg, M. (2000). Value Analysis, Value Engineering. INNOREGIO.

Wax, D. (n.d.). Where Do Ideas Come From?. [online] Lifehack. Available at: http://www.lifehack.org/articles/featured/wheredo ideascomefrom.html [Accessed 26 May 2017].

Riley, R. (2017). The Lotus Blossom Creative Technique. [online] Thought Egg. Available at: http://thoughtegg.com/lotusblossomcreative technique/ [Accessed 17 May 2017]. Roe, A. (2017). Feasibility Studies of Project Ideas. [online] business.com. Available at: https://www.business.com/articles/feasibility studiesofprojectideas/ [Accessed 4 May 2017]. Scheid, J. (2014). Conducting a Feasibility Study: Sample & Free Template for Project Managers. [online] Brighthub Project Management. Available at: http://www.brighthubpm.com/project planning/63692projectfeasibilitystudysamples/ [Accessed 06 May 2017]. Terziovski, M. 2007. Building Innovation Capability In Organizations: An International CrossCase Perspective. London, England: Imperial College Press

FURTHER READING

Idea evaluation methods (Rebernik, M. and Bradač, B.) https://goo.gl/XB0m7G

and

techniques

Where do ideas come from? (video) https://www.ted.com/playlists/20/where_do_ideas_ come_from Assessing your idea (questionnaire) https://innovation.govspace.gov.au/assessingyour idea

The Advisory Committee on Measuring Innovation in the 21st Century Economy (2008). Innovation Measurement: Tracking the State of Innovation in the American Economy. p.ixxii. Tidd, J., Bessant, J. and Pavitt, K. (2005). Managing innovation: integrating technological, market and organizational change. 1st ed. Sussex: John Wiley & Sons. Toubia, O. (2006). Idea Generation, Creativity, and Incentives. Marketing Science, 25(5), pp.411 425.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

COMMERCIALIZATION AND IP ISSUES

The emphasis on high valueadded activities marks the growing importance of innovation defined as the development and deployment of new products, processes and business models. The shift from mass production to a knowledge based economy characterized by highly differentiated products with greater knowledge content, and the changing nature of innovation sets the framework for new entrepreneurial progress. This changed dynamic of business and intellectual property protection in the information economy suggests a new era and the need for a reappraisal of intellectual property protection. What is essential to the development of innovation in all sectors is to understand the connection of intellectual property to knowledge and economy. How innovation is created, protected, disseminated and used to obtain economic returns? What are the challenges of the growing importance of intellectual assets and what are those best related to the energy market? UNIT OBJECTIVE During this unit the commercialization process and the role of IPRs in that process will be explained. Different rights and their proper exploitation to the innovation road will be presented. A small view on the methods used to turn an innovative idea into a commercially viable product, service or process.

KEYWORDS  Intellectual Property  Commercialization 

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

COMMERCIALIZATION AND IP ISSUES

RECORD OF CONTENTS COMMERCIALIZATIONAND IP ISSUES

THE RELATION BETWEEN INNOVATION AND THE INTELLECTUAL PROPERTY RIGHTS ......................................................................................................................... 45 HOW CAN YOUR IDEA OR BUSINESS USE THE IP ASSETS? .................................... 47

INTELLECTUAL PROPERTY RIGHTS RELATED TO THE ENERGY MARKET .. 52 COMMERCIALIZATIONOF INTELLECTUAL PROPERTY ............................................... 56

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

2 .1

MODULE 1

THE RELATION BETWEEN INNOVATION AND THE INTELLECTUAL PROPERTY RIGHTS

“

If you want something new, you have to stop doing something old Mark Getty

When referring to the term Intellectual Property, it should be made clear that it is a legal construct, and different countries have constructed different intellectual property regimes (Henry, C. & Stiglitz, J.,2010). In order to provide a common framework internationally for intellectual property rights, all members of World Trade Organization (WTO) have imposed the agreement on TradeRelated Aspects of Intellectual Property Rights (TRIPS), which up to date is the most important international agreement on the design of intellectual property regimes. However there is the universal aspect of IP:

“

The term “Intellectual Property” refers to unique, valueadding creations of the human intellect that result from human ingenuity, creativity and inventiveness

As described in the previous unit, creativity may be seen as the starting point for innovation. Nowadays what mostly concerns any business is to better manage innovation than its competitors in order to gain competitive advantage, survive and thrive. The management of innovation may be facilitated with the use of the tools of Intellectual Property (IP). Intellectual property rights can be used effectively to facilitate successful innovation.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

THE RELATION BETWEEN INNOVATION AND THEINTELLECTUAL PROPERTY RIGHTS

As indicated by Christopher M. Kalanje (n.d.) in World Intellectual Property Organization’s website:

“

“As there are many players involved in facilitating the market success of an innovation, the effective use of the tools of IP will play an important role in reducing risk for the players involved, who may then be able to reap acceptable returns for their participation in the process. IP plays an important role in facilitating the process of taking innovative technology to the market place. At the same time, IP plays a major role in enhancing competitiveness of technologybased enterprises, whether such enterprises are commercializing new or improved products or providing service on the basis of a new or improved technology. For most technologybased enterprises, a successful invention results in a more efficient way of doing things or in a new commercially viable product. The improved profitability of the enterprise is the outcome of added value that underpins a bigger stream of revenue or higher productivity.”

The tools of the IP system look upon technological innovation as an interactive process made up of a number of distinct stages. It begins with the formulation of a novel idea/concept and, through a series of stages, ends in the successful launching and marketing of a new or improved product in the marketplace. In other words, it looks at practical IP issues of relevance to different stages in the whole new product development process in which technological innovations may be introduced at different stages of the value chain from the producer to the end user. For the sake of simplicity, it focuses on the idea stage and the research and development stage. Empirical evidence indicates that generally small and mediumsized enterprises (SMEs) are more inclined to use trade secrets rather than patents as a form of protecting their inventions to stay competitive. The main reasons given by SMEs for shying away from patenting their inventions include high costs and complexity of the patent system. A study on patenting activity in Australia indicates that 44% of the firms used patents while 74% used trade secrets as a way of protecting their ideas. It also showed that size was an important factor in determining the propensity to patent, i.e. 35% of small firms with less than 20 employees used patents, while 75% of firms with more than 500 employees patented their knowledge.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

2.1 .1

MODULE 1

THE RELATION BETWEEN INNOVATION AND THE INTELLECTUAL PROPERTY RIGHTS

HOW CAN YOUR IDEA OR BUSINESS USE THE IP ASSETS?

After having described the importance of IP in the “New Economy”, what should be pointed out is that having good knowledge about IP rights will make an entrepreneur more effective, especially in SMEs where there is no special department managing IP. To have real value, intellectual property must be commercially useful and must provide adequate exclusivity to give a business a competitive edge. The first step to use the IP assets is to check the patentability or the possibility of securing in trade secrets, copyright etc. There are various types of intellectual property (IP) rights, such as patents, trademarks, design rights and copyright, that are available to protect the execution of a business idea and/or other parts of the business in general. In order to secure Intellectual Property assets in an entrepreneurship, there are some basic steps to follow: NonDisclosure Agreement for sharing Managing an entrepreneurship is related to sharing ideas and information with future potential partners, suppliers or customers. That comes with the fear of them stealing those ideas and information. The answer to such a major problem is the nondisclosure agreement. A nondisclosure agreement is a legalcontract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to or by third parties. It is a contract through which the parties agree not to disclose information covered by the agreement. It makes sure that this information cannot legally be passed on. Selection of IP type Protection of intellectual property and selection of the right type of IP is made possible through the World Intellectual Property Organisation (WIPO) and the respective national organizations. The form of protection depends on the type of IP.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

THE RELATION BETWEEN INNOVATION AND THEINTELLECTUAL PROPERTY RIGHTS

HOW CAN YOUR IDEA OR BUSINESS USE THE IP ASSETS?

There are 3 main subcategories of IP: o Industrial property: inventions (patents), trademarks, industrial designs, new varieties of plants and geographic indications of origin o Artistic work protected by copyright: original literary and artistic works, music, television broadcasting, software, databases, architectural designs, advertising creations and multimedia o Commercial strategies: trade secrets, knowhow, confidentiality agreements, or rapid production. For further information concerning different types and forms of IP better applying to the energy sector you may refer to the upcoming subunit. Protection across the EU The expansion of a business across Europe calls for protecting the intellectual property in several Member States or at EU level. For each type of Intellectual Property, there is a number of different organizations operating in national and European level.

SPAIN Oficina Española de Patentes y Marcas ‐ OEPM Paseo de la Castellana, 75 28046 Madrid Telephone (general): +34 902 157 530 Fax: +34 913 495 597 Email: informacion@oepm.es Website: www.oepm.es UNITED KINGDOM Intellectual Property Office Concept House Cardiff Road Newport, South Wales NP10 8QQ Telephone (national): 0300 300 2000 Telephone (international): +44 (0) 1633 814000 Website: http://www.ipo.gov.uk/ &https://www.gov.uk/

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

THE RELATION BETWEEN INNOVATION AND THEINTELLECTUAL PROPERTY RIGHTS

HOW CAN YOUR IDEA OR BUSINESS USE THE IP ASSETS?

AUSTRIA Austrian patent office Dresdner Straße 87 POB 95 A‐1200 Vienna Telephone (customer center): +43 (1) 53424 76 Telephone (general): +43 (1) 53424 0 (Mo to Fri: 08:00 ‐ 16:00) Fax: +43 (1) 53424 535 E‐mail: info@patentamt.at Website: www.patentamt.at GREECE Hellenic industrial property organisation (obi) 5, Gianni Stauroulaki str. (former Pandanassis str.) 151 25 ParadissosAmaroussiou Telephone (national): 80011‐08108 Telephone (international): +30 80011‐08108 Fax: +30 210 6819231 E‐mail: info@obi.gr Website: www.obi.gr

Knowledge of IP risks Intellectual Property Risk Management is the process of identifying, analyzing and responding to risk factors related to IP throughout the life of an IP right. Proper risk management implies control of possible future events and is proactive rather than reactive. Proper IP Risk Management will reduce not only the likelihood of an adverse event occurring, but also the magnitude of its impact on the business. Companies and organizations face IP related risks from a multitude of sources (Stanleigh, 2017), namely: o from within the organization itself o from entities in the ecosystem of the organization o from competitors o from independent 3rd parties o from Governments entities o from illegal entities o from the organization’s own network of IP Service & Solution Providers

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

THE RELATION BETWEEN INNOVATION AND THEINTELLECTUAL PROPERTY RIGHTS

HOW CAN YOUR IDEA OR BUSINESS USE THE IP ASSETS? Clearly communicate the ownership rights

Dominion Resources in Patent Infringement Lawsuit against Alstom Grid, Inc.

CASE STUDY

Whatever the medium that is selected for the dissemination of the product or service, it should be made clear, that the material on it is protected.

Beginning in July 2007, Dominion began researching a way to use smart meters to achieve CVR. Dominion named its new product EDGE to perform the AMIbased CVR. On May 7, 2013, the U.S. Patent Office granted Patent No. US 8,437,883 ("883 Patent") to Dominion. DVI's product EDGE practices this patent on behalf of Dominion. By obtaining the “883 patent”, Dominion protected the invention along with their place in the market against unscrupulous copycats. When Alstom Grid Inc, an electricity distribution management solution provider, started promoting a software product that infringed Dominion's patent without permission, Dominion filed a patent infringement suit based on its patent. Dominion's lawsuit was successful and in October 2016, the court enjoined Alstom Grid Inc from selling the infringing feature without Dominion's permission. The court also multiplied the jury award in this case based upon the jury's finding that Alstom's patent infringement was willful. Dominion's lawsuit is one of implicating businesses in the November 2015 and May 2016, lawsuits against multiple utilities, Company. In its complaint, Atlas its patent related to a wireless data using smart meters.

many patent infringement lawsuits now energy sector. For instance, between Atlas IP, LLC, brought patent infringement including PG&E and Florida Power & Light IP, LLC alleged that the utilities infringed communication device by communicating

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

THE RELATION BETWEEN INNOVATION AND THEINTELLECTUAL PROPERTY RIGHTS

Dominion Resources in Patent Infringement Lawsuit against Alstom Grid, Inc.

CASE STUDY

HOW CAN YOUR IDEA OR BUSINESS USE THE IP ASSETS?

The Patent Voltage conservation using advanced metering infrastructure and substation centralized voltage control Dominion Voltage Inc. (DVI), a Dominion company, has been awarded a patent for its EDGE® technology that enables electric utilities to plan, manage and validate voltage conservation for grid optimization. Description of the patent A voltage control and conservation (VCC) system is provided, which includes three subsystems, including an energy delivery (ED) system, an energy control (EC) system and an energy regulation (ER) system. The VCC system is configured to monitor energy usage at the ED system and determine one or more energy delivery parameters at the EC system. The EC system may then provide the one or more energy delivery parameters to the ER system to adjust the energy delivered to a plurality of users for maximum energy conservation. Publication number Publication type Application number Publication date Filing date Priority date Fee status Also published as Inventors Original Assignee Export Citation

US8437883 B2 Grant US 13/567,473 May 7, 2013 Aug 6, 2012 May 7, 2009 Paid CA2758536A1 Phillip W. Powell, Steven K. Parker, Melissa A. Bollbach, Mark L. Pruett Dominion Resources, Inc, Virginia Electric And Power Company BiBTeX, EndNote, RefMan

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

2 .2

MODULE 1

INTELLECTUAL PROPERTY RIGHTS RELATED TO THE ENERGY MARKET

“

The patent system adds the fuel of interest to the fire of genius. Abraham Lincoln

In recent years intellectual property has received a lot more attention because ideas and innovations have become the most important resource, replacing land, energy and raw materials. According to the nature of the idea, product or service there are different types of IP rights that better address to the special characteristics of the ides, product or service to be secured. The different types of IP rights include trade secrets, utility models, patents, trademarks, industrial designs, copyright and related rights.

Patents A patent is an exclusive right granted for an invention, which is a product or a process that provides, in general, a new way of doing something, or offers a new technical solution to a problem. To get a patent, technical information about the invention must be disclosed to the public in a patent application. The procedure for granting patents, requirements placed on the patentee, and the extent of the exclusive rights vary widely between countries according to national laws and international agreements. The Patent Cooperation Treaty (PCT) is an international patent law treaty, concluded in 1970. It provides a unified procedure for filing patent applications to protect inventions in each of its contracting states. A patent application filed under the PCT is called an international application, or PCT application.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

INTELLECTUAL PROPERTY RIGHTS RELATED TO THE ENERGY MARKET

Industrial design rights

Industrial design, in a lay or general sense, refers to the creative activity of achieving a formal or ornamental appearance for massproduced items that, within the available cost constraints, satisfies both the need for the item to appeal visually to potential consumers, and the need for the item to perform its intended function efficiently. In a legal sense, industrial design refers to the right granted in many countries, pursuant to a registration system, to protect the original ornamental and nonfunctional features of an industrial article or product that result from design activity. The subject matter of the legal protection of industrial designs is not articles or products, but rather the design which is applied to or embodied in such articles or products. The novelty of the design constitutes the fundamental reason for the grant of a reward to the originator through protection by registration of the industrial design. Industrial designs are applied to a wide variety of products of industry and handicraft items: from packages and containers to furnishing and household goods, from lighting equipment to jewelry, and from electronic devices to textiles. Industrial designs may also be relevant to graphic symbols, graphical user interfaces (GUI), and logos.

Trademarks

“

A trademark is any sign that individualizes the goods of a given enterprise and distinguishes them from the goods of its competitors

A trademark is a sign capable of distinguishing the goods or services of one enterprise from those of other enterprises. By the term trademark usually refers to service marks as well. A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of others, while a service mark identifies and distinguishes the source of a service rather than goods.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

INTELLECTUAL PROPERTY RIGHTS RELATED TO THE ENERGY MARKET

For example, a word or a combination of words, letters, and numerals can perfectly constitute a trademark. But trademarks may also consist of drawings, symbols, threedimensional features such as the shape and packaging of goods, nonvisible signs such as sounds or fragrances, or color shades used as distinguishing features – the possibilities are almost limitless. Some examples include: brand names, slogans, and logos. A trademark can be protected on the basis of either use or registration. Both approaches have developed historically, but today trademark protection systems generally combine both elements. Trade secrets A trade secret is a formula, practice, process, design, instrument, pattern, commercial method, or compilation of information not generally known or reasonably ascertainable by others by which a business can obtain an economic advantage over competitors or customers. The unauthorized use of such information by persons other than the holder is regarded as an unfair practice and a violation of the trade secret. Depending on the legal system, the protection of trade secrets forms part of the general concept of protection against unfair competition or is based on specific provisions or case law on the protection of confidential information. The subject matter of trade secrets is usually defined in broad terms and includes sales methods, distribution methods, consumer profiles, advertising strategies, lists of suppliers and clients, and manufacturing processes. Some of the advantages of Trade secrets refer to the unlimited in time of protection they can offer, meaning that as long as the secret is not revealed to the public, the trade secret is still in force. Moreover, trade secrets have immediate effect and in general involve no registration costs.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

INTELLECTUAL PROPERTY RIGHTS RELATED TO THE ENERGY MARKET

Cases in Which Your SME may Benefit from Trade Secret Protection While a decision will have to be taken on a casebycase basis, in the following circumstances it would be advisable to make use of trade secret protection:  When the secret is not patentable.  When the likelihood is high that the information can be kept secret for a

considerable period of time. If the secret information consists of a patentable invention, trade secret protection would only be convenient if the secret can be kept confidential for over 20 years (period of protection of a patent) and if others are not likely to come up with the same invention in a legitimate way.  When the trade secret is not considered to be of such great value to be deemed worth a patent (though a utility model may be a good alternative in countries where utility model protection exists).  When the secret relates to a manufacturing process rather than to a product, as products would be more likely to be reverse engineered.  When you have applied for a patent and are waiting for the patent to be granted. It is important to bear in mind, however, that trade secret protection is generally weak in most countries, that the conditions for, and scope of, its protection may vary significantly from country to country depending on the existing statutory mechanisms and case law, and that the courts may require very significant and possibly costly efforts to preserve secrecy. Patent or utility model protection, wherever possible, will provide much stronger protection.

source: WIPO, www.wipo.int/sme/en/ip_business/trade_secrets/benefits.htm

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

INTELLECTUAL PROPERTY RIGHTS RELATED TO THE ENERGY MARKET

form of IP

Summary of IP rights concerning energy market

Patent Trademark Industrial design rights Trade secrets

ProtectionPeriod 20 years

European Patent Office

(™)

euipo.europa.eu/ohimportal/en EuropeanUnion Intellectual Property Office

no time limit

2 .3

More Info www.epo.org/

no time limit/ 10 years (EU TM) depending on national laws

Symbol

eur‐ lex.europa.eu/eli/dir/2016/943/oj EU Directive on the protection of undisclosed know‐how and business against their unlawful acquisition, use and disclosure

MODULE 1

COMMERCIALIZATION OF INTELLECTUAL PROPERTY

“

Intellectual Property can be both a shield and a sword Anonymous

Commercialization can be defined as the process of turning an invention or creation into a commercially viable product, service or process. Commercialization may require additional R&D, product developments, clinical trials or development of techniques to scaleup production prior to taking the results of research to market. Both the innovation process itself, and the production activities of firms are globalizing rapidly. This raises challenges in terms of managing, protecting and enforcing intellectual property rights across borders.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

COMMERCIALIZATION OF INTELLECTUAL PROPERTY

Intellectual property may be commercialized by sale or assignment, or by entering into various types of contractual business relationships such as licensing. Since successful innovation includes taking a new become very relevant. Above all, trademarks important role in the marketing process. These product/service of a particular company and product from other similar product.

product to market, other IP tools and industrial designs play an enable consumers to identify a enable them to distinguish the

A trademark is a useful tool in launching new product segments or entirely new products, technologically based or nontechnologically based, i.e., through brand extension. In addition, trademarks can be very effective in penetrating new markets. Honda, for example, took advantage of its reputation in motorcycle engineering to penetrate the US car market. Trademarks are also useful in extending commercial benefits beyond the life of a patent. Technological innovation can also be supported well by a combination of patent, industrial design and trademark.

Dominion Resources in Patent Infringement Lawsuit against Alstom Grid, Inc.

CASE STUDY

Trade secrets, patents, trademarks, industrial designs, and copyright may separately or jointly facilitate the acquisition of technology and its commercial use. Strategic use of a combination of IP tools in the innovation process can significantly contribute to facilitating the appropriation of higher profits, maintenance of a premium market position, thus enabling technologybased, innovative SMEs to have a high return on investment.

Out of the energy market but very strong whatsoever is the example of Aspirin®. Developed in 1897 by Felix Hoffman, a research chemist working with Bayer Company in Germany, the drug was patented in 1899 by the Bayer Company. Knowing that patents have a limited duration, the Bayer Company embarked upon promoting a trademark for its new product. When the Aspirin® patent expired, the company continued to benefit from the sale of aspirin through its established trademark Aspirin®. The Bayer Company has also used the twotrack IP strategy, i.e., using a trademark to protect market share after the expiry of a patent, for its Cipro® product (ciprofloxacin for treatment of infections, including anthrax).

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

COMMERCIALIZATION OF INTELLECTUAL PROPERTY

In order to commercialize the intellectual property asset, the first step to take is to develop an IP strategy. What first of all must be understood is that IP strategy is a part of corporate strategy. To understand the objective of IP strategy then, it is helpful to first discuss the objective of corporate strategy. Corporate strategy is the development of a course of actions that enables a company to sustainably realize higher prices than competitors increase its market share and/or maintain lower costs than the competition.

“

IP strategy is the development of a course of actions that utilizes intellectual property to enable a company to sustainably realize higher prices, increase market share, and/or maintain lower costs than the competition.

Developing an IP strategy can be divided in two phases:  IP administration, which covers the creation of IP assets. It takes innovation from research and product development, and turns it into IP through applications, prosecution and maintenance. In the process of commercializing and monetizing Intellectual Property, the second  IP management, that involves taking a portfolio of IP assets and creating economic benefits through portfolio management, integration of IP into business strategy and maximizing the value of IP. Of course the IP strategy better addresses to large multinational corporations that can develop a larger portfolio. Of course the IP strategy better addresses to large multinational corporations that can develop a larger portfolio. However, taking into consideration those examples can be of a great importance to the development of SME’s strategies. Either way, most strategies were developed and initially used by large companies. The role of an IP portfolio management strategy may lead to:  Limit internal prosecution to innovation that can be most costeffective and deployed rapidly internally  Acquire those assets that are most efficiently deployed by others  Sell or otherwise eliminate IP not relevant to current management strategies, reallocating these resources and rebalancing the portfolio

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

(note, this article explores only one strategic goal: monetization)

Relation of Tactics and Coals in IP strategy

Charges for the use of intellectual property, receipts (BoP, current US$) source: World Bank Open Data

COMMERCIALIZATION OF INTELLECTUAL PROPERTY

Strategic Goal or Value Leveraged from Patent Portfolio

Tactic

Freedom to operate

Licensingin Crosslicensing Purchase

Reducing R&D costs and reducingtime to market

Licensingin Crosslicensing Purchase

Cost advantage and reduction of competitors’ freedom to operate

Patent thicket Structural cost differential

Monetization

Licensingout (that is, using a stick versus giving a carrot) Sale

Market share and market influence (with monetization potential)

Patent pooling Joint venture standards

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

OODA” stands for Observe, Orient, Decide, and Act

COMMERCIALIZATION OF INTELLECTUAL PROPERTY

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

Bucknell, D. (2012). What is IP Strategy?. [online] ipstrategy.com. Available at: https://ipstrategy.com/2012/10/03/whatisip strategy/ [Accessed 10 Jun. 2017].

Watify | Ec.europa.eu. (2017). How can I protect my business idea? | Stimulating Digital Entrepreneurship. [online] Available at: https://ec.europa.eu/growth/tools databases/dem/watify/sellingonline/howcani protectmybusinessidea?language=en [Accessed 10 May 2017].

Dominion Resources inc. et al v. Alstom Grid, inc. [2016]Civil action no. 15224 (United States District Court for the Eastern District of Pennsylvania). Dominion Resources, Inc, Virginia Electric And Power Company (2013). Voltage conservation using advanced metering infrastructure and substation centralized voltage control. US8437883 B2. / Henry, C. and Stiglitz, J. (2010). Intellectual Property, Dissemination of Innovation and Sustainable Development. Global Policy, 1(3), pp.237251. Kalanje, C. (n.d.). Role of Intellectual Property in Innovation and New Product Development. [online] Wipo. Available at: http://www.wipo.int/sme/en/documents/ip_innovat ion_development_fulltext.html [Accessed 18 May 2017].

FURTHER READING

The Role of Patents in Renewable Energy Technology Innovationhttps://goo.gl/m9yox7 Introduction to Intellectual Property (video) https://goo.gl/V6kUU9 Wipo Intellectual Property Handbook https://goo.gl/Do7WqV Intellectual Property Commercialization https://goo.gl/qpVQiV

MaRS. (2009). Commercialization, monetization of intellectual property (IP). [online] Available at: https://www.marsdd.com/mars library/commercializationandmonetization strategies/ [Accessed 11 Jun. 2017]. Stanleigh, M. (2017). Risk Management…the What, Why, and How. [online] Business Improvement Architects. Available at: https://bia.ca/risk managementthewhatwhyandhow/ [Accessed 10 Jul. 2017].

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TEAM BUILDING

Executives, managers, and organization staff members universally explore ways to improve business efficiency and effectiveness. Traditionally, work environments tend to support, foster and reward individual employees and do not encourage teamwork. However, the newly desired teamwork culture is a developing idea among modern organisations and enterprises. Even though managers and employees discuss about building the team and working as a team, only a few understand how to create the experience of teamwork or how to develop an effective team. Belonging to a team, in the broadest sense, is a result of feeling part of something larger than yourself. It has a lot to do with understanding the mission or objectives of the organization and enterprise. In a teamoriented environment, one can contribute to the overall success of the organization (Heathfield, S. M., 2017b). UNIT OBJECTIVE During this unit the importance of teams in the work environment is presented. Types of teams in the workplace, interpersonal relations among staff members and the main methodologies used for the empowerment of the team are examined, as an important step to create successful ventures. There will be examples of interesting games with purposes linked back to the industry/workplace.

KEYWORDS  Team  Teambuilding  Teamwork culture  Team Management  Group  Social units  Cohesiveness / Cohesion  Teambuilding activities  Icebreaker

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TEAM BUILDING

RECORD OF CONTENTS TEAM BUILDING

DEFINITION AND TYPES OF TEAMS ...................................................................................64 TYPES OF TEAMS ................................................................................................................................... 65

DIFFERENCES BETWEEN TEAMS AND GROUPS...........................................................67 BUILDING A SUCCESSFUL WORK TEAM .........................................................................68 WHAT ARE THE STEPS OF A SUCCESSFUL TEAM?......................................................... 70

ACTIVITIES FOR TEAM BUILDING AND EMPOWERMENT IN THE WORKPLACE .......................................................................................................................................73 EXAMPLES OF ACTIVITIES ................................................................................................................. 75

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3.1

MODULE 1

DEFINITION AND TYPES OF TEAMS

“

Coming together is a beginning. Keeping together is progress. Working together is success Henry Ford

A variety of definitions about of teams can be found in the relevant scientific literature (Kanaraki, S., 2011). One of the most common used is the one proposed by Katzenbach and Smith (1993): "A team is a small number of people with complementary skills who are committed to a common purpose, performance goals, and approach for which they are mutually accountable¨. One of the main characteristics that define a team is task interdependence and a shared goal or purpose the work of each team member is depended on the work of at least one (or some) of the other team members (Mankin, Cohen &Bikson, 1996).

“

But why teams and teamwork are important to modern companies? What are the benefits of them?

Benefits and advantages from teamwork are not limited to workload sharing as the majority of the employees may think. Teamwork is important to modern business environments as it leads to (Hutton): 1) Increased efficiency. Team work on the direction of a common goals and objectives. When two or people join their skills, knowledge, experience etc the efficiency or the whole process is increasing. 2) Idea generation. Team members have to feel free to express their own ideas and share them with all other team members. This is the stepping stone of creativity and innovation. From such process new ideas will arise while “old” one may be improved through team discussions and sharing knowledge and skills as teams bring together people with different academic and/or working backgrounds. 3) A learning experience. When people from different backgrounds are met, everyone has the change to learn from each other. Each team member is a educational resource to other. This is a winwin situation for everyone (employees and employers).

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

DEFINITION AND TYPES OF TEAMS

4) Enhanced communication. In teamwork everyone has to express his/her ideas, opinion etc and share it with other team members. This is the only way is the team wants to bring together a common goal or objective. Team activities such as meetings, groups discussions are based on communication and though

them

ell

team

members

can

gain

accesses

the

whole

concept./scenery of the common project and improve their communication skills. 5) Support network. When talking about real teamwork of the first things that we have to keep in mind is that a support mechanism exists between team members. In cases of deadlines, increased workload and challenging time everyone is helping each other (there is a common goal) and rely on each other.

3.1 . 1

MODULE 1 DEFINITION AND TYPES OF TEAMS

TYPES OF TEAMS

The definition of a team implies that teams work together to accomplish a common goal. In this scope any organization can be considered as a team or as a network of teams. The rhetoric of ‘the team’ is, today, commonplace in the theoretical management approaches (Glassop, L., 2002). According to Linda I. Glassop (2002) the incorporation of teams inside an organization suggests an improved workplace both from organizational point of view and from the employee’s perspective (like increased workplace productivity; improvements to product/service quality; a reduced management structure; lower levels of absenteeism; reduced employee turnover, quality of work life (QWL) for employees). There are several classifications that distinguish teams according to certain characteristics they have. General classifications may be indicated by the size, diversity and member roles of the team (Daft, R. L., Marcic, D., 2001). In order to monitor and properly evaluate the progress of a team, we should determine its type and characteristics upon its creation.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

DEFINITION AND TYPES OF TEAMS

TYPES OF TEAMS

Classifications may vary along bibliographic references. According to Cohen and Bailey (1997) there are several types of teams: 

Working Teams: perform on a permanent basis, producing goods and services. They operate under a supervisor or even without one and consist of appointed and accredited members.



Parallel Teams: with a rather mixed composition with members from different departments or disciplines, operate simultaneously (in parallel with) to the operational structure of the company in order to provide proposals for solving internal problems and measures to improve the performance.



Project Teams: have a transient character as they will probably consist for the completion of a project. Members of a project team have a diverse background and come from different departments of the company as the aim is to combine different knowledge, experiences and skills.



Management Teams: consist of members high in the hierarchy of the company. The

responsibility

such

team

monitor

the

overall

company

performance by coordinating the resources. Additional types of teams in a business company (O’Connor, 2006): 

Boards / Committees: consist of senior executives and work on a particular assignment either permanently or on a temporary basis. Their role in the company is to take concrete decisions about important and critical issues.



Virtual Teams: consist of individuals who are separated by distances, not in direct contact. They use technology and specific skills to achieve a common goal.

subcategory

virtual

teams

the

international

virtual

team,

suggesting that members are in different countries. 

Crisis or Problemsolving Teams: have a temporary character and they are created during situations of crisis and they deal with all issues aroused. Once guidelines are set in place and plans are formed, those teams usually dissolve.



SelfDirected Teams (Miller, B., 2012): also called selfmanaged teams, operate without managers, and no one is in a position of authority. They are designed to give members a feeling of empowerment and ownership.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3.2

MODULE 1

DIFFERENCES BETWEEN TEAMS AND GROUPS

“

A group of people get on an elevator. A team occurs when the elevator gets stuck! Anonymous

Although often terms “group” and “team” are used interchangeably, their real mean and context are different. As we referee to modern business environment and the meaning of such terms in that, we have to clear out that when talking about groups we are talking about work groups and not e.g. for a group of things, objects etc. “A work group is composed of members who are striving to create a shared view of goals and to develop an efficient and effective organizational structure in which to accomplish these goals. A work group becomes a team when shared goals have been established and effective methods to accomplish those goals are in place” (Wheelan, 2010).

Key characteristics of working groups and teams

According to the Jon R. Katzenback and Douglas K. Smith (2009) the key characteristics and the difference between working groups and team can be defined as in the table 1 below.

Working Group

Team

Strong, clearly focused leader

Shared leadership roles

Individual accountability

Individual and mutual accountability

The group's purpose is the same as the broader organizational mission

Specific team purpose team itself delivers

Individual workproducts

Collective workproducts

Runs efficient meetings

Encourages openended discussion and active problemsolving meetings

Measures its effectiveness indirectly by its influence on others (e.g. financial performance of the business)

Measures performance directly by assessing collective workproducts

Discusses, decides, and delegates

Discusses, decides, and does real work together

that

the

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3.3

MODULE 1

BUILDING A SUCCESSFUL WORK TEAM

“ “

Great things in business are never done by one person. They're done by a team of people. Steve Jobs

But how a successful team can be built? science?

Is teambuilding an art or a

The answer to that question is a bit of both. Understanding how a team works and providing the environment for the team to flourish requires both knowledge in human resources, team culture and group dynamics fields and skills and competences out of net academia. What most people think about successful teams is that they are the result of inspired leadership or of motivated members. However a really great team is more than the sum of its parts. There are several characteristics that allow a team to enhance the personal assets of its members to create a unique environment for them to be a successful team. Those characteristics may resemble to those indicating a group however teams possess some unique characteristics, given the high degree of coordination among members and their focus on goals (Forsyth, D. R., 2014). According to Forbes magazine (Sturt, D., Nordstrom, T., 2015; Sturt, D., Nordstrom, T., 2016), successful teams, whether they are small or big, a business or a leisure team, in an office or on the field, they share a few common key traits:



Dependability



Clear Vision



Driven By Purpose



Inspiring Leader



Culture Fit



Team Cooperation



Constructive Conflict



Constructive Communication



Appreciation

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BUILDING A SUCCESSFUL WORK TEAM

Teams are complex social units that their success and cohesiveness are affected by many factors. A general categorization divides those factors into environmental, personal, leadership and team factors, as suggested by Carron in 1982. If referring to an organized team in business, environmental factors may address to the contract terms, or to the orientation of the company in which the team operates. Many of the environmental factors are given and nonnegotiable and set the general context within which the team will develop and act.

Hackman’s authority matrix model of team autonomy (Hackman, R.J., 2002). According to the type of the team, the responsibility for team’s cohesiveness relies on different persons, from the manager to the team members themselves.

A survey, conducted by researchers in the Eli broad graduate school of management of the Michigan State University, highlights the importance of several personality characteristics (Conscientiousness, Extraversion, Agreeableness, and Emotional Stability) of team members, especially in organizations with highly interdependent teams, in relation to social skills, teamwork knowledge, and contextual performance. Those characteristics may refer to individuals but attribute to the overall team effort and team cohesiveness (Morgeson, F. P. et al., 2005).

Setting overall direction

Management Responsibility

Designing the team and its organizational context Monitoring and managing work process and progress

Team’s Own Responsibility

Executing the team task

Manager‐led teams

Self‐ managing teams

Self‐ designing teams

Self‐ governing teams

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BUILDING A SUCCESSFUL WORK TEAM

Leadership factors relate mainly to the way leaders relate to teams in means of intervention, monitoring, ease the way and many other managerial roles. What a leader can do to enable a team to succeed is to establish a good trajectory and make small adjustments when needed. It is more effective for a leader to worry about the conditions that affect the teamwork rather than managing team behavior in real time (Hackman, J.R., 2002).

3.3 . 1

MODULE 1 BUILDING A SUCCESSFUL WORK TEAM

WHAT ARE THE STEPS OF A SUCCESSFUL TEAM?

To build a successful team means that great caution has been taken at the development of the team. Traditionally, a team goes through five stages of development. Every stage requires a different approach from both leadership and membership, and suggests different actions and adaptations. According to Dr. Bruce Tuckman (1965), there is a 4stage process in team development:

1. Forming 2. Storming 3. Norming 4. Performing Later in the 1970’s Dr. Tuckman suggested another stage, adjourning, which may also be met as Transforming or Ending. Those stages describe the life circle of a team from day zero to end day.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BUILDING A SUCCESSFUL WORK TEAM WHAT ARE THE STEPS OF ASUCCESSFUL TEAM?

While forming, the team comes together, team members are introduced to one another and the team goals are set or presented. In the event that it is a newborn team with no previous cooperation among members there are several expected behaviors. Team members may replicate predefined behaviors in order to gain team acceptance, leader support, gather impressions and data about the similarities and differences among them, form preferences etc. However the key activities that will lead them to their initial success will depend on their familiarity with each other's work style, their experience on prior teams, and the clarity of their assigned mission. The next stage, which Tuckman calls storming, suggests disagreements about mission, vision, and ways to approach the problem or assignment among team members, as they might compete with each other for status and for acceptance of their ideas. Those conflicts occur mainly in personal level over leadership, structure, power, and authority and indicate the "fear of exposure" or "fear of failure" of the team. It is important at this stage to invest at communication and interaction of team members in a neutralized environment. Data flow and cohesion is attained by the team members at the norming stage, as they have consciously or unconsciously formed working relationships that are enabling progress on the team’s objectives. Their interactions are characterized by openness and sharing of information on both a personal and task level. A possible drawback at this point may be the resistance to change of any sort as team members may refuse to follow a new unfamiliar path or may begin to fear the inevitable future breakup. The performing stage is not reached by all groups. This is the stage that defines the successful teams, as only those reach that level of teamwork. Team is functioning at a very high level, achieving its goals and can now be characterized as unity (group identity is complete, group morale is high, and group loyalty is intense). However the team may revert back to another stage, more probably in the storming stage.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BUILDING A SUCCESSFUL WORK TEAM

with description of their associated group structures and task activities by Dr. Bruce W. Tuckman (1965)

Stages of Group Development

WHAT ARE THE STEPS OF ASUCCESSFUL TEAM?

Group Structure The pattern of interpersonal relationships; the way members act and relate to one another.

Task Activity The content of interaction as related to the task at hand.

Forming: orientation, testing and dependence

Testing and dependence

Orientation to the task

Storming: resistance to group influence and task requirements

Intragroup conflict

Emotional response to task demands

Norming: openness to other group members

Ingroup feeling and cohesiveness develop; new standards evolve and new roles are adopted

Open exchange of relevant interpretations; intimate, personal opinions are expressed

Performing: constructive action

Roles become flexible and functional; structural issues have been resolved; structure can support task performance

Interpersonal structure becomes the tool of task activities; group energy is channeled into the task; solutions can emerge

Adjourning: disengagement

Anxiety about separation and termination; sadness; feelings toward leader and group members

Selfevaluation

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3.4

MODULE 1

ACTIVITIES FOR TEAM BUILDING AND EMPOWERMENT IN THE WORKPLACE

“

Collaboration, it turns out, is not a gift from the gods but a skill that requires effort and practice Douglas B. Reeves

Teambuilding activities increase positive communication, raise morale, empower team members, encourage bonding and often evoke laughter. Such activities can be very a powerful way to unite a group, providing that they are well addressed to the challenges that the team faces. Depending on the stage of every team there are different activities that can be applied.

Icebreakers

Forming

Teambuilding

Storming

Energizers

Norming Performing

Icebreakers are structured activities that are designed to relax team members, introduce them to each other, and energize them in what is normally an unduly formal atmosphere or situation. Icebreakers address mainly to a new formed team, even at the first meeting where act as openers or interest devices not always related to the subject. Just as the ships in the arctic regions break up ice and make it easier for other ships to travel, an icebreaker helps to clear the way for forming to occur by making the members more comfortable. However they may be useful activities when a new member enters the team. A team building activity is designed to help a group become a team. Team building activities differ from icebreakers in that the group members already know each other and the focus is on making the group become more cohesive. More importantly a team building activity can be related to problems that team members face in teamwork, like lack of communication, stereotypes and "labeling", lack of interdependence and trust, “foggy” goals, etc. However there are literally hundreds of teambuilding activities that address a wide range of issues.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

ACTIVITIES FOR TEAM BUILDING AND EMPOWERMENT IN THE WORKPLACE

Energizers are quick, fun activities to liven up a group. They can be spontaneously organized after a long hour activity when teams may be getting sluggish, or when energy is waning and motivation is decreasing. Often an icebreaker, a team building activity and an energizer overlap. For example, during an activity in which participants are asked to line up in alphabetical order by first name, participants will learn each other’s names (typical of an icebreaker), they’ll work together as a team to form the line (teambuilding), and become invigorated by being able to get up and move around the room (an energizer). As a result, the activities in this resource are grouped together according to how they might be used instead of how they are defined.

find the real purpose behind your decision to do the exercise strategically plan and carry out exercises

General Rules for Team Building

keep competition out of the exercises

make team building part of the daily corporate culture, instead of a onceayear event.

keep it simple

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3.4 . 1

MODULE 1 ACTIVITIES FOR TEAM BUILDING AND EMPOWERMENT IN THE WORKPLACE

EXAMPLES OF ACTIVITIES

Icebreakers Example 1 (Clark, 2015) Break the group into twoperson teams (have them pick a partner that they know the least about). Have them interview each other for about 10 minutes (you can also prepare questions ahead of time or provide general guidelines for the interview). They need to learn about what each other likes about their job, past jobs, family life, hobbies, favorite sport, etc. After the interviews, reassemble the teams and have each team member introduce their partner to the entire group. This exercise helps them to learn about each other. Example 2 Everyone goes around the room and tells what they did for his/her first or worst job. You could also do it ahead of time and ask meeting attendees to fill out a card and the facilitator can read them aloud and everyone has to guess which employee had that particular job. The goal is to learn something new about your colleagues. It could also spark conversation between employees who do not normally work together often and in some cases it might get a chuckle or two. Teambuilding Example 1 (Heathfield, S., 2017a) Provide lunch for the whole company, a department or a work team. Assign employees to various work groups of up to ten people to thoughtfully discuss and respond to workrelated questions. One fun way to divide employees, when you don’t care who is in which group, is to put numbers on the bottom of plates. Randomly place plates in stack, ask employees to take a plate and according to the number on the plate, they form groups and meet in a certain room or place. All employees who have a number 1 on their plate take their lunch and meet in the library or conference room B, for example. You may add a little excitement by introducing funny questions for each group number. For example, when arriving in the library, employees with number 1 will find a paper with a question that each one of them has to answer. The team building lunch is a terrific opportunity to help employees get to know each other better.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

ACTIVITIES FOR TEAM BUILDING AND EMPOWERMENT IN THE WORKPLACE EXAMPLES OF ACTIVITIE

Example 2 Schedule employees to visit another department for a take an employee to work day, or job shadowing day. Employees are always curious about what other employees do. Satisfy their interest and introduce the employees to a whole new work group in the process, providing that your company has enough departments to support this activity. However, even in small companies, job shadowing can work well if there are clear thresholds for division of labor. The opportunity to observe in another department allows employees to participate in team building that enhances crossdepartment cooperation and understanding. It also offers employees the chance to explore another career path. Some organizations emphasize customer service, technical support, and other departments that interface with customers for visitation. In addition to the team building, employees hear insights from the customers and the employees who serve them directly—a big plus. Energisers Example 1 (Ghabra, 2012) If your team is feeling drained and stressed, this fun exercise is a great way to refresh and energize them. It doesn’t require much time and the recommended group size is 1020 people. Participants will need to form two equal lines facing each other. The game starts when one line turns around, giving the second line 40 seconds to change 10 things about themselves. This can include anything from jewelry or clothing being swapped with other people, untied shoelaces, a different hair do, or a switched watch or ring to the other hand. All changes must be something the other group can see. After 40 seconds, the first group turns around and tries to find all the changes the other group made. Once the changes have been recognized, the groups switch, giving each team a chance to make changes. This game will stimulate the participants’ minds and challenge their memory. Incorporate this activity when a lack of energy is apparent.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

ACTIVITIES FOR TEAM BUILDING AND EMPOWERMENT IN THE WORKPLACE EXAMPLES OF ACTIVITIE

Example 2 Turn your office into a battlefield! The team or you as facilitator may introduce the rules. What is considered appropriate and what not, what is the trophee and what is the virtual death? Even what is the time limit for the battle to end. This is a fun, both physical and mental activity. Overlapping activities Example 1 (Freshtracks, n.d.) Icebreaker + Energizer This is an activity that encourages your team members to learn more about each other, by sharing their dream trip. Working in pairs, you may ask participants to describe how they would spend their time and money if they were given one month away from usual work and domestic routines and responsibilities with an unlimited budget. These Dream Trips are then shared with the team as a whole. You may suggest a senario that for example their employer is so pleased with their performance that they have been awarded a month of paid leave and an unlimited travel budget. In addition, a team of domestic staff and child carers are available to take care of their responsibilities at home so they can choose whether or not to take their families with them. The participants are inited to write down their trip in as much detail as possible, including who would be travelling, by what means, air, sea or train and in what class. Explain that you want them to include accommodation details and a list of the places they would visit, even down to the photographs they would take. Monitor time announcing when there are 5, 3 and 1 minute/s remaining. Before asking participants to reveal their plans ask;  

How did it feel to spend ten minutes planning a dream? Is this a dream you had before today or is it brand new?

Encourage each person to share their itinerary either by seeking a volunteer or by selecting a willing candidate Give positive feedback to each participant and don’t be afraid to ask why they have made the choices they have made Point out that when we take time to ask others what interests them we are far more able to understand what makes them tick. To conclude ask; 

What were you surprised to hear from others?

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

Considerations. Journal of Sport Psychology, 4(2), pp.123138.

REFERENCES

and

Exercise

Clark, D. (2015). Icebreakers, Warmup, Review, and Motivator Activities. [online] A Big Dog, Little Dog and Knowledge Jump Production. Available at: http://www.nwlink.com/~%E2%80%89Donclark/lea der/icebreak.html [Accessed 11 May 2017]. Cohen, S. and Bailey, D. (1997). What Makes Teams Work: Group Effectiveness Research from the Shop Floor to the Executive Suite. Journal of Management, 23(3), pp.239290. Daft, R. and Marcic, D. (2001). Understanding management. 1st ed. Mason (Ohio): SouthWestern College Pub. Forsyth, D. R. (2014). Group Dynamics: Instructional Resources. University of Richmond, available at: https://facultystaff.richmond.edu/~dforsyth/gd/GD Resources2014.pdf , Accessed 11th of April 2017. Freshtracks. (n.d.). Free Team Building Activity: My Dream Trip | Fresh Tracks. [online] Available at: http://www.freshtracks.co.uk/freeteam building/freeteambuildingactivitymydreamtrip/ [Accessed 11 May 2017]. Ghabra, Z. (2012). Six Quick Teamwork Games to Engage Employees at Work. [online] Refresh Leadership. Available at: http://www.refreshleadership.com/index.php/2012/ 08/quickgamesengageemployeeswork/ [Accessed 11 May 2017]. Glassop, L. (2002). The Organizational Benefits of Teams. Human Relations, [online] 55(2), pp.225 249. Available at: http://m.fagbokforlaget.no/boker/downloadpsykorg /KAP9/artikler/Betydningen%20av%20team%20for %20organisasjoner.pdf [Accessed 7 May 2017].

Hackman, J. (2006). Leading Teams: Setting the Stage for Great Performances. 1st ed. Boston, Mass: Harvard Business School Press. Heathfield, S. (2017a). 15 Great Team Building Exercises for the Workplace. [online] The Balance. Available at: https://www.thebalance.com/team buildingworkplaceactivities1919238 [Accessed 11 May 2017]. Heathfield, S. (2017b). Human Resources: 12 Tips for Team Building in the Workplace. [online] The Balance. Available at: https://www.thebalance.com/tipsforteambuilding 1918512 [Accessed 11 May 2017]. Kanaraki, S. (2011). Literature review on the concept of small groups in small enterprises and organizations. Postgraduate. The University of Macedonia, Thessaloniki, Greece. Katzenbach, J.R. & Smith, D.K. (1993). The Wisdom of Teams: Creating the Highperformance Organization. Boston: Harvard Business School. Katzenbach, J.R. & Smith, D.K. (2010), The Discipline of Teams, Harvard Business Review Press, 2009 Laura Hutton, “Why Teamwork is Important in the Workplace”Australian Institute of Business, available at http://aib.edu.au/blog/teamworkis importantintheworkplace/#comments, Accessed 11th of April 2017. Mankin, D., Cohen, S. and Bikson, T. (1996). Teams and Technology: Fulfilling the Promise of the New Organization. 1st ed. Boston: Harvard Business School.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

Miller, B. (2012). 7 Team Types That Make Business Possible Read more at http://www.business2community.com/strategy/7 teamtypesthatmakebusinesspossible 0177106#5mz47Sm1zAvjuz7Q.99. [online] Business 2 Community. Available at: http://www.business2community.com/strategy/7 teamtypesthatmakebusinesspossible 0177106#j1lm5LaC46IIMDO7.97 [Accessed 7 May 2017].

Tuckman, B. (1965). Developmental sequence in small groups. Psychological Bulletin, 63(6), pp.384 399.

Morgeson, F. P., Reider, M. H. and Campion, M. A. (2005). Selecting Individuals in Team Settings: The Importance of Social Skills, Personality Characteristics, and Teamwork Knowledge. Personnel Psychology, 58: 583–611. doi:10.1111/j.17446570.2005.655.x

FURTHER READING

O’Connor, M., 2006, “A review of factors affecting individual performance in team environments: Theories and implications for library management”, Library Management, Vol. 27, No 3, pp 135143

https://www.mindtools.com/pages/article/newTMM

Susan A. Wheelan . Creating Effective Teams: A Guide for Members and Leaders, SAGE, 2010 Sturt, D. and Nordstrom, T. (2015). 5 MustHave Attributes Of Every Successful Team. [online] Forbes.com. Available at: https://www.forbes.com/sites/davidsturt/2015/10/ 29/5musthaveattributesofeverysuccessful team/#218c0d691c02 [Accessed 5 April 2017]. Sturt, D. and Nordstrom, T. (2016). 5 Irreplaceable Traits Of Successful Teams Where Do You Fit?. [online] Forbes.com. Available at: https://www.forbes.com/sites/davidsturt/2016/06/ 30/5irreplaceabletraitsofsuccessfulteamswhere doyoufit/#630e57661bf3 [Accessed 12 Apr. 2017].

Wheelan, S. (2010). Creating effective teams: A Guide for Members and Leaders. 1st ed. Thousand oaks, Calif.: SAGE.

How good are you and your team at teamwork and team building? (quiz) _84.htm Types of Work Teams: Functional, Cross Functional & SelfDirected (video) http://study.com/academy/lesson/typesofwork teamsfunctionalcrossfunctionalselfdirected.html Workgroup performance: the influence of personality (in greek) https://goo.gl/yvwu6T Teams: A short guide http://www.freshtracks.co.uk/wp content/uploads/2014/12/TeamsAShortGuide Download.pdf

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

SOURCES OF FINANCE

Innovation is a process through which a new product, technique or useful service is obtained from the generation of new ideas and their development (Gee, 1981; Jordá Borrell, 2007), which in time provides new solutions to problems and becomes useful for people, companies or society (ComisiónEuropea, 1995; Lyons et al., 2007). Therefore, innovation starts with the proposal and generation of new ideas and finishes with the use and commercial exploitation of the outcomes (Tonnessen, 2005). Innovation is one of the intangible assets of any company and it may be a relevant factor for the achievement of a competitive sustainable advantage of companies in the market (de Benito Valencia, 2000). Broadly speaking, innovation is taken as the main factor to improve productivity or efficiency in companies, as well as quality of products, decrease in the production costs, or even manufacturing time. UNIT OBJECTIVE During this unit there will be a presentation upon how energy enterprises can receive funding for their overall growth. Different sources of finance will be examined regarding their advantages and disadvantages and how these, influence the organizational survival and growth.

KEYWORDS  Sources of Finance  Financing  Internal Sources  External Sources  Retained Profits  Fixed Assets  Leasing  Bank Loan  Factoring  Venture Capital  Business Angels  Networking and innovation models  Clusters  Incubators

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

SOURCES OF FINANCE

RECORD OF CONTENTS SOURCES OF FINANCE

WHY DO COMPANIES NEED FINANCING? ...................................................................... 83 TYPES OF FINANCE ...................................................................................................................... 84 INTERNAL SOURCES OF FINANCE ................................................................................................ 84 EXTERNAL SOURCES OF FINANCE ............................................................................................... 89 INTERNAL SOURCES OF FINANCE ................................................................................................ 92 OTHER SOURCES OF FINANCE ...................................................................................................... 95

NETWORKING AND INNOVATION MODELS ................................................................. 103 EU FUNDING AND COFUNDING PROGRAMMES ..................................................... 105

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

4.1

MODULE 1 WHY DO COMPANIES NEED FINANCING?

Owning a business means investing both money and time, and while time is a subjective issue, what can be clearly measurable is money. Accessing appropriate business finance has proven to be a rather difficult subject for business at all stages of their lifetime. That usually is the result of lack of information on the the full range of funding options.

Chart taken from “2015 Business Funding Survey: SMEs”, British Business Bank Feb 2016. Source:

Businesses have to consider their finances for so many purposes, ranging from survival in bad times to bolstering the next success in good ones. The way of financing a business can affect the ability of employing staff, purchasing goods, acquiring licenses, expanding and developping. While finances are not necessarily as important as vision and a great product, they are crucial to making the good stuff happen. The final decision about where to secure funds depends on the balance between the pros and cons of the source.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

4.2

MODULE 1

TYPES OF FINANCE

Types of Finance

Type

Internal

Time

External

Other Sources

Short‐term

Long‐term

4.2.1

TYPES OF FINANCE INTERNAL SOURCES OF FINANCE

Internal Sources of Finance

Self‐ Financing

Friends & Family

Retained Profits

Fixed Assets

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TYPES OF FINANCE

INTERNAL SOURCES OF FINANCE

SELFFINANCING OWNER’S INVESTMENT

With the term Selffinancing, we refer to the capitals which the entrepreneur himself can contribute to the business he creates without addressing institutions which provide financing or other natural persons. Selffinancing is the most conventional form of financing used by most business startups.

DEFINITION

When being about to finance a business venture, banks control the amount the entrepreneur contributes from his capitals, namely the financing percentage which is an indicator of trust of the entrepreneur himself towards his venture. The businessman’s capitals often do not suffice to start his own business venture. In the meantime, if his resources are depleted, it will be very difficult for him to deal with any urgent need or problem arisen so he will be forced to lend more with a higher cost. Throughout the history of entrepreneurship, a considerable number of cases regarding big businesses which started with small capitals, personal savings of their inspirers and their value amounts to hundreds of euros today has been reported. One of the most popular computer companies which triggered the revolution on the use of PCs, namely Apple, the founders of which were Steve Jobs and Steve Wozniak, started in a garage with a 600dollar capital. It is worth mentioning the fact that many entrepreneurs have not contribute many capitals during their first business steps and they offer their assets, constituting a part of the business. A businessman can contribute to the business an asset declared in his name to be used as a laboratory, office or depository. This asset is considered as a part of the capital contributed to the business with a value equal to the initial value in which he acquired it.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TYPES OF FINANCE

Advantages and Disadvantages of Self-financing. Source: Cornwall,2008

CATEGORIES OF SELF-FINANCING

INTERNAL SOURCES OF FINANCE

The basic financing categories are: 

The entrepreneur’spersonal savings



Money he earned through selling personal assets



Capitals he earned after having mortgaged personal assets

Advantages

Disadvantages

Easy & quick money to secure; no need for approval

Limited resources

Partners are optional

Only one to take the risk

One voice to consider

Not all skills knowledge competences possessed by one

Non profit sharing Non competing interests in case of exit

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TYPES OF FINANCE INTERNAL SOURCES OF FINANCE

FRIENDS/FAMILY FINANCING With the term Selffinancing, we refer to the capitals which the entrepreneur himself can contribute to the business he creates without addressing institutions which provide financing or other natural persons. Selffinancing is the most conventional form of financing used by most business startups. Capital, usually in the form of a loan, that a business owner gets from either family members or friends in order to help finance their startup or growing business . Friends and relatives are the next possible entrepreneur’s contributors. DEFINITION

However, it has been observed that many aspiring entrepreneurs as well as entrepreneurs who start their own business venture have consulted and trusted their friends’ and relatives’ opinions regardless of their professional and business experience. In the context of these discussions, friends and relatives engage to support the aspiring entrepreneur by contributing capitals. This contribution can be twofold: 

Noninterest lending



Shareholding in the business

Source: Klaras et al., 2015; McLaughlin and Lydecker, 2015

Advantages and Disadvantages of Friends& Family Funding.

What should be taken into great account is that, as any other form of funding, there should be written terms of any transaction, reviewed and signed by all parties involved. Legal advice is optional but highly recommended before any procedure.

Advantages

Disadvantages

Usually a simple process

No willingness for risks; Protection of the loved ones

Less likely to judge your funding request

Difficult conflicts; Relationships in question

More favorable, adjustable terms

Questionable ROI

Set up to hit major milestones funding from professionals

Personal criteria for the inestment

No added value Put friends and family at risk

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TYPES OF FINANCE

INTERNAL SOURCES OF FINANCE

Advantages and Disadvantages of Retained Profits

DEFINITION

RETAINED PROFITS Retained profits refer to the percentage of net earnings not distributed to stockholders as dividends, but retained by the company to be reinvested in its core business, or kept as a reserve for specific objectives (such as to pay off a debt or purchase a capital asset). Retained profits are widely regarded as the most important longterm source of finance for a business. Advantages

Disadvantages

Capital available for growth

Taxes

Financial Stability

Improper Utilization of Funds

Higher retained profits = the company is doing well => attracts shareholders=> Market Value

More retained profits => less dividends

Cheap form of finance

Slow funding

FIXED ASSETS

DEFINITION

A fixed asset is a longterm tangible piece of property that a one owns and uses in the production of its income and is not expected to be consumed or converted into cash any sooner than at least one year's time. In accounting, fixed does not necessarily mean immovable; any asset expected to last, or be in use for, more than one year is considered a fixed asset. Fixed assets can include buildings, computer equipment, software, furniture, land, machinery and vehicles. For example, if a company sells produce, its delivery trucks are fixed assets. If a business creates a company parking lot, the parking lot is a fixed asset. Because these assets take time to convert to cash, they cannot be relied on for shortterm access to finance. However, having the ease of time, selling off some equipment or even property is away to invest in one’s business.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

4.2.2

MODULE 1

TYPES OF FINANCE EXTERNAL SOURCES OF FINANCE

External Sources of Finance

Bank Loan

Leasing

Factoring

BANK LOAN

DEFINITION

The loans of different forms belong to the socalled “active banking works”, that is the works with which the banks draw liquid earned through the deposits into various production activities. Despite the development of other forms of financing, one out of three new businesses recur to bank financing. Banks pay major attention to the real security, which means that they lend money to those who own some assets that can be used on the purpose of security/assurance for the payment of the whole or a part of the loan in case of the loan receiver’s inability to fulfill his/her duties. For a businessman, who wants to start a business venture, this means that in order for him to take a loan, he/she has to guarantee a part or the whole assets of his/her, or in case he/she does not own, the assets of a third party, who will act as a guarantor. The banks do not lend to all customers with the same interest rate but in correspondence with the credit of the stakeholder. Among the relevant criteria, there is the previous business activity (if present) as well as the possibility of a significant innovacy.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TYPES OF FINANCE EXTERNAL SOURCES OF FINANCE

Banks grant two kinds of loans to businessmen; the shortterm and the longterm ones. They differ in: a. Shortterm loans/loans for working capitals: It is about financing, which are granted to businesses in order for them

cover

functional

costs

and

expenses.

particularly, they cover the gaps from the transactions. Basically, they aim at boosting the business liquidity and

CATEGORIES OF BANK LOANS

are shortterm. The working capitals loans can have either the form of the “fixed” or the “lump sum” limit. Nowadays, the credit institutions provide small businesses or freelancers with complete packages in order for them to cover their needs in liquidity. These products are the open or recycling loans and the overdraft accounts. In the case of the open loans, the banks give their customers a credit limit based on which they can borrow. The borrower can amortize a part or the whole debt of his, while he can re borrow if he needs to based on the credit limit granted, without being requested to return the capital he used in a specific period, being covenant only to submit the interests. b. Longterm loans: They are loans granted to businesses and aim at covering needs in building facility services and capital equipment. They are lump sum, being granted and amortized based in specific timeline and conditions, while they can last for up to 30 years in correspondence with the kind of the investment. The interest rate of these loans is usually lower than that of the working capitals due to their longer amortizing period. They are divided into business property loans and equipment loans. Bank loans are just one of the various options available for businesses to raise funds and like all other funding sources, bank loans also come with their share of advantages and disadvantages.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TYPES OF FINANCE

Advantages and Disadvantages of Bank Loan

EXTERNAL SOURCES OF FINANCE

Advantages

Disadvantages

Convenient and accessible

Lengthy application process

Multiple Loan options

Cumbersome

Non profit sharing

Preference given to existing, running businesses

Lower rates of interest

Long list of prerequisites to qualify for the loan

tax benefits

Risk of losing Collateral Entire amount not granted

THE BUSINESSMAN’S RESPONSIBILITY

The businessmen have to: 

Address to other banks to in order for them to make the best choice comparing the terms and conditions of each one.



Be aware of the exact terms of the loan (real rate, loan lifetime, loan payment frequency, fees, the guarantee etc)



Combine the loan size and lifetime with the real needs of the business



In case of equity loan, be aware of the size of it and the supporting documentation needed from the very beginning.

DEFINITION

LEASING

Leasing refers to a national term which means the conveyance of the right to use a fixed asset by the lesser to another person (lessee) against a defined payment for a given time span in the form of a lease. On the whole, leasing is a contemporary method of mid and longterm business and professionals financing for acquiring fixed assets, such as equipment and estates for professional use.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TYPES OF FINANCE INTERNAL SOURCES OF FINANCE

CATEGORIES OF LEASING

There are two main types of leasing: Financial Lease: A finance lease, "financial lease" or capital lease is a type of lease in which a finance company is typically the legal owner of the asset during the duration of the lease, while the lessee not just has operating control over the asset, but also has a substantial share of the economic risks and returns from the change in the valuation of the underlying asset (Wikipedia) Operating Lease: An operating lease is a contract that allows for the use of an asset, but does not convey rights of ownership of the asset. An operating lease represents an offbalance sheet financing of assets, where a leased asset and associated liabilities of future rent payments are not included on the balance sheet of a company.



Financing of the total value of the investment on behalf of the leasing company without any disbursement and contribution of the lessee being

ADVANTAGES OF LEASING

necessary 

Businesses can have the use of uptodate equipment immediately



Payments are spread over a period of time which is good for budgeting



Quick and simple procedures



Flexibility in terms of the lease submission timetable, a fact considerably significant for businesses whose cash flows present a seasonality



Achieving more beneficial terms of sale from the purveyors due to purchasing in cash



Increasing the lessee’s liquidity assuming that s/he has the ability to sell fixed assets to the leasing company and then to lease them back (sale and leaseback)



Protection of the business from the technological obsolescence of its equipment (contracts with purveyors demanding the replacement of the equipment, amortization of the equipment during the contract lifespan etc.)

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

DISADVANTAGES OF LEASING

TYPES OF FINANCE INTERNAL SOURCES OF FINANCE



More and various responsibilities transferred to the lessee



Lessee’s financial status is in doubt



Responsibility of accepting the controls



Disproportionate increase of the leases in relation with the typical leasing time



Overvalue of the real potentials of the business



The asset belongs to the finance company

FACTORING

DEFINITION

Factoring is a contract between a factor (agent) and a product selling or a service providing business based on which the former engages to collect the business claims stemming from its product selling or service providing. Banks or affiliated companies whose sole activity is to provide monitoring and claims collecting services on behalf of other businesses can often operate as factors. In the context of the factoring contract, the provider –namely the business– cedes the total of its born and future, shortterm invoice claims to the factor. He is required in turn –according to the agreement of the contract– to prepay the ceded claims in full under some circumstances assuming also perhaps the solvency risk on the part of the debtors; and to proceed to accounting and legal monitoring of them as well as collecting them by the debtors. For his services, the factor is qualified with pay, which consists of an amount by the value of the claims. The transactions, however, for which a factoring contract can be signed are the only case in which both parts are merchants or professionals. It cannot occur that factoring applies to claims against individual or final consumers.

CATEGORIES OF FACTORING

Domestic Factoring

Domestic factoring refers to the internal market of a country, the assumption of the responsibility for the collecting of the claims about the products and the services sold and offered correspondingly inside the country. Domestic factoring can apply to all the businesses, mainly to the SMEs and the manufacturing companies. These companies often deal with management, financing and credit risk issues.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TYPES OF FINANCE INTERNAL SOURCES OF FINANCE

ADVANTAGES OF FACTORING

CATEGORIES OF FACTORING

Domestic factoring refers to the domestic credits in which the provider and the debtor can be companies or personal businesses got involved with wholesale or retailing and is distinguished in three categories: 

Factoring with recourse



Factoring without recourse



Invoice Finance Prepayment

International Factoring International factoring specializes in the field of export and import factoring, in the assumption of the responsibility for collecting and prepaying the claim of the invoices referring to the exported and imported products. International factoring addresses mainly enterprises doing business abroad and is divided into: 

Direct Export Factoring



Direct Import Factoring



Consumer Factoring



Covering the seller’s needs in liquidity;



Covering the damage risks due to precarious claims;



Possibility of massive purchases and exploitation of reducing the materials supply;



Increasing of salesexports using factoring;



The process of validation is very simple;



The businessman exploits his time productively;



The provider’s profits increase as the invoices are sold in the international bank market where there are lower interest rates;



There is an enhanced information network and thus it is easier for the purchaser to be controlled (in collaboration with the other factors) and his credibility to be assessed;



It offers financing based on the quality of the products meeting the customers’ needs and not on the financial status of the company;



It limits the exchange rate risk.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TYPES OF FINANCE

INTERNAL SOURCES OF FINANCE

DISADVANTAGES OF FACTORING



The seller is not capable of choosing the claims he will cede to the factor;



The factoring cost



The reporting of the sellerpurchaser trading to a third party (factor) as well as the interference of the factor in their trading;



The businessman’s time bound due to a contract with the factor which often takes a long time (6 or 12 months, etc.)

4.2.3

MODULE 1 TYPES OF FINANCE OTHER SOURCES OF FINANCE

DEFINITION

VENTURE CAPITAL Venture capital is a kind of a longterm capital investment (510 years) by institutional investors of the private sector in technology and knowledge intensive businesses distinguished for their innovation, dynamism and expected increasing development rates. It is about an alternative form of longterm financing for the development of existing firms or the promotion of new business initiatives. By investing in a business, a venture capital firm adopts in return the role of the stakeholder, while at the same time deals with the socalled high risk capitals. Financing through venture capitals is provided either through participation in firms’ share capitals by increasing or more rarely by buying off a part of it, or through various flexible forms; for instance, the issue of a new series of preferred stocks or a convertible debenture, but almost always allows for the main stakeholder’s maintaining the control of his firm.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TYPES OF FINANCE OTHER SOURCES OF FINANCE The basic aspects of the Venture Capital, which differentiate it from the typical business financing, is dealing with the high risk (usually without securities), which is typically excluded in financing, and indenturing the administrator actively during the implementation of the risky investment plan by providing additional services. Hence, the venture capital is fixed enough to be characterized as providing a combination of both a “highrisk capital” and “business consulting and services”. This investment usually addresses businesses that have not the capability to attract capitals from other sources. The venture capital users are small or newlyfounded businesses as well as boughtoff sections or affiliates of bigger firms.

DEFINITION

Based on the business phase (business development phase) where the cooperation is concluded, there are the following categories of business venture capital: 

Seed Capital



The Venture Capital finances the growth of an idea being in a primary stage (before the business starts running). Startup Capital

      

The Venture Capital finances the development of a product or service. Early Stage Financing

beginning

firm

and

the

The Venture Capital is used for the purpose of consolidating the developing product. Development Finance The Venture Capital is used for the purpose of increasing the production activity, expanding in the market etc. Bridge Financing

The capitals are used for the purpose of the preparation of the firm’s entry into the stock market. The sooner the investment is realized the bigger the investment risk (as well as the possible benefits) is. 

The venture capital firms evaluate their investment programs in detail, so that they choose the most realistic and attractive ones; aiming at ending up with their final investment choices, which are a small percentage of the initial investment proposals submitted to them.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TYPES OF FINANCE

OTHER SOURCES OF FINANCE

The basic aspects of the Venture Capital, which differentiate it from the typical business financing, is dealing with the high risk (usually without securities), which is typically excluded in financing, and indenturing the administrator actively during the implementation of the risky investment plan by providing additional services. Hence, the venture capital is fixed enough to be characterized as providing a combination of both a “highrisk capital” and “business consulting and services”.

DEFINITION

The basic factors influencing a venture capital firm to decide upon the selection of an investment are: 

The administration skills and experience of the businessman



The possibility of an investment plan

Moreover, the venture capital firm takes into account the possible entry of the business into developmental structures (national or local), the tax system, the subject and the area of the economic activity etc. On the whole, the venture capital firm makes its decisions upon selecting investments based on: 

The investment risk



The

objective

investment

goals

the

expecting performance etc. 

The

possibility

unexploited

market.

Venture capital firms usually finance products that address markets demanding products.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TYPES OF FINANCE OTHER SOURCES OF FINANCE

ADVANTAGES OF VENTURE CAPITAL

The advantages of raising capital from venture capitalists affect both the financing firm and the macroeconomic environment The benefits of venture capitals for the financed firm are the following: 

The potential given to the firm to realize the necessary updating and development investments without increasing the financing risk due to excessive lending.



The support provided by the financing firm for the strategic planning, marketing, economic planning, introducing modern administration methods, etc.



The increasing status followed on by the involvement of an institutional investor.

The benefits for the national economy derive from the contribution of the venture capital in the rapid growth of the firms, mainly the SMEs, and its decisive impact on the expansion of new economic fields as well as the restructuring of the old ones.

DISADVANTAGES OF VENTURE CAPITAL

However, there should be taken into account the disadvantages as well:



Most VC firms do not release all the needed funds up front, or take a long time to decide about their investment. What is commonly applied is that financing firms release funds in stages respectively to the expansion of the financed business. However this approach may not be suitable in all cases of funding plans, ruining the business. Depending on the ROI required from the VC firm there might be a loss of control in the management of the business. Another possibility is that there will be an added member in the management team from the financing firm.

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TYPES OF FINANCE

OTHER SOURCES OF FINANCE

OF FINANCE BUSINESS ANGELS Business angels can be defined as “high net worth individuals who invest their own money, along with their time and expertise, directly in unquoted companies in which they have no family connection, in the hope of financial gain” (Mason, 2006a).

DEFINITION

Usually, this is a former entrepreneur or professional who provides starting or growth capital in promising ventures, and helps also with advice and contacts. Unlike venture capitalists, angel investors usually operate alone (or in very small groups) and play only an indirect role as advisors in the operations of the investee firm. They are deemed to be 'angels' in comparison with grasping investors who are termed 'vulture capitalists.' Typical characteristics of Business Angels  They invest their own personal money 

‘Cashed

Up’

entrepreneurs,

active

range

business

and

communal activities. 

Allocate 5%10% of their investment portfolio to Angel investments.



Savvy Angels aim to make at least 10 investments.



Do it for their own interest, to give back and to make money (but not just for the money).



They enjoy having involvement in the process and with companies post investment.



They normally invest in sectors they understand and usually close to home.

Business angels association in EU 

European Business Angels Network (EBAN) is the panEuropean representative for the early stage investor community, gathering 197 memberorganisations in 59 countries today. Established in 1999 by a group of pioneer angel networks in Europe with the collaboration of the European Commission and EURADA, EBAN represents a sector estimated to invest 6,1 billion Euros a year and playing a vital role in Europe’s future, notably in the funding of SMEs. EBAN fuels Europe’s growth through the creation of wealth and jobs. More:http://www.eban.org/

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TYPES OF FINANCE

OTHER SOURCES OF FINANCE

OF FINANCE

Advantages and Disadvantages of Business Angels

Advantages

Disadvantages

Can provide the needed capital for a startup

Not suitable for investments below 10,000€ or more than 500,000€

BAs are free to make investment decisions quickly

Takes longer to find a suitable BA investor

No need for collateral i.e. personal assets

Giving up a share of your business

Access to your investor's sector knowledge and contacts

Less structural support available from a BA than from an investing company

Better discipline due to outside scrutiny Access to BA mentoring or management skills No repayments or interest

 UK Business Angels Association (UKBAA) is the national trade association for angel and earlystage investment, representing over 160 memberorganisations and around 18,000 investors. Business angels in the UK collectively invest an estimated £1.5 billion per annum and are therefore the UK’s largest source of investment for startups and earlystage businesses seeking to grow. UKBAA’s members include angel networks, syndicates, individual investors, early stage VCs, equity crowdfunding platforms, accelerators, professional advisers and intermediaries. UKBAA acts as the voice of the angel investment community and strives to build and connect the angel investment ecosystem so as to ensure a coherent

landscape

for

financing

highpotential

entrepreneurs.

More:https://www.ukbusinessangelsassociation.org.uk/

100

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TYPES OF FINANCE

OTHER SOURCES OF FINANCE

OF FINANCE  The Hellenic Business Angels Network (HeBAN) has been established as a national,

nonprofit

organisation

response

gap

the

Greek

entrepreneurial ecosystem of providing sufficient funding and expertise to innovative startups in their early stages. While in many countries across the globe it is increasingly Business Angels who can offer this required input when other resources are not available, in Greece there is still a lack of successful and visible angel investing models. With the first initiative and activities undertaken in 2012 HeBAN was fully incorporated in 2015, HeBAN is envisioned to create a national platform for bringing together the stakeholders of the Greek startup ecosystem and help implement a sustainable Business Angels



and early stage investors network in the country.More:http://www.heban.gr/ Andalucía Business Angel Network AAban. The Asociación de Business Angels Networks de Andalucía is a nonprofit, private and independent entity that is operational since mid2014 and it is constituted by a network of investors. The goal of the association is to promote the creation and the development of business projects with the involvement of private investors, the socalled Business Angels. This network is member of Aeban, the association that groups together the main networks of Spanish Business Angels and that is part of EBAN

(The

European

Trade

Association

for

Business

Angels).

http://www.aaban.org/en/ 

Austrian Angel Investors Association. The Austrian Angel Investors Association is the national advocacy of angel investors and business angels in Austria. The Austrian Angel Investors Association sees itself as a "Think and Do" . Tank by entrepreneurs for entrepreneurs with a passion for networking dedicated and talented entrepreneurs and experienced business angels in a sharing of personal experiences, knowhow, network contacts and the realization of are interested in new and innovative ideas and exciting and revolutionary business models. More: Austrian Angel Investors Association

101

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TYPES OF FINANCE

Differences between venture capital and business angels. Source: Morrissette, 2007

OTHER SOURCES OF FINANCE

OF FINANCE

VENTURE CAPITAL

BUSINESS ANGELS

Funding Source

Investors

Angel’s own money

Number of deals per year

510 per year

One every two years

Typical investment per company

$110 million; average $4million

$25250,000; average $50 75,000

Company Stage

Larger, expansion stage

Small, startup, early stage

Geographic Focus

Usually nationwide, sometimes regional

Usually near (within one to two hours) of home

Industry Focus

Often focus on one or two industries

No focus, but prefer industries they know

Source of Deals

Proposals submitted, other VCs

Other angels, friends, business contacts

Decision Maker

Professional, MBAs, committees, 40yearolds

Individual, experienced entrepreneur, personal, 50 years old

Analysis / Due Diligence

Extensive, formal, analytical, spreadsheets

Minimal, informal, subjective, judgement

Investment Structure

Complex, Convertible Preferred Stock

Simple, Common Stock

Involvement

Strategic, Board Seat

Handson

Investment Time / Horizon

Shorter, three to five years

Longer, five or more years

Exit / Harvest Strategy

Important, IPO or Sell Company

Lessimportant, longterm investment horizon

Expect 3050% ROI

2030% but often don’t have predetermined ROI expectation

Return on Investment Expectations

102

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

4.3

MODULE 1

NETWORKING AND INNOVATION MODELS

BUSINESS INCUBATORS The incubators are an area of the initial foundation and operation phase of startup innovative and/or knowledgeintensive businesses. The aim of the incubators is to provide the businesses (mainly the startup ones), which make their first and maybe the most challenging steps in the market, with a protected environment. It is about an action which creates infrastructures: ensures an organized roof, counseling and supporting services, financing in order for these companies to be supported in their growth. The ultimate aim is to encourage entrepreneurship, especially in the fields of intensity, technology and knowledge, where due to the field, the business risk is high. The incubators can constitute an integral part of the scientific and technological parks; however, there are incubators which operate independently. Compared to the parks, incubators have limited building facilities suitable for the initial foundation and operation phase of the businesses. The incubation period can last up to 23 years. The first incubator for startup businesses started in Batavia, New York in 1959. In 2003, there were more than a thousand incubators operating in USA. In Europe, the incubators started in the early ’90s and they have been developed rapidly since then. In 2003, in Europe there were about 900 incubators. The same year, there were approximately 2500 incubators worldwide, while it is estimated that there were more than 10,000 startup businesses in the incubators. There is a level of specialty, meaning that there are incubators focusing on the field of ICT, microelectronics, biotechnology, offering services in the fields of energy, environment and health, new forms of communication and multimedia, industrial design and automation. Moreover, individual initiative plays a significant role in creating new incubators. According to relevant researches, more than 80% of the startup businesses developed in incubators survives within the first 5 years of operation, while only one out of ten startup businesses can survive outside an incubator.

103

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

NETWORKING AND INNOVATION MODELS CLUSTERS Cluster is a group of independent, complementary and competitive institutions which develop in a specific industrial/ economic/ thematic and geographical area. In the context of mutual benefit, the members of this group are linked in a chain of added value with a strong interaction and exchange of information/knowledge/ good practices; common contributors and/or clients; common access to and use of the facilities, infrastructures and services, and competitive advantage in an international level. In this way, companies collaborate while remaining competitors and together they have the possibility to fruitfully exploit business opportunities of high profit and extroversion, which the members of the cluster could not exploit separately.

TECHNOLOGY, INDUSTRIAL AND SCIENCE PARKS The Technological Park is an area which hosts enterprises aiming at trading high tech applications, research and developmental applications, and selling and technical support of products and services. The mission of the technological parks (as well as the incubators) is the development of innovation through multiple support towards intensity knowledge enterprises (typically hightech and/or research enterprises). These enterprises composing an important development and economic competitiveness boosting factor and contributing to the development of new job positions face major challenges at the very first stage of their establishment. The technological park us an environment which contributes to their growth and consists of:



Facilities with a relevant infrastructure;



Consultancy services in technical, legal, organizational and financial issues;



Investments of personal capitals of its operator in the established enterprises.

104

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

4.4

MODULE 1

EU FUNDING AND COFUNDING PROGRAMMES

In a typical economic environment, a company's management is required to use more than one funding source. Using the term cofunding, we refer to specify joint funding. Especially in the realm of EU external cooperation, EU cofunding is meant to ensure minimum ownership of the action by partners as well as the (financial) sustainability of the action. What is more, about EU cofunding is that it adheres to the principle whereby the EU should engage with organisations which have a minimum of financial capacity to act.

HORIZON 2020

“

Horizon 2020 is the biggest EU Research and Innovation programme ever with nearly €80 billion of funding available over 7 years (2014 to 2020) – in addition to the private investment that this money will attract. It promises more breakthroughs, discoveries and worldfirsts by taking great ideas from the lab to the market.

Horizon 2020 is the financial instrument implementing the Innovation Union, a Europe 2020 flagship initiative aimed at securing Europe's global competitiveness. Seen as a means to drive economic growth and create jobs, Horizon 2020 has the political backing of Europe’s leaders and the Members of the European Parliament. They agreed that research is an investment in our future and so put it at the heart of the EU’s blueprint for smart, sustainable and inclusive growth and jobs. By coupling research and innovation, Horizon 2020 is helping to achieve this with its emphasis on excellent science, industrial leadership and tackling societal challenges. The goal is to ensure Europe produces worldclass science, removes barriers to innovation and makes it easier for the public and private sectors to work together in delivering innovation.

105

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

EU FUNDING AND COFUNDING PROGRAMMES

Horizon 2020 is open to everyone, with a simple structure that reduces red tape and time so participants can focus on what is really important. This approach makes sure new projects get off the ground quickly – and achieve results faster. The EU Framework Programme for Research and Innovation will be complemented by further measures to complete and further develop the European Research Area. These measures will aim at breaking down barriers to create a genuine single market for knowledge, research and innovation. More: https://ec.europa.eu/programmes/horizon2020/

COSME Small and Mediumsized Enterprises (SMEs) are the backbone of Europe’s economy, providing 85 % of all new jobs. The European Commission aims to promote entrepreneurship and improve the business environment for SMEs, to allow them to realise their full potential in today’s global economy. COSME is the EU programme for the Competitiveness of Enterprises and SMEs, running from 2014 to 2020, with a budget of €2.3billion. COSME will support SMEs in the following areas:    

Facilitating access to finance Supporting internationalisation and access to markets Creating an environment favourable to competitiveness Encouraging an entrepreneurial culture

COSME is a programme implementing the Small Business Act (SBA) which reflects the Commission’s political will to recognise the central role of SMEs in the EU economy. More: http://ec.europa.eu/growth/smes/cosme/

106

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

FURTHER READING

Cornwall, J. (2008). Pros and Cons of Self financing. [online] http://www.drjeffcornwall.com. Available at: http://www.drjeffcornwall.com/2008/08/07/pros_a nd_cons_of_selffinancing/ [Accessed 27 May 2017].

Global Trends in Renewable Energy Investment

Klaras, J., Crawford, J., Chung, A. and Simpson, L. (2015). The Pros and Cons of FamilyFunding a Business. [online] Access to Capital: A Dun & Bradstreet Community. Available at: http://accesstocapital.com/theprosandconsof familyfundingabusiness/ [Accessed 26 May 2017].

Created by:

McLaughlin, E. and Lydecker, W. (2015). The Advantages and Disadvantages of Friends & Family Funding. [online] The Purpose Is Profit. Available at: http://thepurposeisprofit.com/2015/04/29/the advantagesanddisadvantagesoffriendsfamily funding/ [Accessed 23 May 2017].

Horizon 2020, information from the official

2015 https://goo.gl/rYiSjw Financing and Profiting from Innovation for Corporate Entrepreneurs, Coursera courses, University of Maryland, College Park

(open course) https://goo.gl/ydU8hz Michael E. Porter on Clusters https://goo.gl/fwTEwx&https://goo.gl/128Lex

youtubechanel of EU Science & Innovation (video) https://goo.gl/yTGl3W

Morrissette, S. (2007). A Profile of Angel Investors. The Journal of Private Equity, 10(3), pp.5266

107

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MARKET ROLL OUT

All units presented in the present module can provide significant tools and information regarding different phases of a startup in general and specifically in the energy sector. However, what is considered as one of the most important processes for creating a successful business is the ability of its executives to transform the original idea into a business plan and then into an integrated product or service. UNIT OBJECTIVE During this unit the learners will examine ways to introduce their business to the market. A brief presentation of evaluation methods to detect probable risks during launching period and different ways to prepare a strategic rollout for innovative businesses in the digital age.

KEYWORDS  Marketing  Product Release  Roadmap  RollOut  RollOut Strategy  Startup Failure  Successful Entrepreneur

108

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MARKET ROLL OUT

RECORD OF CONTENTS MARKET ROLL OUT FROM IDEA TO IMPLEMENTATION WHY NEW VENTURES FAIL?

110 111

THE CHARACTERISTICS OFA SUCCESSFUL ENTREPRENEUR

113

ROLLING OUT

114

STEPS OF BUSINESS SUCCESS

108

115

ROLLING OUT

115

ROADMAP

118

109

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

5.1

MODULE 1

FROM IDEA TO IMPLEMENTATION

“

Take the first step in faith. You don't have to see the whole staircase, just take the first step. Martin Luther King, Jr.

110

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

5.1 .1

MODULE 1

FROM IDEA TO IMPLEMENTATION WHY NEW VENTURES FAIL?

“

Fail fast’ if you’re going to fail at all, and nail your business model Tony Hsieh

According to the Startup Genome Project, which analyzed more than 3200 startups, 90% of startups fail to survive. It also reports that for the 10% of startups that do succeed, most encounter several difficulties along the way that would cost them their survival (Hague, 2017). As it is shown in the table below the top 5 out of 20 reasons concern matters of failure to respond to market demand and competition, lack in the development of human resources and team potentials and economic shortcomings. However, shortcomings may be a highrated reason for failure, but it is merely a symptom of another issue and not a cause on its own. There are a few indicators of failure that are usually overseen, leading to the common belief that lack of money causes the failure. It is undeniable that the capital, the raw materials and the productivity play an important role in entrepreneurial success. But if in the past the aforementioned factors could guarantee success, today knowledge and personal skills are of the same or even major importance. Thus, we often see that enterprises with big capitals fail in their investments, when their integral knowledge management systems do not function adequately and the temporary profit replaces the drive for entrepreneurship.

111

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

FROM IDEA TO IMPLEMENTATION

Top 20 reasons of Startup failure (CB insights, 2014)

WHY NEW VENTURES FAIL?

112

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

5.2

MODULE 1

THE CHARACTERISTICS OF A SUCCESSFUL ENTREPRENEUR

Contrary to common belief, there is no certain type of personality that better matches an entrepreneur. Scholars, business experts and venture capitalists say entrepreneurs can emerge at any stage of life and from any realm, and they come in all personality types and with any grade point average. However there are several characteristics that appear to be crucial to a successful venture. And even though some may be considered inherent, most can be learned with practice and by developing a winning attitude. What should be taken into consideration are the personal limits of each potential entrepreneur and the attributes that should be best harnessed. Here are some common characteristics among successful entrepreneurs (Robinson, 2014):



Works Hard



Has tenacity and passion



Wants Financial Success



Is Energetic



Has an Internal "Locus of Control'



Takes Risks



Sacrifices Employment Benefits



Has a Need to Achieve



Has Business Experience



Is Independent



Has Selfconfidence and selfbelief



Has Integrity



Has Determination



Adapts to Change



Has tolerance of ambiguity



Has a Good Network of Professionals



Promotes oneself

113

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

5.3

MODULE 1

Advantages and Disadvantages of Business Angels

DEFINITION

ROLLING OUT

According to Cambridge Dictionary, Rollout is a slug term that describes an occasion when a new product or service is gradually made available to more people after it has first been tested in a particular area. In other words, Rollout is the introduction of a new product or service to the market, is a plan to active change. A rollout often refers to a significant product release, often accompanied by a strong marketing campaign to generate a large amount or range of consumers. It is the phase following the idea generation and environment evaluation, and the one that is being followed by the optimization.

Exclusive Rollout

Rollout to an exclusive group (e.g. loyal customers)

Invitation Rollout

Invite specific people to be first

Social Rollout

Start with an invitation rollout. Allow people to invite their friends — let it expand via social circles

Prototype Rollout

Rollout a test version first to fail fast

Big Bang Rollout

80/20 Rollout

Split Testing Pilot Rollout

A major change that's rolled out all at once. This is generally considered a bad idea Based on the Pareto Principle that 80% of value is achieved with 20% of the work. Rollout incomplete products that are most of the way there Roll out different versions and test which works best Explicitly tell customers that the rollout is a test

General Availability

Rollout to the public

Global Rollout

A plan to rollout by region or country

114

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

ROLLING OUT

DURING ROLL-OUT

In brief the steps during the Rollout phase are the following: 

Identification of users for a pilot/beta version



Identify and activate super users



Creation of project schedule



Definition of measures for success



Planning and executing marketing and training strategies



Customization and testing

5.3.1

MODULE 1

ROLLING OUT

STEPS OF BUSINESS SUCCESS

“

Success begins with planning and planning begins with strategy Aknown

There is no such thing as a recipe for success. However there are a few practices that facilitate the path to a successful new product or service Rollout. Here are eight steps to increase the chances of a good start (Jackson, 2012; Dunne, n.d.): 

Go beyond the business plan. Planning carefully before launching a new business is not limited to preparing a business plan. There are other planning methods that worth a chance:



The Apprentice Model: Gaining direct industry experience, as the founders of Tender Greens did.



The HiredGun Approach: Partnering with experts who have indepth knowledge and experience.



The UltraLean School of Hard Knocks Tactic: Figuring out a way to rapidly test and refine your model at a very reasonable cost.

115

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

ROLLING OUT STEPS OF BUSINESS SUCCESS

And while writing a business plan is not the only way to plan a Rollout, the whole act of planning helps develop a thorough thought. Indepth preparation is the key to understand your idea and your market. It is nothing more than the preparation of a poker player before entering a highstake game. Would you enter a highstakes poker tournament without knowing the game, assuming that you'll figure it out as you go? 

Test your idea. The process of getting a product or service to the market can seem overwhelming. However, proving that an idea worth and there is a viable, sustainable and growing market for it, makes the whole procedure easier. Testing an idea can occur by all the following or the most appropriate ways:



Identification of the customer and market needs



Demand criteria and measures



Communication with potential costumers



Creation of contact list



Creation of a MVP (minimum viable product)



Set up a landing web or facebook page experiment

Identify the market. Market research and analysis is important to tracking economic shifts, consumer behavior, and demographics that are all constantly changing. Research is often overlooked and yet it is one of the most important aspects to understanding, developing, and implementing elements of the Rollout strategy. Learn the market inside and out, including the key suppliers, distributors, competitors and customers. Building relationships with key persons in the respective market may prove really helpful in the next steps of the business.



Create a clear identity This is what Branding is about. A company’s logo and website reflect the face of the company and the company’s voice is developed through various social media platforms and advertising.

116

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

ROLLING OUT

STEPS OF BUSINESS SUCCESS



Make sure everyone is on the same page Successful new product launches require that the sales organization, marketing and customer service are well aligned and work together to create more opportunities and win customers.



Make the most of the team Crossfunctional teams with dedicated leadership are a powerful card in the entrepreneurship game. Exploiting the knowledge gained from a previous chapter, building a successful team is very important before launching.



Leverage past successes Build on proven processes and systems to manage the new product launch. Look for a team leader and for team members who have successfully launched new products in the past.



Choose the right business structure From the beginning, it's crucial to select the appropriate corporate structure for your business, which will have legal and tax implications. The chosen structure can also ensure the success of future decisions, such as raising capital or exiting the business. There are different types of business structure among the European countries and rules can vary between each member state. However there are some common types such as:



Sole traders



Partnerships, general or limited



Limited liability company



Social enterprise

117

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

5.3.2

MODULE 1

ROLLING OUT

ROADMAP

A strategic map is the result of the strategic processes; it constitutes a completed framework with which the company acknowledges its place today and its vision for the future. Consequently, the factors which guarantee the development of the map in a period of crisis go hand in hand with the above processes and are defined as such (they do not come in an order of significance): 

The

selection

the

appropriate

manager

with

organizational and administrative skills and providence 

Clear, simple and inclusive description of the vision



Communication of the vision in the environment



Communication within the organization, with bottomup processes aiming at the development of the staff’s dynamic



A mixture of earnings for the coverage of the fiscal deficit. Pursuing a funding policy regardless of the state apparatus

and

exploiting

new

ways

such

crowdfunding; which is also a means of promotion before the completion of the finance plan. 

Development of a network of partners, after evaluating the

motives

during

the

exploration

the

existent

situation and being based in “friendly” relationships. 

Partnerships within and out of the direct field of interest on the part of the organization



Mergers. A merger can be described as: a) spatial and b) common use of material.



Frequent evaluation of the efficiency



Pursuit in technological and other innovation

118

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

FURTHER READING

Robinson, J. (2014). The 7 Traits of Successful Entrepreneurs. [online] Entrepreneur. Available at: https://www.entrepreneur.com/article/230350 [Accessed 10 May 2017].

Entrepreneurship: From Idea to Implementation,

Salesforce Trailhead. (n.d.). Craft and Execute Your Rollout Strategy. [online] Available at: https://trailhead.salesforce.com/modules/lex_migra tion_rollout/units/lex_migration_rollout_executing [Accessed 13 May 2017]. Mar, A. (2013). Rollout Strategy Explained. [online] Simplicable. Available at: http://business.simplicable.com/business/new/what isarolloutstrategy [Accessed 16 May 2017].

Shaitakis, A.

(in greek) https://goo.gl/4cX8wA

Points of Single Contact in EU http://ec.europa.eu/internal_market/eu go/index_en.htm 8 Great Entrepreneurial Success Stories https://www.entrepreneur.com/article/243099 5 energy innovations revolutionizing the developing world https://goo.gl/8zqHxK

Booklet for enterpreneurship. (2010). [ebook] Thessaloniki: SPIRAL BUSINESS SOLUTIONS. Available at: https://goo.gl/vWtUc2 [Accessed 27 May 2017].

Crazy is a Compliment: The Power of Zigging

Jackson, N. (2012). 6 Steps to a Successful Business Launch. [online] Entrepreneur. Available at: https://www.entrepreneur.com/article/223732 [Accessed 23 May 2017].

https://goo.gl/3psRzD

When Everyone Else Zags (book) + Identify Your Entrepreneurial Personality Type according to Linda Rottenberg (quiz) + https://goo.gl/UKvj3P

Dunne, G. (n.d.). 7 Keys to a Successful New Product Rollout. [online] Mansfield SP. Available at: http://www.mansfieldsp.com/mansfieldsales blog/bid/42249/7KeystoaSuccessfulNew ProductRollout [Accessed 26 May 2017]. Venture for All®. (2015). Why do so many new ventures fail? Here are five reasons!. [online] Available at: https://ventureforall.wordpress.com/2015/05/08/w hydosomanynewventuresfailherearefive reasons/ [Accessed 23 May 2017].

119

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE

Business Modeling

UNIT 1 What is a business model? UNIT 2 What are the key tools in the design and review of a Business model? UNIT 3 Innovative Business modeling in the Energy sector UNIT 4 Analysis of key components of the Business model UNIT 5 The Business Model canvas

120

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE

Business Modeling SUMMARY OF THE MODULE During this training module learners, will become familiar with the principles that underpin the Business Model concept. The Business model concept will be broken down into a series of key components which are used as building blocks to the development of a successful business. The module follows on from the Business planning module and will stress the differences between a Business model and a Business plan from a strategic and a tactical view point. The learner will be provided with the tools to enable them to analyse and design Business models, review common Business models within the European energy sector and understand how Business Modelling is a dynamic concept that. The module is comprised of 6 subunits and will finish with an introduction to the key Model to be used for the sector.

OBJECTIVES      

  

Understand the difference between Planning and modeling a business Understand the key components of a Business model Be familiar with the tools necessary to review and design Business models Critically analyze the efficacy of those components and tools as applied to their business Be familiar with the business models applied in the Energy sector Understand the concept of value as applied to their business and tools for determining that value including operations, supply, innovation and project management. Review and understand the motivations of suppliers Introduce the Business canvas. Be able to reflect and review how those principles apply to their own businesses

…

DURATION

15h 121

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 2

WHAT IS A BUSINESS MODEL?

Over the past few years, business models have surged into the management vocabulary. But, while it has become quite fashionable to discuss business models, there is still much confusion about what business models are and how they can be used. In fact, business models can serve a positive and powerful role in corporate management. While other authors have recently offered definitions of business model, none appear to be generally accepted. This lack of consensus may in part be attributed to interest in the concept from a wide range of disciplines, all of which have found a connection to the term. UNIT OBJECTIVE During this unit learners will be introduced to the concept of Business modeling and learn to differentiate between that and a Business plan.

KEYWORDS  Business Plans  Business Models  Strategy  Resources  Value chain  Affinity diagrams  Core competences  Issues

122

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

WHAT IS A BUSINESS MODEL?

RECORD OF CONTENTS WHAT IS A BUSINESS MODEL? THE POWER OF BUSINESS MODELS

124

DEFINITIONS AND AFFINITY DIAGRAMS

127

CREATING AND CAPTURING VALUE

129

BUSINESS MODELS VS BUSINESS STRATEGY

130

BUSINESS MODEL VS BUSINESS PLAN

4 PROBLEMS OF BUSINESS MODELS

131 132

123

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1.1

MODULE 2

THE POWER OF BUSINESS MODELS

“ Over the past few years, business modelshave surged into the management vocabulary. In the mid‐1990s, dot‐ comfirms pitched business models to attract funding. Now, companies of all sorts in virtually every industry rely on the concept as well. The media have certainly gotten on board also. Within major magazines and journals, only one article in 1990 used the term business modelthree times or more; by 2000, well over 500 articles fell into that category. While it has become quite fashionable to discuss business models, many executives remain confused about how to use the concept. For example, in a recent Accenture study, in which one of the authors took part, 70 executives from 40 companies were interviewed regarding their company’s core logic for creating and capturing value: the basis of a business model. Surprisingly, 62% had a difficult time describing succinctly how their own company made money (Linder & Cantrell,2000). Oloffson and Farr (2006) stated that a business model was mostly conceived as “something for the marketing and sales departments to consider” rather than for corporate management and strategists to align their strategic choices against, or for the core organisation to link with their strategic choices regarding technology developments. As highlighted above the term was misused, referring to the evaluation of the financial aspects of a business offer – assessing revenue streams compared to costs. However that is not what we should call a business model, but instead a business case.

124

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

THE POWER OF BUSINESS MODELS

SUN Systems

CASE STUDY

For many years, Sun Microsystems enjoyed considerable success by bucking the industry trend toward standardized chips and software (Tam,2003). Sun made the strategic choice to offer more powerful and more expensive computer solutions based on proprietary hardware and software, which worked well as long as Sun was able tomaintain a performance advantage.However, standardized chips eventually matched the performance of Sun’s proprietary chips, and standardized software offered functionality similar to Sun’s. As a result, Sun has seen its quarterly sales drop by more than 40% since their peak in 2001, and its stock price decline to under $4 per sharefrom a high of over $60 per share. In late 2002, after a probing meeting with the head of Sun’s low end server business, Sun’s CEO agreed that the firm would add a line of cheaper servers based on Intel chips. This strategic choice marked a clear departure from Sun’s existing business model, but there is no evidence that this change has helped the company’s business. In fact, revenues for the quarter ending June 30, 2003 were down 13% from a year earlier. Indeed, one might reasonably conclude that Sun’s business modelwas and remains broken. Certainly, the levels of misdirection and confusion in Sun’s engineering and sales organizations, reported recently in the Wall Street Journal, suggest that, at a minimum, Sun is experiencing some problems communicating its new model internally. Furthermore, there is little evidence that Sun executives considered issues of internal consistency as they reviewed alternative strategic choices. In particular, the choice to offer less expensive servers needs to be evaluated in terms of the added pressure this will place on Sun’s more expensive hardware. In addition, a fundamental element of Sun’s traditional strategy has been ploughing a significant portion of revenue back into R&D in an effort to maintain its performance advantage. Making the strategic choice to offer less expensive solutions will likely have a significant impact on Sun’s ability to maintain its current R&D funding levels, which in turn will have implications regarding its ability to compete on the basis of higher performing solutions.

125

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

THE POWER OF BUSINESS MODELS

SUN Systems

CASE STUDY

TASKS

It is hard to argue that there is a single brightstrategic answer for Sun. However, it is similarlydifficult to believe that all of the causeand effectrelationships within the new business model havebeen carefully considered. Based on media reportsand customer complaints, it is fairly obvious thatSun’s executives have not been successful inexplaining their new model. While business modelscan be powerful tools for analyzing, implementing,and communicating strategic choices, there is noevidence that Sun has successfully harnessed thatpower.



What is the primary function of a business model?



What was the reason/s for the lack of success of the new Sun business model? What key aspects had they neglected to analyse?



126

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1.2

MODULE 2 DEFINITIONS AND AFFINITY DIAGRAMS

The main findings of current research around Business models are that there is not a single all encompassing definition or example. This could be a factor of the examination of a business from many different perspectives. For example e business, Strategy, information systems, manufacturing, energy etc. the consequence of this is that the viewpoint of each author drives the terms of the definition as they are looking through ‘different lenses’ and seeing different things. Research by Schaffer et al (2005) discovered at least 12 definitions of a Business model and of those definitions they uncovered 42 different components. In order to rationalise this the authors developed an Affinity diagram (Pyzdek 2003) these diagrams are used very often as a Six sigma tool for organising ideas into categories based on categorise the components based on their underlying similarity. This then can be used to identify patterns and establish related groups. The result of this process was the identification of four major categories: strategic choices, creating value, capturing value and the value network (see table below). Schafer et al (2005) state “A business model is a representation of a firm’s underlying core logic and strategic choices for creating and capturing value within a value network”.

127

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

DEFINITIONS AND AFFINITY DIAGRAMS

Strategic choices

Components of business model affinity diagram.

         

Customer (target market, scope) Value proposition Capabilities/Competences Revenue/Pricing Competitors Output (offering) Strategy Branding differentiation Mission

Create value  

Resources /assets Processes/activities

Value network     

Suppliers Customer information Customer relationship Information flows Product Service flows

Capture value   

Costs Financial aspects Profits

However, Osterwalder et al (2005), in his extensive research and work on a business model ontology, concluded that there were nine main building blocks that made up the business model (see Chapter 5). He proposed a slightly broader business model definition: “A business model is a conceptual tool that contains a set of elements andtheir relationships and allows expressing the business logic of a specific firm.It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners forcreating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams.”(Oloffson and Farr, 2006) More simplistically we can state that a Business model can be seen as a combination of answers to a number of basic questions, Who, what, why, where, when, how, how much, to whom?

TASKS

And the degree by which an organisation is employed to serve its customers, end users and stakeholders.



Ask yourselves the questions raised above.



Then construct a rudimentary affinity diagram for your company.

128

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1.3

MODULE 2 CREATING AND CAPTURING VALUE

Teece(2009) states that a business is basically concerned with creating value and then capturing the returns from that value. A business model is merely a representation of that reality. If we combine this fact with the above affinity diagram we can state that a business model ‘is a representation of a firms underlying core logic and strategic choices for creating and capturing value within a value network’.

“

The core terms addressed in this are (1) core logic – suggesting that the business model helps articulate and make explicit key assumptions about cause and effect relationships with core stakeholders and (2) the internal strategic consistency of strategic choices. And (3) creating and (4) capturing value – reflects the two aspects of a sustainable business that organizations must exhibit to be viable.

TASK

Successful firms create substantial value by doing things is ways that differentiate them from the competition. This can be achieved through developing core competencies, capabilities and positional advantages that are different from their competitors. Core competencies have been analysed by Prahalad, C. K. and G. Hamel (1990), ‘Core competences of the corporation’, (HBR , June 1990) and basically are how companies can utilise those unique skill sets (competencies or capabilities) to perform work activities or combine them in a unique way in the business process to differentiate them from the competition.All for profit businesses must make money to be viable. This is tied to both the value they create and the way that value is captured (for example in capture of finance). These do not occur in a vacuum and occur within a value network for example suppliers, partners, distribution channels and so on that extend the companies own resources. A firm can create unique relationships within that network and this role within the value network is an important underpinning of the firm’s business model. This has been argued to good effect by Hamel (2000).

Read the Prahalad and Hamel (1990) article via Google and then reflect on your firm’s core competencies and the role they play in creating the value concept. Then revisit your affinity analysis.

129

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1.4

MODULE 2

BUSINESS MODELS VS BUSINESS STRATEGY

Environment, Business Models, Strategy, Process and Information Systems source: Osterwalder,2004

Most authors seem to agree that the business model is not a strategy. Osterwalder (2004) places the business model in the middle between strategy, Information Communication Technologies and Business organisation, as figure below shows:

There are three main differences between the business strategy and the business model. 1) Creating value vs. capturing value, where the business model addresses the way a firm captures value, and the strategy of how to create competitive advantage and create value, 2) Business value vs. Shareholder value, where the business model focus on business value and business strategy on shareholder value, 3) Assumed knowledge levels, where the business model works on a more limited environmental knowledge and the strategy requires more certainty in the knowledge of the environment. Chesbrough and Rosenbloom (2002)

130

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BUSINESS MODELS VS BUSINESS STRATEGY

source: Osterwalder,2004

Business Layers,

Also the business model is not a process model. Osterwalder (2004) places thebusiness model layer between the strategic layer and the process layer, as shown below:

1.4.1

BUSINESS MODEL VS BUSINESS STRATEGY BUSINESS MODEL VS BUSINESS PLAN

The key thing to note then is that the Business model is not a strategy it is a reflection of strategic choices that have already been made or as an aid to developing those choices mainly in regard to how the organisation creates and captures value. The Business model identifies the services and products that its customers value and shows the reciprocation of funds for those activities.

TASK

The Business Plan supports the Business model as it provides the details of the business. It takes the focus of the business model and then builds on iy, for example, it may explain the equipment and staff needed, the marketing strategy, customer acquisition/retention, and competitive strategy and so on (see Module 2). Importantly it will explain the financial stability of the business at a particular point in time and a forecasted future. The Business plan then supports the Business model and explains the steps needed to achieve the goals of that model.

Review and analyse your business plan and assess whether it is aligned with your value creation and capture assumptions from your affinity diagram.

131

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1.5

MODULE 2

4 PROBLEMS OF BUSINESS MODELS

Concerns about business models can be traced to four common problems associated with their creation and use. These problems, which follow directly from the key terms above, are the following:    



Flawed assumptions underlying the core logic. Limitations in the strategic choices considered. Misunderstandings about value creation and value capture. Flawed assumptions about the value network.

Flawed assumptions underlying the core logic It is dangerous if a firm enters a market if the core logic of the business model is based on flawed logic, for example, developing service provision over wireless networks on the assumption that broadband speeds and connectivity are consistent across the broad market. The owner should consider that there are inconsistencies of service across the network. It is imperative that once a strategic choice/s has been made the resulting business model is checked and reviewed for such assumptions and inconsistencies.



Limitations in the strategic choices considered A business model should address all of the firm’s core logic for creating and capturing value, not just a portion of that logic. One of the mistakes of the dot.com boom was the assumption that having defined one portion of the market one had a viable business model. For example if one were only to consider one section of the affinity diagram and ignore the rest the model would fall apart. Just defining a market segment or value proposition is not enough. A holistic approach should be used. (See case study etoys below). A business model provides reasons. First, because the choices made, it highlights strategic decisions. Second, to consider the logic and collectively.

a powerful tool for avoiding this pitfall for two business model is a reflection of the strategic the need to consider holistically a range of the business model requires senior management internal consistency of the strategic decisions

132

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

4 PROBLEMS OF BUSINESS MODELS

ETOYS (from Schaffer et al, 2005)

CASE STUDY

eToys serves as a highprofile example of a firm that made this mistake in the dotcom world. In an effort to build its customer base and gain brand awareness in 1999, eToys (and its online competitors,such as KBToys) focused primarily on customer acquisition. Not surprisingly, this lead to cutthroat price wars, deep discounts, and offers of free shipping among the toy etailers, each of whom was hoping to establish a beachhead in the $23 billion per year toy retailing industry (Bannon,2000). In fact, eToys’ goal of customer acquisition was largely achieved. Four years after opening itsvirtual doors for business and by spending at times as much as 60% of its revenues on marketing, eToys established a base of almost two million customers. However, eToys had not developed (or, it appears, even seriously considered) another important componentin its business model: the process of fulfilling customer orders. During the 1999 holiday season, eToys received a tremendous amount of bad publicity resulting from its very poor and unreliable delivery performance. In an effort to not repeat this fiasco the following year, the company invested heavily to insource order fulfilment. But, in the end, eToys was not able to generate the volume of business needed to support its investment in infrastructure and went bankrupt in 2001 (Cox, 2001; eToys, 2001). Its realization that it had never really created a workable businessmodel in that it had been relying on only the single component of customer acquisition came far too late for recovery. The problem of too limited a set of strategic choices can often be traced to a tendency on the part of senior management to consider strategicdecisions in a piecemeal fashion, which is especially likely in a volatile business environment. Any company would certainly fall into this trap if it considered offering lowend servers independent of otherstrategic decisions. The problem is also exemplified by eToys’ initial attention being focused almost exclusively on customer acquisition, with a subsequent shift to order fulfilment.

133

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET



4 PROBLEMS OF BUSINESS MODELS

Misunderstandings about value creation and value capture These two aspects are not mutually exclusive and must be considered equally. Many executives focus too much on value creation with the consequence that their organisation is unable to capture full economic returns in relation to the value that they create. Alternatively executives should not confuse potential value with actual value.



Relying on flawed assumptions aboutthe value network A false assumption that is sometimes made is that the existing value network will continue unchanged. For example, when supermarkets in the UK began selling petrol as a means of attracting customers to their stores some oil companies reacted by simply selling foodstuff in their outlets in order to maintain the current value network. Others took a slightly different route by forging alliances with top grocery chains (e.g. BP and M&S) to develop joint value networks.

TASK

All businesses, either explicitly or implicitly employ a particular business model. A business model describesthe design or architecture of the value creation, delivery and capture mechanisms employed. Theessence of a businessmodel is that it crystallizes customer needs and ability to pay, defines the manner bywhich the business enterprise responds to and delivers value to customers, entices customers to pay forvalue, and converts those payments to profit through the proper design and operation of the various elementsof the value chain.Put differently, a businessmodel reflectsmanagement’s hypothesis aboutwhatcustomers want, howtheywant it andwhat they will pay, and howan enterprise can organize to bestmeetcustomer needs, and get paidwell for doing so

From what you have written for the other tasks review that material in the context of the four problems outlined above and make necessary changes in terms of any hypotheses around value creation, value capture, customer needs and ability to pay (as indicated in the conclusion above).

134

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

Bannon, L. (2000, October 23). Ecommerce (A special report):The lessons we’ve learned—Toys: Rough play—consumerslikebuying toys online; but that hasn’t made it a great business yet. Wall Street Journal, p. R1.

Schafer, S.M. Smith, H,J, Linder, J.C. (2005) ‘The power of business models’, Article in Business Horizons 48(3):199207 · February 2005

Chesbrough, H. (2003). Open innovation. Boston 7 Harvard Business School Press. Chesbrough, H. and Rosenbloom, R.S. (2002) The Role of the Business Model in Capturing Value from Innovation: Evidence from Xerox Corporation’s Technology SpinOff Companies. Industrial and Corporate Change, 11, 529555. http://dx.doi.org/10.1093/icc/11.3.529 Cox, B. (2001, January 26). eToys on the ropes. www.internetnews.com Linder, J. and Cantrell, S. (2000) Changing Business Models: Surveying the Landscape. Accenture Institute for Strategic Change.

Tam, P. W. (2003, October 16). Cloud over Sun Microsystems: plummeting computer prices.Wall Street Journalpp A1A16 Teece, D. J. (2010) ‘Business Models, Business strategy and innovation, Long Range Planning, 43, pp 172194 Osterwalder, A. (2004), The Business Model Ontology – A Proposition in a Design Science Approach, www.researchgate.net/publication/33681401

Linder, J. and Cantrell, S. (2000) Carved in Water: Changing Business models Fluidly, Accenture Institute for Strategic Change Olofsson, L and Farr,R. (2006) Business Model Tools and Definition: a litertaure review, VIVACE Consortium Public Osterwalder, A., Pigneur, Y. and Tucci, C.L. (2005) Clarifying Business Models: Origins, Present, and Future of the Concept. Communications of the Association for Information Systems, 16, 140. Prahalad, C.K. and Hamel, G. (1990) "The core competence of the corporation", Harvard Business Review (v. 68, no. 3) pp. 79–91. Pyzdek, T. (2003).The NewYork 7 McGrawHill.

six

sigma

handbook.

135

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 2

WHAT ARE THE KEY TOOLS IN THE DESIGN AND REVIEW OF A BUSINESS MODEL?

Welcome to the second unit of this module on Business Modeling. As we have seen from the previous unit all businesses, either explicitly or implicitly employ a particular business model. In essence the business model concept is an abstract one and has many components. As such it describes the business concept and for multiple purposes. It can be and is used across a wide range of businesses and industries. As it is broad in it’s concept so the understanding of what a business model is is equally broad. The most common conception is that it resides in the realms of marketing and sales to consider. In others the term was used to refer to the financial underpinnings of the business offer, i.e. assessing revenue streams and cost analysis. This is not a business model but more of a business case. UNIT OBJECTIVE During this unitlearners will become familiar with the key components of a Business model and reflect on how that applies to their business or idea. They will become conversant with the key tools for the design and review of those models.

KEYWORDS  Value creation  Value capture  Value delivery  Business model components  Six elements of business models  Business model considerations  Business model design

136

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 2

WHAT ARE THE KEY TOOLS IN THE DESIGN AND REVIEW OF A BUSINESS MODEL?

RECORD OF CONTENTS WHAT ARE THE KEY TOOLS IN THE DESIGN AND REVIEW OF A BUSINESS MODEL? DESIGN /ARCHITECTUREOF VALUE CREATION .................................... 138 BUSINESS MODEL COMPONENTS ................................................................. 139 WHAT BUSINESS MODEL RESEARCH SHOWS?..................................... 141 RECAP ON BUSINESS MODEL DESIGN ....................................................... 147 MODELS IN THE SECTOR ................................................................................... 164

137

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

2 .1

MODULE 2 DESIGN /ARCHITECTURE OF VALUE CREATION

A business model describesthe design or architecture of the value creation, delivery and capture mechanisms employed. Theessence of a businessmodel is that it crystallizes customer needs and ability to pay, defines the manner bywhich the business enterprise responds to and delivers value to customers, entices customers to pay forvalue, and converts those payments to profit through the proper design and operation of the various elements of the value chain. We shall be looking at the value chain in a later unit. A business model allows management (and strategists) to align an organization’s strategic choices against, or to assess those choices to technological developments. Put more simply a business model can be subjective managerial views of what customers want, howtheywant it andwhat they will pay, and howan enterprise can organize to bestmeetcustomer needs, and get paid well for doing so. However, this leaves an obvious question around how effective is the current business model and how do you design a new model and review the old?

138

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

2 .2

MODULE 2 BUSINESS MODEL COMPONENTS

As we have seen from the previous unit the business model can be divided into four categories (Shafer et al, 2005) namely;    

strategic choices the value network creating value capturing value

Shafer et al (2005) also state that, “A business model is a representation of a firm’s underlying core logic andstrategic choices for creating and capturing value within a value network” A summary of the work of, Mitchel and Coles (2004), Vlaar,deViries and Willlenborg (2005) and Graf (2005) show that a business model in its simplest form can be reduced to a combination of:        

Who, What, When, Why, Where, To Whom How, How much

TASK

…an organisation is employed to serve its customers, end users and stake holders.(Vivace Consortium, 2006)

With your organisation as a base take its activities and ask /apply the questions above. This will form your starting base.

139

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BUSINESS MODEL COMPONENTS

As we have seen from unit 1, Shafer et al, (2005), puts the components into an affinity diagram, (below);

Components of business model affinity diagram.

Strategic choices          

Customer (target market, scope) Value proposition Capabilities/Competences Revenue/Pricing Competitors Output (offering) Strategy Branding differentiation Mission

Create value  

Resources /assets Processes/activities

Value network     

Suppliers Customer information Customer relationship Information flows Product Service flows

Capture value   

Costs Financial aspects Profits

They found from their review that there were up to 43 different components to a business model named across various authors work. The above table is a simplification of those sources. Oft quoted writers, Chesbrough and Rosenbloom (2002) (cited by Olofsson and Farr (2006),present a basic framework describing the business model as having six elements:  Value proposition a description of the customer problem, the product that addresses the problem, and the value of the product from the customer's perspective.  Market segment the group of customers to target, recognising thatdifferent market segments have different needs.  Value chain structure the firm's position and activities in the value chainand how the firm will capture part of the value that it creates in the chain.  Revenue generation and margins how revenue is generated (sales,leasing, subscription, support, etc.), the cost structure, and target profit

140

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET



TASK



BUSINESS MODEL COMPONENTS

Position in value network identification of competitors, complementors,and any network effects that can be utilized to deliver more value to thecustomer. Competitive strategy how the company will attempt to develop a sustainable competitive advantage, forexample, by means of a cost, differentiation, or niche strategy. Briefly use the above subheadings to try to assess and record your organisations business model or proposed business model.

2 .3

WHAT BUSINESS MODEL RESEARCH SHOWS?

Osterwalder (2004) investigated also what elements were used in business model research and came up with nine elements that could be seen as common elements that capture the main features of most proposed definitions, including those listed by Chesbrough and Rosenbloom (2002), as given above.

1. The value proposition of what is offered to the market; 2. The target customer segments addressed by the value proposition: 3. The communication and distribution channels to reach customers andoffer the value proposition;

141

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

WHAT BUSINESS MODEL RESEARCH SHOWS? 4. The relationships established with customers; 5. The core capacities needed to make the business model possible; 6. The configuration of activities to implement the business model; 7. The partners and their motivations of coming together to make a business model happen; 8. The revenue streams generated by the business model constituting the revenue model; 9.

The cost structure resulting of the business model.

These areas will feed into the Business Model canvas which will be introduced in Unit 5 of this section.

142

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

WHAT BUSINESS MODEL RESEARCH SHOWS? Six considerations

Underpinning the business model then are six accepted considerations to be addressed. These are; 1. Concerning factors related to the offering: How is value created? The organisation should select from the following set of distinctive offerings; . offering: primarily products/primarily services/heavy mix . offering: standardized/some customization/high customization . offering: broad line/medium breadth/narrow line . offering: deep lines/medium depth/shallow lines . offering: access to product/ product itself/ product bundled with otherfirm’s product . offering: internal manufacturing or service delivery/ outsourcing/licensing/ reselling/ value added reselling . offering: direct distribution/indirect distribution (if indirect: single ormultichannel)

2. Concerning market factors: Who is the value created for? Select from the following set . type of organization: btob/btoc/ both . local/regional/national/international . where customer is in value chain: upstream supplier/ downstream / supplier/ government/ institutional/ wholesaler/ retailer/ service provider/final consumer . broad or general market/multiple segment/niche market . transactional/relational 3. Concerning internal capability factors: What is our source ofCompetence (see Unit 1)? Select one or more from list below: . production/operating systems . selling/marketing . information management/mining/packaging . technology/R&D/creative or innovative capability/intellectual . financial transactions/arbitrage . supply chain management . networking/resource leveraging

143

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

WHAT BUSINESS MODEL RESEARCH SHOWS?

4. Concerning competitive strategy factors: How do we competitively position ourselves? Select one or more from below: . . . . .

image of operational excellence/consistency/dependability/speed product or service quality/selection/features/availability innovation leadership low cost/efficiency intimate customer relationship/experience

5. Concerning economic factors: What is our financial model i.e. how we make money? Select from each set below: . . . .

pricing and revenue sources: fixed/mixed/flexible operating leverage: high/medium/low volumes: high/medium/low margins: high/medium/low

6. Concerning personal/investor factors: What are our time, scope, andsize ambitions? Select one:

TASK

. . . .

subsistence model income model growth model speculative model

Utilising your answers to the previous tasks try to address the 6 considerations above. Can you see a pattern emerging? Are you beginning to understand the business model you are currently operating and perhaps the one you would like to utilise?

144

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

WHAT BUSINESS MODEL RESEARCH SHOWS? Further considerations

We are slowly moving towards ascertaining the key components of a business model, mainly through a number of specified areas and considerations. Eight further considerations if your business is new or is launching a new product/service. No matter whether you are CEO of a successful and established business or an entrepreneur with a potential start up, all new business models/concepts need to be evaluated. The following are 8 questions to ask of that model/concept. More importantly if you ask these questions of your current business model the answers/conclusions can help you develop and improve what is already in existence.

1. Who are the ideal customers and how many of them are there? This really is a question about which markets you serve, if it is a distinct market segment then all activity is focussed on satisfying the needs and wants of that segment. However, there my be other segments to address, these should be assesed under the same criteria as your primary segment. A ‘one size fits all’ strategy is unlikely to succeed. 2. Does the product already exist? Most likely it does, Therefore your business model should focus on how to improve what is already in the market through a superior offer that could be price led (if it is a price sensitive market but beware price wars) or more usefully though differentiation of service and value delivery based on known customer needs. 3. What is the customer doing currently? And how can we offer something of greater value? 4. What is the allin cost of the current solution? This will include not just the physical cost (price) of the product or service but also the ‘emotional cost’ of using it. This could be ease of use, service access, billing process etc. Are there any built in switching costs for the consumer and do these reduce customer churn for you and your competition? What is the cost structure internally for the product?

145

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

WHAT BUSINESS MODEL RESEARCH SHOWS?

5. What asset or capability, are you bringing that is unique? Most successful business models focus on a unique strategic capability that the business can bring to the market place. If valuable this will increase the cost of entry for the competition and improve value to the customer. Focus on that uniqueness to give you a competitive advantage. 6. How will competitors react to a successful launch? Also consider how you will react to competitor move. 7. What is the business model? Utilize the components and answers to the preceding tasks. Focus on an end to end approach that includes customer segments, customer relationships, channels, value propositions, key activities, key resources, and key partners to build the revenue stream and cost structure. Is the model saleable? Does the model produce recurring revenue?

TASK

8. How can you test and learn before building the entire structure?

Reflect on the above 8 issues. Do they help you further develop your business model?

146

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

2 .4

MODULE 2

RECAP ON BUSINESS MODEL DESIGN

We have now arrived at the point where you will be able to identify the main components of the Business model. To recap then; The basic business model elementscan be identified as: 



 

The Value Proposition: what is the object(s) of value offered to the customer? This can be numerous things e.g. physical product, services, information or a ‘bundled‘ provisions. Who is the Customer: who precisely do we target with the value proposition. This can be a group and sub group of consumers(BC) or businesses (BB). You can sub segment your targets where demand or servicing requirements differ or establish a new market to target. What is the Value in Return: that is what does the business receive in return for the value proposition? This could be money in the form of rent, sales revenue, commission etc. Or nonmonetary objects of value e.g. prorata deals in terms of ad space or future contracts. An important point to remember is that value inreturn can be realized at different points in time.This is what the entity receives in return for the value proposition. Channel: The channel is a two way operation and describes how the value exchanges take place. It transmits one,or more, of the Value Propositions and the Value in Return. More than one channel can be used to effect a transaction. Value Adding Process: This is an amalgam of the resources, activities and capabilities of the business that combined make the value proposition and enable its provision.This can be exhibited as a process model or as a value chain (to be covered in unit 4. Basically it describes are the inputs and outputs of the value adding process. Supplier: An entity that provides inputs to the Value Adding Process includinginventories, machinery and consumables. Ally: Basically any other stakeholder that assists the business in providing the value proposition. This could be a specific channel, service, an outsourced entity or a regulatory body (Weill and Vitale 2001). The basic elements are adequate for describing a business concept and for comparing business.

147

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

RECAP ON BUSINESS MODEL DESIGN These basic elements are fundamental for describing a business concept or comparing a business model. This can be represented as below (from Gassmann et al, 2014).

148

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

RECAP ON BUSINESS MODEL DESIGN

The questions posed by the above nodes can be developed utilising the table below;

Who? • Who are the customers? • (How) can customers be segmented? • What are the customers’ demographics/characteristics? What? • What does the opportunity offer to customers? • What is the value proposition / added value to customers? • What (bundle of products and services) does the offering consist of? How? • How is the value proposition built, enabled, and distributed? • How will the processes and activities required to offer the products roughly look? • What resources will be required? • What ecosystem stakeholders will be required and how can they be orchestrated? Revenue • Is the opportunity anticipated to be financially viable? • How does the cost structure look? • What are the applied revenue mechanisms? • How can the value proposition be monetized?

TASK

(based on Gassmann, Frankenberger&Csik, 2014, from www.iotlab, 2015)

Revisiting the answers to the previous tasks now try to develop answers to the questions posed in the above diagram. Reflect on how the components of your business model are developing. Do you think you better understand how your business functions?

149

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

RECAP ON BUSINESS MODEL DESIGN

Now we have the basics of the work needs to be done on the element. This process is followingelements to produce the the channel. 



business model more value adding process comprised of the value proposition and

Resources: This will include IT hardware and software, Intellectual property rights as well as financial,physical and human resources. It could also include an external expertise provided by your external stakeholders or 3rd parties. Activity: That is what action is undertaken to convert resources into Value Propositions or operationalise a channel of transmission? Capabilities: What are your core competences (see unit 1 ) and how are these combined to fit the requirements of the value proposition. This will also include the capabilities of external stakeholders. Strategies: These relate to all parts of the business at the value proposition level and at an overall organizational level. This will be outlined in your business plan (see previous modules). At the base level it elaborates how activities will be performed, and by whom. Organization structure:the organizational structure is fundamental to the development of the value proposition. In reality it determines how the value proposition is developed and also can be seen as a consequence of its delivery. The structure in essence explains how the business is configured to create the value proposition.

150

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

RECAP ON BUSINESS MODEL DESIGN

Teece (2010) in an article in the Long Range Planning journal agrees with the components outlined thus far in this unit. He then develops a step by step process in diagrammatic form that allows for innovative design of Business models. It might be worthwhile just spending some time this process as this could give an alternative way to view development of innovative business models. Teece states that a business model is conceptual rather than a financial model of a business. The key elements that underpin the design of business models are all interrelated and are at the core of the strategic question ‘how does one build a sustainable competitive advantage and turn a profit?’. The elements and steps are below;

151

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

RECAP ON BUSINESS MODEL DESIGN

One then has to ensure that the business model is indeed sustainable. This can be achieved by following a number of steps outlined below (Teece 2010);

Teece (2010) statesthat a ‘provisional business model must be evaluated against the current state of the business ecosystem, and also against how it might evolve’. This involves asking a number of questions, see below, and include. 



    

How does the product or service bring utility to the consumer? How is it likely to be used? Does it involve complimentary products and are they available to the target consumer at the right price? What is it that customers really value and how will the firm’s service/productoffering satisfy those needs? Are they willing to pay the price? How large is the market? Are there alternative offerings and what is their composition? At what stage of the lifecycle is the industry? Are there any contractual structures with stakeholders that need addressing? What will it cost to provide the product/service? How will those costs behave as volume and other factors change?  How succeptable is the product to imitation and how can we

152

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

RECAP ON BUSINESS MODEL DESIGN

TASK

Questions to ask of the business model (Teece , 2010)

In the light of the above diagrams now go back and review your business model.

153

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

Chesbrough, H. and Rosenbloom, R.S. (2002) The Role of the Business Model in Capturing Value from Innovation: Evidence from Xerox Corporation’s Technology SpinOff Companies. Industrial and Corporate Change, 11, 529555. http://dx.doi.org/10.1093/icc/11.3.529 Graf, L. (2005) Incompatibilities of lowcost and network carrier business models within the same airline grouping. Journal of air transport managment 11 (2005) 313327. Gassmann, O., Frankenberger, K., Csik, M.: Geschäftsmodelleentwickeln: 55 innovative Konzeptemitdem St. Galler Business Model Navigator. Hanser Verlag, Munich (2013)

Schafer, S.M. Smith, H,J, Linder, J.C. (2005) ‘The power of business models’, Article in Business Horizons 48(3):199207 · February 2005 Teece, D. J. (2010) ‘Business Models, Business strategy and innovation, Long Range Planning, 43, pp 172194 Vlaar, P. De Vries, P. Willenborg, M. (2005) Why incurmbernts struggle to extract value from new strategic options :Cse of the European Airline Industry. European Mangement Journal vol 23,

No. 2, pp. 154‐169, 2005.

Linder, J. and Cantrell, S. (2000) Changing Business Models: Surveying the Landscape. Accenture Institute for Strategic Change. Mitchel, D.W and Coles, C.B. (2004) Business model innovation breakthrough moves", Journal of Business Strategy, Vol. 25 Issue: 1, pp.1626 Olofsson, L and Farr,R. (2006) Business Model Tools and Definition: a litertaure review, VIVACE Consortium Public Osterwalder, A., Pigneur, Y. and Tucci, C.L. (2005) Clarifying Business Models: Origins, Present, and Future of the Concept. Communications of the Association for Information Systems, 16, 140. Osterwalder, A. (2004), The Business Model Ontology – A Proposition in a Design Science Approach, www.researchgate.net/publication/33681401

154

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 2

INNOVATIVE BUSINESS MODELING IN THE ENERGY

As we have seen from the previous units all businesses, either explicitly or implicitly employ a particular business model. You have;  Been introduced to the concept of business modeling,  Learnt that a business model describes the design or architecture of the value creation, delivery and capture mechanisms employed by a business.  Learnt that the essence of a business model is that it crystallizes customer needs and ability to pay, defines the manner by which the business enterprise responds to and delivers value to customers, entices customers to pay for value, and converts those payments to profit  Learnt the difference between the business and the business plan,  Begun the process of reflecting on our own business and the factors that influence its design  Become familiar with the key components of a business model  Become conversant with the key tools for the design and review of a business model. UNIT OBJECTIVE During this module learners will be able to identify and analyse the business models and best practices as applied in the European market and develop innovative business models as a response

KEYWORDS  ESCO  Energy Service contracting  Market based modelling  Product/service based modelling  Value chain  Market drivers  Value proposition  ESCO Business Models

155

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 2

INNOVATIVE BUSINESS MODELING IN THE ENERGY

RECORD OFCONTENTS

INNOVATIVE BUSINESS MODELING IN THE ENERGY SECTOR

THE BUSINESS MODELAND THE ENERGY SECTOR

157

MARKET SERVICE BASED CRITERIA

160

VALUE CHAIN

162

MODELS IN THE SECTOR

164

NEW BUSINESS MODELS

165

ANALYSIS OF THE MODELS

169

WHICH MODEL WORKS BEST?

174

156

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3.1

MODULE 2

THE BUSINESS MODEL AND THE ENERGY SECTOR

TASK

Review

the

following

video

link:

What

"BUSINESS

MODEL"?https://youtu.be/XnLaQzi8xJc .

In its simplest form a business model can be a subjective managerial view of what customers want, how they want it and what they will pay, and how an enterprise can organize to best meet customer needs, and get paid well for doing so. The question then is how does this apply to the energy sector? Read the following paper via the link below, TASK

https://www.researchgate.net/publication/260111519_Energy_Servi ce_Companies_and_Energy_Performance_Contracting_Is_there_a_n eed_to_renew_the_business_model_Insights_from_a_Delphi_study

Findings from recent research have shown; 

Energy service contracting is a form of outsourcing. It will only be chosen where the expected reduction in the production cost of supplying energy services can more than offset the transactionscost of negotiating and managing the relationship with the energy service provider Energy Services encompass a range of activities, such as energy analysis and audits, energy management, project design and implementation, maintenance and operation, monitoring and evaluation of savings, property/facility management, energy and/or equipment supply, provision of service (space heating/cooling, lighting, etc.). Energy Service Companies (ESCOs) create the focus needed to implement economically sound energy efficiency ideas.

157

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

THE BUSINESS MODEL AND THE ENERGY SECTOR

Bertoldi and Rezessy [2006] have characterized the EU ESCO market. Most ESCOs have been founded either by large companies or as subsidiaries of large companies (equipment manufacturers, facility management companies, energy utilities). The objectives for these companies do not necessarily focus solely on exploiting the financial opportunity of energy savings; other factors also act as strong drivers for offering energy services, such as selling energy, financing sale of their equipment, retaining  ESCOs are generally classified into the following four categories based on their composition andownership: ‐ Independent ESCOs—ESCOs that are “independent” in the sense that they are not owned by an electric or gas utility, an equipment/control manufacturer or an energy supply company. Many “independent” ESCOs concentrate on a few geographic markets and/or target specific client market segments. ‐ Building equipment manufacturers—ESCOs owned by building equipment or controls manufacturers. Many of these ESCOs have an extensive network of branch offices that provides a national (and international) footprint, with sales forces and specialized national staff providing packages of EE, renewable and distributed generation “solutions” to client market segments. ‐ Utility companies—ESCOs owned by regulated or stateowned electric or gas utilities. Many utilityowned ESCOs currently concentrate on regional markets or focus on the service territories of their parent utilities. ‐ Other energy/engineering companies—ESCOs owned by international oil/gas companies, no regulated energy suppliers or large engineering firms  As there are diverse forms of ESCO this multiplicity of approach is viewed as a positive in terms of how flexible to community needs the ‘model’ (because there really is no such thing) can be and a negative because it mitigates against the standardization, knowledge sharing on best practice and joinedup thinking on regulatory frameworks needed to underpin the type of collective approach which will move ESCOs from the micromarket to the macro. 

158

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET



 



THE BUSINESS MODEL AND THE ENERGY SECTOR

What is missing before any communitybased approach can be successful is: ‐ innovative financing models with low transaction costs; ‐ buyin from local authorities with their huge building stocks; ‐ more separation of ownership and operation of assets; ‐ standardization of networks and more investment in these; ‐ more guidance from the Government and stability to build confidence. There is a consensus of opinion for the need for an overhaul of the regulatory framework. If there is anywhere where the dice are loaded against SMEs and new entrants to the market it has to be here: regulation is costly, complex and based around the needs of the Big 6 energy companies. The development of the ESCO market cannot occur before there is regulatory review that reduces the barriers to entry for SMEs Provision of general training schemes must be developed, most training is delivered by Professional Bodies or consultancies (e.g. ESTA or EMA) and those tend to focus on Niche areas. Of those areas most are technical training or training in M&V, ESCOs typically develop, implement and fund their projects on a turnkey basis by bundling the following services; ‐ ·IGAs (investment grade audit) ‐ Comprehensive engineering design ‐ Project financing ‐ Complete installation and commissioning ‐ Longterm performance guarantees ‐ Savings measurement & verification (IPMVP, international performance measurement and verification protocol) ‐ ·Ongoing equipment maintenance. Services are more sweeping and financial models are more flexible. ESCOs today offer a broad range of retail energy services, including: ‐ ·Engineering feasibility studies, audits and IGAs ‐ ·Equipment acquisition and installation ‐ ·Load management ‐ ·Energy purchase negotiations ‐ ·Facility management and water management ‐ ·Risk management ‐ ·Automated meter reading ‐ ·Energy information management ‐ ·Training and awareness services ‐ ·Sustainability support and environmental compliance ‐ ·Measurement and verification of savings ‐ ·Guaranteed results.

159

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3.2

MODULE 2

MARKET SERVICE BASED CRITERIA

We can approach energy business modeling then from a traditional dualistic approach based on market based and product/service based criteria.

MARKET BASED CRITERIA  What is the potential market size or demand?  Who are your competitors?  Is the market a trend, fad, flat or growing? What is the evidence you have for this?  Is your product accessible for your potential market? Is it local, regional, national, international?  Who are your target customers? PRODUCT BASED CRITERIA (viability issues)  How would you describe your product/service?  What customer need/want/desire does your product/service fulfil?  What is the potential selling price of your product/service?  What is your potential profit margin/mark up?  How broad is your product/service offering? The fewer the better!  Can you offer a subscription based service e.g. service level agreements?  Is the product/service durable or does it require multiple purchases?  Is there any seasonality in the market and if so how does this affect demand?  Can you map demand on a short/medium/long term basis?  Are there any regulatory restrictions on your product/service?

160

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MARKET SERVICE BASED CRITERIA

TASK

We could also view from the following perspective

View Sinfield 2012 athttp://sloanreview.mit.edu/article/how‐to‐

identify‐new‐business‐models/

161

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3.3

MODULE 2 VALUE CHAIN

Taking this a step further we could then ask what are we building around? This could be located on any point of the value chain. For example, the traditional utility value chain looks something below,

Or if the above was to be extended,

162

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

VALUE CHAIN

TASK

Decide then at what point in the value chain are you operating? How effective is your business model? We have seen from the previous unit that by asking the questions above we will obtain a better view. These can be analysed by using the following criteria. Review the following link: How will the energy sector business models change in the future?https://youtu.be/9ZhgxcKX9rA If we consider the energy efficiency market we can see that the above can also give an indication to what are termed market drivers. The 2 main drivers in this energy sector are the price of energy and climate change. Both of these factors have now reached mainstream dialogue from both a consumer culture perspective e.g. zero emissions, hybrid cars, smart homes, energy efficiency etc. and political conversations at local, regional and international levels. Energy efficiency has become very prominent in our mind sets and it has been shown by a McKinsey Global Institute article, (2013, Giving US energy efficiency a jolt, by David Frankel and Humayun Tai), that efficiency gains can come at a negative marginal cost meaning they are profitable. McKinsey estimate that the market is worth $170 Billion per annum and gives a 17% annual rate of return. There are market barriers to this though, the prominent one being a lack of welldeveloped Business models in the sector.

163

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3.4

MODULE 2

MODELS IN THE SECTOR

We can divide the models applied in the sector into 3 groups,

TASK

1. Comprised of various product manufacturers and marketers selling energy efficient products. This is a traditional sector and are mainly concerned with product sales. 2. The ESCO model. Companies that offer energy services, either on the supply or demand side, but are not directly connected to a utility. These can be looked at from a supply perspective i.e. in a deregulated market they can supply energy to customers which they have either created or bought from others. From a demand perspective (energy efficiency) they will design, refit, install building and industrial systems to reduce energy consumptions and finance their fees out of the energy cost savings. 3. Utilities offering forprofit energy efficiency services. More rare and regulated by state or local governments it offers a reduced risk but can limit investment returns Review

the

following

link:

Utility

Business

models.

https://youtu.be/CX gWnUGz3Y The challenge for ESCO business models is to develop tools and new models that allow for a low touch, high volume energy efficiency solutions where both Escos and utility companies market energy demand reductions and so each becomes each other’s main competitor. With your organisation as a base take its activities and ask /apply the questions above. This will form your starting base.

TASK

View the followinghttps://youtu.be/trGcSLfxIKswhere Dr. Michael Weinhold, CTO of Siemens Energy Management Division, explains how changing technologies will impact the energy sector, introducing key trends such as integration of renewable, connected infrastructure and data analytics. Watch all Siemens videos from European Utility Week 2015 http://sie.ag/1X6t6dv

164

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3.5

MODULE 2 NEW BUSINESS MODELS

According to a GEC report, (IBM Institute for Business Value, Switching perspectives, Creating new business models for a changing world of energy,Michael Valocchi, John Juliano and Allan Schurr, 2010) the traditional value chain follows a generationtransmission retail pathway where energy and information flows in one direction. In this value chain the roles of all but the largest of customers play a passive role. It is the intervention of technology that is acting as an agent of change in the new value chain whereby power and information moves in multiple directions. The outcome of this is that a wide range of potential business models can be created. Valocchi et al op.cit. state ‘Distributed energy resources such as customerowned renewable generation, plugin electric vehicles and energy storage will extend the value chain to include assets operated closer to the end user’. The end result is a reshaping of the value proposition for all parties. See graphic below,

165

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

NEW BUSINESS MODELS

TASK

Read the following article: Switching perspectives /Creating new business models for a changing world of energyhttps://www 935.ibm.com/services/multimedia/Switching_perspectives.pdf What clouds the issue though is the fact that an Energy Service Company or ESCO can mean different things to different areas and different conditions. Therefore the following points are relevant: What do you want the ESCO to be and what do you want the ESCO to do?   

ESCO’s can range from being totally within the public sector, through a mix of public / private ownership, to a totally private company. They can be classed as a charitable, notforprofit, or profit making enterprise So, depending on what the aims of the ESCO are and how this will be incorporated then – There is an ESCO model out there that is suitable

for the organization. When approached from a financial perspective the following are commonly used business models in the sector. The primary model is the EPC, the Energy Performance contract. This is a partnership between the customer and the ESCO that allows energy saving through improvement of the demand side energy efficiency operations, (EU ESCO, 2010). It is a performance based model with the ESCO remunerations based on energy saving with the cost savings being used to finance the project. There will be guarantees of a minimum savings level. There are a number of commonly used EPC business models in the sector, for example, Shared savings, Guaranteed savings and “Chauffage”. Warget (2011) states that, ‘EPC is well suited for large scale projects, especially in the public sector. As EPC is a complex contract form, it is not suited for smaller projects because of the high transaction costs. The long payback times that are generally associated with EPC can make it less attractive for the private sector’.

166

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

NEW BUSINESS MODELS Sharedsavings EPC,

The ESCO finances the total upfront capital cost of the project and is totally responsible for repaying the lender. The client pays the ESCO a percentage (or it can be a fixed amount) of its achieved savings from the project, large enough for the ESCO to repay the project investment to its lenders, cover M&V costs and any other associated costs. The energyend userassumes no direct contractual obligation to repay the lender, only the ESCO has this obligation. Guaranteed Savings EPC In a guaranteed savings EPC, the client essentially applies for a loan, finances the project and makes periodic debt service payments to a financial institution. The ESCO bears no direct contractual obligation to repay the lender, only the energy enduser assumes this obligation. The ESCO’s guarantee is not a guarantee of payment to the lender but rather a guarantee of savings performanceto the energy enduser that is usually equal to its repayments to the lender. Chauffage “Chauffage” or integrated solutions generally refer to a greater valueadded approach. The concept offers conditioned space at a specified price per energy unit to be consumed or per some measurable criteria (square footage, production unit, etc.) through a supply and demand contract offered by the ESCO. The ESCO manages all supply and demand efficiencies. This concept derives from a previous contractual French approach of energy services delivered by a private company to a public authority or to another private body (e.g., owner of aggregate properties) called “contratd’exploitation de chauffage” leading to the wording “chauffage” to qualify this form of EPC. In the former French approach, the contract used to contain up to three elements designated under P1, P2 and P3, corresponding to the following services: P1: Energy supply cost P2: Maintenance cost P3: Total guarantee cost (replacement cost of the equipment at the end of its life). Variable contract term EPC

167

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

NEW BUSINESS MODELS Variable contract term EPC

With this contract the ESCO designs, finances and implements the project with the option of a contractual extension if anticipated savings are not reached. In what is known as a First Out contract the ESCO can take 100% of the savings until it has reached its agreed payment level, (SEAI 2012). Energy supply contract (ESC) An ESC is a contract where the ESCO assumes responsibility for the provision of services to the customer. This could take the form of light, heat etc. All operations, services and maintenance is taken on by the ESCO as are costs for upgrades, renewal and repair. The main point is that ownership remains with the consumer, (SEAI, 2012). The focus of the ESC is on the efficiency of energy supply. The aim is to lower operational costs and maximise earnings. Warget (2011) states that the ‘biggest weakness of ESC is that all the EE measures stay on the supply side and there are no incentives to lower the demand side consumption’. The main difference between ESC and EPC is that whilst the ESC business model is focussed on guaranteeing supply the EPC is focussed on energy savings. The goal being to avoid wasting energy and to invest the savings in energy efficiency (EUESCO2010). Integrated energy contract (IEC) This model combines the EPC and ESC. The advantage lies with the fact that it combines demand side issues with supply and hence the range of services and thus the saving potential are extended. BuildOwnOperateTransfer (BOOT) In this model the ESCO takes complete ownership from conceptualisation of the project, construction, deployment and operation in conjunction with the owner. At the end of the contract the ESCO transfers the installation to the customer. It is in effect a loan made by the ESCO to the customer.

168

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3.5.1

MODULE 2 NEW BUSINESS MODELS

ANALYSIS OF THE MODELS

Shared savings For about 10 years, shared savings was the only type of EPC offered by North American (U.S. and Canadian) ESCOs. This structure creates a lot more risk for the ESCO than guaranteed savings because the ESCO not only assumes the project performance risk but also assumes the energy enduser credit risk. The sharedsavings approach typically requires an equity investment (especially in IFC eligible countries), which in combination with the higher risk assumed by the ESCO carries a higher capital cost than the guaranteed savings structure. The primary characteristics of shared savings can be summarized by the following: The energy enduser and the ESCO share a predetermined percentage of the energy cost savings;  ESCOs carry both the performance risk and the credit risk;  Financing for energy endusers does not negatively impact their credit capacity and can be off balance sheet;  The equipment is “owned” by the ESCO for the duration of the contract (ownership is usually transferred to the owner at contract end);  Increased risks associated primarily with energy end user repayment causes the cost of money to be higher. As the entire project payments are recognized as a service cost, they are fully deductible for tax purposes in many countries for the duration of the agreement. The economic viability of shared savings rests on the price of energy. As long as energy prices stay the same or go up, the project will typically pay for itself.

169

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

NEW BUSINESS MODELS ANALYSIS OF THE MODELS

Guaranteed Savings In developed markets, energy endusers have been interested in the model where the ESCO provides a performance guarantee to them, i.e., that the realized project savings will be able to cover all the related project costs, including debt service to the lender, M&V fees to the ESCO and any other incremental costs (maintenance, etc.) incurred by the project, over a certain period of time. If the achieved savings fall short of the ESCO guaranteed savings amount, the ESCO will reimburse the energy enduser for such shortfall. If the realized savings exceed the guaranteed savings amount, the ESCO may share a portion of the excess, with the amount depending on the risk taken and the extent of ongoing services provided by the ESCO. The significant characteristics of guaranteed savings can be summarized by the following: ‐ The amount of energy saved is guaranteed, as long as the operation remains similar to the period preceding the project implementation; ‐ Value of energy saved is guaranteed to meet debt service obligations down to a stipulated floor price; ‐ Owners carry the credit risk; ‐ Risks to ESCOs are lower than with shared savings, ‐ Less of the project investment goes to financing costs; ‐ Tax exempt (MUSH) institutions in countries that provide for this tax provision can use their legal status to access lower interest rates (in the case of the U.S.). With this contract the ESCO designs, finances and implements the project with the option of a contractual extension if anticipated savings are not reached. In what is known as a First Out contract the ESCO can take 100% of the savings until it has reached its agreed payment level, (SEAI 2012).e main

170

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

NEW BUSINESS MODELS ANALYSIS OF THE MODELS Chauffage

In this type of financing agreement, the management firm guarantees that the facility owner's energy costs will be lower than they would have been without an energy performance contract. The ESCO assumes responsibility for paying the energy bills of the facility over the term of the agreement. The facility owner pays the ESCO a specified percentage of the previous energy costs (per energy unitconsumed, per square footage, etc.) that would have been incurred, discounted from an agreed base year of energy costs (e.g., historical energy costs minus a discount of up to 15%). A chauffage contract is usually very extensive, often involving a thorough energy management plan, including retrofits and maintenance. It is generally considered appropriate only for largescale energy endusers whose facilities feature substantial potential savings (e.g., hospitals, universities and large office buildings). The key aspects of this model are:  



  



From the payments received, the ESCO must recover all of its expenses for equipment and services as well as pay the energy bills. The ESCO’s gross margin is derived from the difference between the payment it received from the customer and the reduced energy costs it pays to the utility. The ESCO must reduce actual energy costs significantly below what it charges. Its profit equals this gross marginminus the costs to design, install and maintain the retrofits. The facility owner is able to budget utility costs with absolute certainty throughout the term of the contract and is assured of a positive cash flow during the term. This cash flow would most likely be less than that in a sharedsavings arrangement as the ESCO assumes more risk. As in a sharedsavings contract, the facility owner would have little incentive to invest in savings without a Separate energy use 'score' being kept. Hence, there is a tendency to opt for lower capital costimprovements. In practice, ESCOs sometimes focus only on supplyside efficiencies and refer to the contract as “chauffage.” It may include some type of ownership of a part, or the totality, of HVAC systems by the ESCO. The contract typically provides for some means of making adjustments for energy prices on an annual basis. On a financing basis, financing is done through the ESCO whereby the financing institution takes thelongterm contract with a strong client as the main collateral for the loan. The European Commission support for the production of this publication does not constitute an endorsement of the contents which reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.

171

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3.5.2

MODULE 2 NEW BUSINESS MODELS

ANALYSIS

While shared savings remains the dominant model in Europe, in North America over 90% of the EPC agreements are currently structured for guaranteed savings with the owner typically accepting the debt through TPF (third party financing). The guaranteed savings scheme is likely to function properly only in countries with an established banking structure, a high degree of familiarity with project financing and sufficient technical expertise within a banking sector that understands EE projects. The guaranteed savings concept is difficult to use in introducing the ESCO concept in developing markets because it requires energy endusers to assume investment repayment risks for unknown technologies. However, it fosters longterm growth of ESCOs and finance industries because it enables newly established ESCOs with no credit history and limited capital resources (unable to invest in their projects) to enter the market if they are willing to guarantee the savings to energy endusers who will secure the financing on their own. The sharedsavings concept is a good introductory model in developing markets because energy endusers assume no financial risk, which overcomes the difficulty energy endusers in transitional economies have in satisfying banks’ criteria for creditworthiness.

172

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

NEW BUSINESS MODELS ANALYSIS Another reason is the fact that a new concept, such as EPC, is easier to establish in a country if the energy enduser does not have to incur debt, or can avoid incurring going through the political/legal procedures to do so. The sharedsavings concept, however, relies heavily on ESCOs’ borrowing capacities and this presents a serious difficulty for small and even big ESCOs which lack access to financial resources. After incurring debt on even a limited number of projects, an ESCO is apt to find it is too highly leveraged to obtain financing for the implementation of more projects. This is a key factor in hampering industry growth. It essentially forces the ESCOs to have to continually raise substantial amounts of equity to grow resulting in balance sheets that more resemble banks and leasing companies than what they are, service companies. The sharedsavings concept therefore limits the longterm market growth and competitiveness of small ESCOs and leaves lots of “lost opportunities” in energy enduser facilities because of its high financing costs only allowing short payback measures to be implemented (“cream skimming”). The “chauffage” approach works well in countries where a lot of heating (or alternatively cooling) loads are present, as it is quite focused on internal supply side EE. It is often associated with transfer of obligations related to the operations and maintenance of a facility where energy savings are just onecomponent of the full deal. The approach is often seen in Central and Eastern Europe in the context of municipal district heating plants.

173

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3.5.3

MODULE 2

NEW BUSINESS MODELS

WHICH MODEL WORKS BEST?

There are important questions to ask when selecting among these different financing approaches. On whose balance sheet are the project assets? Who is really at risk for project performance? Is the financing projectspecific? Why should one care about the questions? Off balance sheet financing preserves a customer’s access to capital and simplifies project approval by an organization. With respect to risks, we have seen that in pay from saving, sharedsavings and “chauffage” contracts, the ESCO takes the savings risks headon. In guaranteed savings, the customer guarantees to repay the debt obligation undertaken to build the project and the ESCO indemnifies the customer for taking this risk by giving a guarantee that the savings necessary to make the payment will be met. What is the difference if the ESCO takes the risk or the customer takes the risk and is indemnified? Whether the financing is projectspecific or not is a risk diversification issue. When financing is specific to a project, repayment of the financing may be predicated on the receipt of specific streams of revenue. Most energy performance contracts are financed with projectspecific financing and payment is predicated on projectperformance. If these projects fail to perform, even if related projects do perform, the ESCO may not be repaid. If financing is not projectspecific, the cost of capital for a specific energy end user is usually lower because of risk diversification.

174

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

NEW BUSINESS MODELS WHICH MODEL WORKS BEST?

Differences betweenthe Business Models

The 2016 MOEEBIUS Project (EU) summarises the following s/w of each Business model

Business model

Strengths

Weaknesses

EPC with shared savings

Shared savings model (win win situation for both the ESCO and the customer).

EPC with guaranteed savings

It is functional/ performance risk; Extrasavings can be taken by ESCO as a bonus.

Variable contract term EPC

If the savings obtained are less than expected the contract term can be extended to allow the ESCO recover its full investment ESCO receives a fee for the service; the reduction of the energy production cost will mean greater profit margin. The key benefit for the customer is the cost efficiency of the solution, the standard quality of the service and the “no need to worry about” the installation and maintenance of the energy production facilities.

The ESCO finances the total investment of the project and it is totally responsible for repaying the loan. The customer finances the total investment of the project. The ESCO assumes the risk of the project’s performance and if the agreed target cost savings are not achieved, then the ESCO compensates the customer. The ESCO finances the total investment of the project and it is totally responsible for repaying the loan.

Energy supply contract (ESC)

The ESCO manages the cost and risk of delivering the contracted service.

175

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

Chauffage

Differences between the Business Models

Integrated energy contract

TASK

BuiltOwnOperate Transfer (BOOT)

NEW BUSINESS MODELS WHICH MODEL WORKS BEST?

Compared to EPC, chauffage contracts are generally less complex with lower transaction costs and without the same need for costly measurement and verification. Extends the ESC model by including demandside EE measures. Combines two objectives: reduction of energy demand through the implementation of demandside EE measures in the building and efficient supply of the useful energy demand, preferably from renewable energy sources. Customers are charged accordingly for the service delivered by the ESCO. For the ESCO the service charge includes capital and operating cost recovery and project profit.

The ESCO finances the total investment of the project (however, lower than in an EPC) and it is responsible for maintenance costs. The ESCO finances the total investment of the project and it is totally responsible for repaying the loan.

The ESCO finances the total investment of the project and it is totally responsible for repaying the loan. The ESCO is also responsible for the energy management and for operational costs.

Read the following: ESCo Market Development: Business Models, Innovations and Lessons Learnedhttp://www.ieadsm.org/wp/files/Content/4.Trondheim_Bleyl.pdf

176

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

NEW BUSINESS MODELS WHICH MODEL WORKS BEST?

The traditional view of an ESCO value chain looks as below

TASK

The issue with this view is that customer value and the value proposition is not covered in sufficient depth. The focus of the model should allow for the rational of the business to be focused on this issue and allows for an agile approach to model development to changing conditions in the market and also broad enough to cover the disparate components of the sector. The Key point is ‘that any time you start thinking about strategy, you’re thinking about business models. So even frameworks that aren’t being put forward as business models really are business models.Business models are important. They are an important tool that can be used to augment product and service innovations, to link innovation to strategy, to coordinate activities within an organization, and they can be a source of innovation as well. There are many models of business models out there’, (Sundelin 2014).

For this unit is to review and reflect on the learning and knowledge gained and how it applies to your business.

177

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES Chesbrough, H. and Rosenbloom, R.S. (2002) The Role of the Business Model in Capturing Value from Innovation: Evidence from Xerox Corporation’s Technology SpinOff Companies. Industrial and Corporate Change, 11, 529555. http://dx.doi.org/10.1093/icc/11.3.529 Gassmann, O., Frankenberger, K., Csik, M.: Geschäftsmodelleentwickeln: 55 innovative Konzeptemitdem St. Galler Business Model Navigator. Hanser Verlag, Munich (2013) Mitchel, D.W and Coles, C.B. (2004) Business model innovation breakthrough moves", Journal of Business Strategy, Vol. 25 Issue: 1, pp.1626 Teece, D. J. (2010) ‘Business Models, Business strategy and innovation, Long Range Planning, 43, pp 172194 Valocchi, M. Juliano, J. and Schurr. A (2010) Switching perspectives :Creating new business models for a changing world of energy, IBM Global Services, accessed at https://www935.ibm.com/services/multimedia/Swi tching_perspectives.pdf

178

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 2

ANALYSIS OF KEY COMPONENTS OF THE BUSINESS MODEL

Welcome to the fourth unit in the Business Modelling module. In this unit we shall be focusing on how we develop ‘agility’ in modelling through innovation via analysis of the components of the Business model. We have learnt to this point that Business models do matter. Business models help an organisation cope with changes in technology and new market conditions. All businessmodels, however, are not all the same and so any innovation in principle could generate different models. The core to innovation though is common, that is, in order to innovate your Business model, you must understand what it is and then through analysis of its subsequent components consider what alternative paths exist for you to implement improvement. UNIT OBJECTIVE During this module learners will be introduced to the theories that underpin the components of the Business model and so enable innovation to take occur.

KEYWORDS  Open Innovation  Business model themes  Value networks  Value chain  Innovation  Transformation

179

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 2

ANALYSIS OF KEY COMPONENTS OF THE BUSINESS MODEL

RECORD OFCONTENTS ANALYSIS OF KEY COMPONENTS OF THE BUSINESS MODEL

179

THE BUSINESS MODEL AND INNOVATION

181

THE BUSINESS MODEL AND VALUE

183

INNOVATION

186

180

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

4.1

MODULE 2

THE BUSINESS MODEL AND INNOVATION

BadenFuller and Morgan (2010) state that Business models serve 3 purposes; 1/ descriptive – they describe a business. 2/ operational they describe a business’s primary value. To analyse this is to ensure that you have a strategic fit across the whole value chain (see unit 1). 3/ role models – you can use them to describe how you want the organization to function. Fundamentally Business models exist to convert new technology to economic value.

TASK

At their core they basically answer the question, how do we deliver value to our customers in a sustainable manner? This is by far the most useful approach in innovating our business model. Initially answer the above question from your organisations perspective. You may wish to refer back to previous exercises and your notes.

The Business model mediates between the technical and economic domains

In their paper ‘The Role of the Business Model in Capturing Value from Innovation’, Chesbrough and Rosenbloom (2006), present a basic framework for the Business Model,

181

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TASK

THE BUSINESS MODEL AND INNOVATION

Access Henry Chesbrough, Open Innovation, Harvard Business School Press, 2006 (https/:pdfs.semanticscholar.org) Their argument was that any new innovation requires a new Business model, however, changing a business model can be an innovation in itself! The key though is for any business model to be agile/flexible. The academics then reviewed the literature and came up with some common themes, firstly they identified the core components of the business model. There were six 1. Value Proposition – this can be addressed through a description of the customer problem, the product that addresses that problem and the value of that product (or service) from the customers perspective. 2. Market segment – who or what is the target market i.e. the group of customers targeted. It is vital to consider that different market segments have different customer needs and it might be useful to start with a description/analysis of customer needs first. Please remember that sometimes an innovation can be unlocked when applied to a different market segment. 3. Value chain structure – what is the firms poition in the value chain and how will it capture that prt of the value it creates in the chain? 4. Revenue generatiion and margins – basically how is revenue generated, this could be through sales, rental agreements, support etc. (please refer to previous unit on Business models in the sector). Also, we need to review cost structures and target profit margins. 5. Position in the value network – (see below and previous unit), have you been able to identify competitors, complementors and any network effects that can deliver value to your customers? 6. Competitive strategy – what is the root of your competitive advantage and what are your core competences from which this derives (see unit 1). Is this sustainable? If not, what do you need to do to achieve that status?. Are you following what Porter (1982) called a cost, differentiation or focus strategy or are you stuck in the middle?(access the article on Porters generic strategies on http/:quickmba.com)

182

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

4.2

MODULE 2

THE BUSINESS MODEL AND VALUE

There are differences though between the concept of the business model and business strategy namely 1. Creating value vs capturing value – the business model focuses on the former whilst still refining how that value will be captured. The strategic aspect is that the focus then is on making this a competitive advantage. 2. Business value vs shareholder value – the business model serves as architecture for converting innovation to economic value but NOT in delivering that value to the shareholder, e.g. financing methods are not considered by the business model. 3. Assumed knowledge levels – the assumption is that the business model assumes limited environmental knowledge, strategy requires more complex analysis of the business environment.

NETWORK MAPPING TOOL

To further develop the value path Verna Allee whilst working with some of the basic concepts of business modelling developed a tool to analyse value networks. A value network is basically a ‘web of relationships that generates economic value and other be nefits through complex dynamic exchanges between organisations’ (Allee, V. ‘Understanding value networks’, sourced gurteen.com). from this she was able to develop a network mapping tool (see below),

183

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

THE BUSINESS MODEL AND VALUE

Her findings emphasized that value creation and exchange is at the heart of understanding a business model, this value can be both tangible (monetized) and intangible (service based). See her book, Allee, V. And Schwabe, O. (2015), Value Networks and the True Nature of Collaborations, MeghanKiffer Press.

The Value Chain by Porter

It would be useful now to briefly consider what we mean by the Value chain. Developed by Michael Porter in his book,’Competitive advantage: creating and sustaining superior performance’, (1985), his model is intended as a tool to analyze the specific activities through which firms can create a competitive advantage.

The aim of each activity is to create value taht is in excess of the costs of providing the product or service thus generating a profit at the margin (i.e. in the white area above). He divides the company into two sections, primary value adding activities and support activities.

184

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

THE BUSINESS MODEL AND VALUE

Primary activities include    



Inbound logistics – receipt, storage of raw materials or the like Operations – the transformation of inputs into outputs Outbound logistics getting the finshed product or service to the customer (including fulfilment) Marketing and sales – activities associated with getting buyers to pruchase the product or positioning the product as a solution tpthierpercieved needs. Service – activities that maintain and enhance the product value or perceived value.

Support activiities include    

Procurement – the purchse of raw materials or inputs Technology development including r&d, process automation and innovation. Human resource Management – the process of recruiting, development and compenastion of staff. Firm infrastructure – including finance, legal and quality functions.

TASK

Application of this model allows for linkages to be made within the organization and also with other firms and allows for the identification of competitive advantage (see Generic strategies above). This then can be linked to the value system which we have discussed above. View the following video: What is Value Chain? Value Chain Definition, its Management and Analysis (https://www.youtube.com/watch?v=g8p2H7EvoGM&feature=youtu.be) Attempt to apply value chain analysis to your business.

185

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

4.3

MODULE 2 INNOVATION

Innovation then in Business modeling comes from changing both the value that is promised to customers and how that value is delivered to enable the generation of new revenue and profit streams. In order to implement an innovative business model there are a number of considerations. For example, how broad should the scope of the effort be? What is the risk level and is it appropriate? Is it an ongoing process of change or a once only? Which new business model is most attractive? Will its adoption change the trajectory of the organization and how different will this experience be to others that have made such changes? Lindgardt and Ayers, 2012, state that there four approaches to Business model innovation, 1. The reinventor deployed in the face of fundamental challenges e.g. new regulations, commoditization. That is a competitive environment that is slowly deteriorating. The company must reinvent its value proposition and realign its offering. 2. The adaptor – a situation where the business model is unlikely to overcome market disruption. The choice could be to exit or to find new models through innovation to find new markets. 3. The maverick – to scale up existing successful models through innovation. To use their core advantage to revolutionize their industry or set new standards. 4. The adventurer – aggressively expands the footprint of a business by exploring or expanding into new markets.

TASK

View the following article: Driving Growth with Business Model

Innovation(https://www.bcgperspectives.com/content/articles/growth _innovation_driving_growth_business_model_innovation/)

186

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

INNOVATION

Remember that innovation does not just come from technology it can also come from within the organization by looking at different market segment value delivery. To start this process of innovation it is necessary to use the Sinfield et al (op cit. Unit 3) Business development Template, see below,

TASK

In this example innovation lies in viewing the business model representing the answers to a number of questions and decisions, each of which has a set of possible outcomes. Attempt to apply this template to your business

Note that by changing one variable we can end up with a completely different business model, e.g. By looking at what is sold. By working out what elements should be in a business model and then analyzing different variations/combinations of them can be a way of exploring innovation in the business model.

187

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

INNOVATION

It is not just a question of asking the question ‘what do we sell’ but take this as a base and carry a more indepth analysis. For example, adapt a more systematic review of its options by asking a further series of questions such as,       

Should we sell a product or service? Does this need to be customized or a standard offering? Are the benefits tangible or intangible? Is it durable or a consumable? Is it a generic or branded product? Are customer needs changing? Are customer attitudes changing? (in this and the previous question how are they changing from what to what?).

How then do we create a transformative business model? For transformation read innovation. Kavadias et al, (2006) in the October issue of the Harvard Business review state that there are 6 keys to success, 1. Develop a more personalised product or service. This will involve tailoring the product to customer needs and allow you to leverage technology at competitive prices. 2. Adopt a closed loop process., that is, not a linear consumption pattern but one in which products/services are recycled. In so doing resource costs are reduced. 3. Share assets. This could be achieved across the supply chain. The Airbnb model is a good example where the costly asset of a home is shared by both the owner and the traveller. Barriers to entry are also raised. 4. Usage based pricing. Charge consumer through usage not by haveing them buy the product outright. Costs then are reduced for the customer and likely to grow the customer base. 5. A more collaborative ecosystem. Technology can improve collaboration with supply chain partners. Thus, risks are shared and costs potentially reduced. You can use your value network analysis to help her as well as your value chain. 6. An agile and adaptive organisation use technology to move to a flatter non hierarchicalorganisation. This allows decisions that better reflect market needs more rapid and thus responsive to real time needs.

188

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

INNOVATION

Just by using one of the above could result in an innovative new business model. TASK

View the following video: Innovation and Energy Business Models (https://www.youtube.com/watch?v=_dZtcXCwIFw&feature=youtu.be)

To conclude the unit then it can be stated that there are 3 types of business Model innovation strategies, 

The industry model – involving the industry value chain either via horizontal moves (e.g. Virgin) or by redefining existing industries (e.g Dell through disintermediation)



The revenue model – innovations in how revenues are generated by reconfiguring offerings, i.e. products, services, value, coupled with new pricing models. This can leverage customer experience as well as new innovations/technologies.



The enterprise model – innovating the structure of the enterprise or its value chains (or introducing new ones). Innovation is achieved through integration (e.g. the Japanese kieretsu) of the supply chain. It can also be achieved through specialization focusing on core competences and outsourcing the rest.



Through

network

plays

whereby

companies

rely

externa

collaboration to enhance the product or service.

TASK

Success depends on you pinpointing your strengths, available options for business model innovation.

shortcomings

and

Attempt to answer the questions posed below

189

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

• • •

INNOVATION

Understanding the industry context What new business models do you see emerging in your industry? Is the basis for competition changing? Where are new and disruptive business models coming from – from within your industry or from new players/other industries? What is the degree of change and innovation in your industry? What can you learn from successful business model innovators – either in your industry or outside? Defining your current position

•

How does your degree of innovation relate to your industry? Do you have the balance right between incremental versus more radical innovations? Do you drive the change in your industry, or is it imposed on you? Are disruptive models emerging in areas you are not currently focusing on today? Which business model innovation paths are you exploring – industry model innovation and/or revenue model innovation and/or enterprise model innovation? Which ones are most aligned with your industry, capability and vision? Building your capabilities to manage business model innovation

• •

•

Industry models: Do you have a systematic way to envision future industry scenarios and implications for your innovation strategy? Revenue models: How can you exploit new / emerging revenue models as well as new value offerings, and manage the implications for your business and competitive positioning? Do you have a structured approach to thinking through revenue implications? Enterprise models: Do you understand – and leverage – your unique capabilities and assets? What capabilities and processes do you have in place to develop, maintain, evaluate and terminate external collaboration for innovation?

Your answers to these questions can help you determine the areas in which your organization already excels, as well as areas where you can focus your efforts to drive your future business model innovation agenda. (source: IBM Global Business Services Paths to success Three ways to innovate your business model by Edward Giesen, Saul J. Berman, Ragna Bell and Amy Blitz)

190

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

Allee,V (2012), ‘Understanding Value Networks, access http://www.gurteen.com/gurteen/gurteen.nsf/id/L 001020/$File/understandingvaluenetworks.pdf Allee, V. And Schwabe, O. (2015), Value Networks and the True Nature of Collaborations, MeghanKiffer Press. BadenFuller, C.and Morgan, ‘Business Models as Models’, Planning 43 (2010) 156 171

M.S. Long

(2010) Range

Chesbrough, H. (2006), ‘Open Innovation’, Harvard Business School Press, (https/:pdfs.semanticscholar.org) Chesbrough, H. and Rosenbloom, R.S. (2002) The Role of the Business Model in Capturing Value from Innovation: Evidence from Xerox Corporation’s Technology SpinOff Companies. Industrial and Corporate Change, 11, 529555. http://dx.doi.org/10.1093/icc/11.3.529

Mitchel, D.W and Coles, C.B. (2004) Business model innovation breakthrough moves", Journal of Business Strategy, Vol. 25 Issue: 1, pp.1626 Porter, M. E. The Competitive Advantage: Creating and Sustaining Superior Performance. NY: Free Press, 1985. (Republished with a new introduction, 1998.) Teece, D. J. (2010) ‘Business Models, Business strategy and innovation, Long Range Planning, 43, pp 172194 Valocchi, M. Juliano, J. and Schurr. A (2010) Switching perspectives :Creating new business models for a changing world of energy, IBM Global Services, accessed at https://www935.ibm.com/services/multimedia/Swi tching_perspectives.pdf

Giesen. E, Berman,S.J. Bell. R, and Blitz. A. (2007), Three ways to successfully innovate your business model, Strategy and Leadership 35(6):2733 · November 2007 Kavadias, S. Ladas, K. And Loch, C. (2016) ‘The Transformative Business Model’, Harvard Business Review, October 2016 Lindgart, Z. And Ayers, M. (2014), ‘Driving Growth with Business Model Innovation’ https://www.bcgperspectives.com/content/articles /growth_innovation_driving_growth_business_mod el_innovation/

191

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 2

THE BUSINESS MODEL CANVAS AN INTRODUCTION

Welcome to the final unit of this module on Business Models. In it you will beintroduced to the Business model canvas. Originated by Osterwalder (2005). In the 4 preceding modules you have learnt to differentiate between a business plan and a business model. You have been able to analyse the key components of a business model and develop the skill to utilize them in designing your own model. You also have been able to review current business models at work in the energy sector and the best practices adopted. You have been able to understand the role of innovation and how that can be captured in innovative business models. Above all in completing the tasks you have been able to better understand your business and the business model currently in operation and been able to identify areas of potential strengths and areas of weakness. UNIT OBJECTIVE During this module learners will be introduced to the Business Model canvas as a tool for developing their business.

KEYWORDS  Business Model Canvas  Mission driven organisation

192

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 2

THE BUSINESS MODEL CANVAS

We know that a Business Model describes the rationale of how an organization creates, delivers and captures value. There are 7 elements of a strong Business Model. 1. Identify your specific market 2. Establish your business processes (i.e. what are the key activities) 3. What are your key business resources what do you need to carry out your business. 4. Develop a strong value proposition. 5. Determine key business partners in your value network. 6. Create a demand generation strategy. 7. Leave room for innovation, be agile, be flexible.

TASK

These are pretty generic observations though a more methodical approach was developed by Osterwalder (op cit). Osterwalder maintains that by simplifying the process into nine basic building blocks enables you to show the logic in how a business intends to make profit. He maintains that the business model is the blueprint for a strategy to be implemented throughout an organization. Watch the following video which will introduce the strategic tools for Business model innovation: Strategy tools for Business Model Innovation (https://www.youtube.com/watch?v=rNN2bAV9Qqg&feature=youtu.be ) Watch the following video: Osterwalder explaining the Business Model Canvas in 6 Minutes (https://www.youtube.com/watch?v=RpFiL 1TVLw&feature=youtu.be )

193

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

THE BUSINESS MODEL CANVAS

The appealing factor is that the Business Model Canvas whilst popular is also very flexible. As we have seen from the video the Business model canvas is not an organizational chart. Such a chart has a focus on how a company executes to deliver known products to known consumers. However, the Business Model canvas illustrates the search for the unknowns that an organization may face in a changing or divergent market place. As such it allows for the visualization of the components of each of the 9 segments needed to turn customer needs/problems into profit streams.

TASK

However, what if you are a mission driven organization, i.e. you task is not to drive revenues but to gather and organize your resources to solve a market place problem and deliver value to a set of beneficiaries? If you are one of those organizations then the box in the canvas relating to revenue streams does not make sense as there is no revenue to measure. Steve Blank in his widely read blog calls this a Mission achievement box.

Read the following post: The Mission Model Canvas – An Adapted Business Model Canvas for MissionDriven Organizations (https://steveblank.com/2016/02/23/the missionmodelcanvasanadaptedbusiness modelcanvasformissiondrivenorganizations/)

194

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

195

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE

Business Planning

UNIT 1 Function of a business plan and difference with business model UNIT 2 Strategy development UNIT 3 Customer needs analysis UNIT 4 Environmental analysis UNIT 5 Risk analysis UNIT 6 Marketing/Branding UNIT 7 Financial Forecasting

196

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE

Business Planning

SUMMARY OF THE MODULE During this training module learners will get familiar with basic concepts regarding the business planning process. They will be informed about the aims of a business plan, the relation with the business model, the main sections a business plan should contain, how to develop these sections, practical sources to get the information needed and real cases in order to have several examples to understand the concepts in a deeper way.

OBJECTIVES    

Understand the importance and function of a business plan. Know the information a business plan should contain. Learn how to develop a successful business plan. Analyze several real cases of business plans within the energy sector.

…

DURATION

40h

197

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 3

FUNCTION OF A BUSINESS PLAN AND DIFFERENCE WITH BUSINESS MODEL

Few areas of business attract as much attentionas new ventures, and few aspects of new venturecreation attract as much attention as the businessplan. If you Google the concept you will obtain more than 150.000.000 of results, there are countless books, articles and courses about it, so it demonstrates the interest on it and the importance of the theme. But most of the time, the information collected in these resources is too general to understand the usefulness and the difference with other concepts, such as strategy and business model, in order to know how to describe and use it.So, in this unit, we will show the most practical information about the concept and give other information resources. About the utility, the business plan can help the promoter to crystalise and focus his/her ideas, as well as set objectives and be used as a yardstick to monitor performance. It is also very important as a vehicle to attract external financial support to run the business, convincing investors thorough the exploitation of a high growth opportunity. The business plan entails taking a longterm view of the business and its environment and it should emphasise the strengths and recognise the weaknesses of the propose venture.

KEYWORDS  Innovation  Agile approach  Business model  Business planning  Business creation  Business consolidation  Access to finance  Elevator pitch

198

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 3

FUNCTION OF A BUSINESS PLAN AND DIFFERENCE WITH BUSINESS MODEL

And it is not only a tool for entrepreneurs, quite often startups are launch within established companies, and they should follow the same disciplined process as new companies:  Environmental analysis: Threats and Opportunities  Business analysis: Strengths and Weaknesses  Personal objectives  Business objectives  Strategy and tactics  Operating needs  Operating budgets  Financial forecast

KEYWORDS UNIT OBJECTIVE

During this unit learners will know the aims of a business plan, the different sections a business plan should contain, the relation with the business model as the core of the process, different tools and sources to develop the document and several real cases within the energy sector will be offered.

 Innovation  Agile approach  Business model  Business planning  Business creation  Business consolidation  Access to finance  Elevator pitch

199

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 3

WHAT IS A BUSINESS MODEL?

RECORD OFCONTENTS WHAT IS A BUSINESS MODEL? TECHNIQUES TO DESIGNINNOVATIVE BUSINESS................................... 201 BUSINESS PLANNING ................................................................................................. 204

200

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1 .1

MODULE 3 TECHNIQUES TO DESIGN INNOVATIVE BUSINESS

The IBM+ project aims to select, adapt, develop and facilitate the necessary knowledge, tools and methods to train energy sector agents in the use of innovative techniques for the design and development of NEW BUSINESS MODELS within the energy sector. So, we are going to start presenting some of the most popular techniques to design innovative businesses, because the concepts are going to be used in the development of some of the next units. Design thinking

TASKS

Design thinking is a method for problem solving and it was adapted for business purposes by David M. Kelley, who founded the design consultancy IDEO in 1991. This technique utilizes elements from the designer's toolkit like empathy and experimentation to arrive at innovative solutions. By using design thinking, you make decisions based on what future customers really want instead of relying only on historical data or making risky bets based on instinct instead of evidence. Design thinking is a very powerful method to design the strategy of the company, which should comes right before the development of the business plan (Business modeling can be considered as a piece of the strategy). It is a technique hard to apply without knowing practical examples, so we encourage students to click in the next links.



Review the following video link to clarify the concept:“Designers – think big!” https://www.ted.com/talks/tim_brown_urges_designers_to_think_big?la nguage=en



Review the following article: “Design Thinking as a Strategy for Innovation”https://www.creativityatwork.com/designthinkingstrategy forinnovation/

201

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TECHNIQUES TO DESIGN INNOVATIVE BUSINESS Visual thinking

source:http://xblog.xplane.com/

Visual thinking is a set of tools to make complex ideas visible and have a clearer vision of the elements involved and the relations between them, in order to make better decisions. These tools support and accelerate design thinking. The clarity provided by visualization drives shared understanding of goals and ideas, so visual thinking makes the method of design thinking more effective and efficient.

Storytelling

TASKS

Innovation can be defined as useful embodiments of ideas in the marketplace. A great amount of new ideas failed in the introduction to the marketplace because the implementation is not well defined and the innovators are not able to achieve the productmarket fit. Story telling is a very powerful tool to communicate your business to stakeholders (customers, employees, stockholders, etc.). As Andrew Stanton says in the video we provide down below “You have to make people care”.  Review the following video link to clarify the concept:“The clues to a great story” https://www.ted.com/talks/andrew_stanton_the_clues_to_a_great_story

 Review the following article: “The art of business storytelling” https://www.americanexpress.com/us/small business/openforum/articles/theartofbusinessstorytelling/ The European Commission support for the production of this publication does not constitute an endorsement of the contents which reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.

202

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TECHNIQUES TO DESIGN INNOVATIVE BUSINESS Lean Startup

source:http://theleanstartup.com

Lean Startup is one of the most popular current methodologies for the development of businesses. It is mainly based on the lean manufacturing methodology and aims to shorten business development cycles by adopting a combination of experiments to validate hypothesis through iterative product releases, as fast and cheap as possible, in order to advance in a context of limited resources, which is the situation of most of the startups companies.



Review the following video link to clarify the concept: “The Lean Startup by Eric Ries”

TASKS

https://www.ted.com/talks/andrew_stanton_the_clues_to_a_great_st ory  Review the following article: “The Lean Startup methodology” https://www.americanexpress.com/us/small business/openforum/articles/theartofbusinessstorytelling/

203

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TECHNIQUES TO DESIGN INNOVATIVE BUSINESS

“

Most of these approaches share the same basic activities:  Frame the opportunity, need, or problem  Conduct usercentered research to understand the human context  Ideate with multidisciplinary teams  Prototype rapidly and test with users  Incorporate what you’ve learned, launch, observe, and repeat

And of course, this process can be very useful for the development of part of the business plan, mainly the parts related to the opportunity you are going to exploit, the team and the way you are going to develop the business activities.

1 .2

MODULE 3

BUSINESS PLANNING

“

A good business plan can help to make a good business credible, understandable, and attractive to someone who is unfamiliar with the business. Writing a good business plan can’t guarantee success, but it can go a long way toward reducing the odds of failure Eric S. Siegel, Brian R. Ford, Jay M. Bornstein

Once an entrepreneur decides to turn an idea into a real business, and has designed, tested and validated the business model, the business plan has to be written. While the business model shows how the business makes money, the business plan provides details on how the idea is going to be deployed. Both are dynamic, so reviews have to be done regularly.

204

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BUSINESS PLANNING

“

Someone’s sitting in the shade today because someone planted a tree a long time ago Warren Buffett

The U.S. Small Business Administration refers to the business model as a company’s foundation and the business plan as its structure. The foundation, or business model, is the original idea for your business and a general description of how it functions. The structure, or business plan, elaborates on the details of your business idea. While the business model describes how the company generates its profit and its position within the industry’s value chain, the business plan shows how a company is going to be organized, how it is going to develop its activities and try to demonstrate the economic, social, technical and environmental viability.

The business plan is the document that describes in detail how a business is going to achieve its goals, and it has to collect the main factors on how marketing, financial and operational aspects are going to be deployed. The business plan is usually written to start a new company, but it is also very useful for those existing companies that are looking for new opportunities. The main aims of a business plan are:   

Present a business opportunity. Serve as the sales argument to get financial support. Serve as the guide for the company to deploy its strategy/activities.

205

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BUSINESS PLANNING

As it was said before, a business plan is a document to present a business opportunity, most of the time to get financial support, and depending on who is going to read it, you can present it with different formats and information. Also, in a global and very dynamic world economy, the companies are trying to keep it updated all the time, and the trend in the business planning, as well as in the business modeling, is being the reduction of the time planning (writing the business plan) and the increase of the iteration with the market in order to keep making little changes all the time according to the changes in the market, following the Lean approach1. Of course, traditional entities (Administration and banks, for example), like the traditional business plan format and a lot of examples and templates for theses versions can be found in the internet. But IBM+ project is focused on how to design innovative ventures, so during the course we are trying to focus on the new approaches, as the ones describe at the beginning of this unit. Considering the Final Aim

Types of business plans

 

Considering the format

STARTUP New Company Consolidation, Expantion, New Business Line



Considering the Value Proposition  

LEAN Focus on the team, opportunity, context and risks/rewards. Only some numbers are shown. TRADITIONAL Everything is described on detail. Extensive financial projections are shown.

Service based Product based

According to Paul Burns (1996), the planning process first has to consider the personal objectives of the ownermanager. Second it is necessary an internal and external analysis, where strengths, weaknesses, opportunities and threats are identified. Once the position audit is done, knowing which part of the value chain can be occupied, the process continues with the definition of Business Objectives, Strategies and Tactics, Operating needs and Operating Budgets.

206

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BUSINESS PLANNING

Considering the thoughts of another reference author, William A. Sahlman (1997), the major focus of the business plan shouldn’t be the numbers. Numbers deserve a couple of pages in any business plan but somewhere near the back of the document, not the front, and those numbers should calculate value metrics, such as the breakeven point and when the cash flow will turn positive. Instead of focusing on the numbers, William A. Sahlman considers that business plan should be structured around the following ingredients: 



People i.e. the men and women starting and running the venture, as well as the outside parties providing key services or important resources for your venture, such as its lawyers, accountants, and suppliers. Opportunity this is a profile of the business itself—what it will sell and to whom? Can the business can grow and how fast? What are its economics, who and what stand in the way of success? Context this is the big picture—the regulatory environment, interest rates, demographic trends, inflation, and the like—basically, factors that fluctuate but cannot be controlled by the entrepreneur. Risk and Reward this is an assessment of everything that can go wrong and right, supported by a discussion of how the entrepreneurial team can respond.

207

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BUSINESS PLANNING

Most waste too much ink on numbers and devote too little to the information that really matters to intelligent investors. As every seasoned investor knows, financial projections for a new company—especially detailed, monthbymonth projections that stretch out for more than a year—are an act of imagination

“

William A. Sahlman Although there are many other options, according to the documents consulted and the experience of the IBM+ partners, a possible breakdown of a business plan based on an innovative idea could be: 2. Executive summary (max. 2 pages) To be filled at the end. It is a summary of the main factors of the rest sections. Use it to “sell” your business idea to stakeholders. Once this section is complete, a speech to present the business opportunity needs to be prepared. FURTHER READING



Review the following video links to clarify the concept of the Elevator Pitch: o

https://www.youtube.com/watch?v=bZTWx2bftaw

https://www.youtube.com/watch?v=i6O98o2FRHw

1. Business opportunity and value proposition (max. 4 pages) 

Description and justification of the business opportunity: Explain the reality and nature of the problem to be solved. Describe the pain you solve with

FURTHER READING

your solution.(Realism, recurrence and relevance) 

Review the following article: https://www.forbes.com/sites/lizryan/2015/05/15/whatkindof businesspaindoyousolve/#594798c75553



Description of the business idea:Description of the solution proposed to solve the above problem, referring to client and monetization model (Synthesis

and

coherence

the

business

idea

with

the

described

opportunity) 

Description and justification of the competitive advantage // Justification of why the client is going to purchase from us y analysis of how that advantage is going to be sustained over the time (Sustainability and fundament of the competitive advantage)

208

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BUSINESS PLANNING 3. Partners, team and collaborators (max. 2 pages) 

Members and experience of the promoters (partners): Description of CV’s, previous experience and functions in the project, at research, managing and commercial level.



(Multidisciplinary nature)

Alignment team – business model:Description of the functions of each member of the team (promoters and staff) in each of the segments of the value chain(Adequacy of the profiles with the key points of the business)



Collaborators: Description of external members to the promoter team that can act as prescriptors, mentors or strategic partners and their function within the project (Alignment, relevance with the business model and specification of the cooperation)

4. Technology and Innovation (max. 4 pages)  Description of the technology and innovation developed: Description of the state

the

art,

technology

available

and

applied

the

project

(Incremental or disruptive Innovation) How the problem is solved now? How is the state of the solution at scientific and technological level? What related solutions can you find in the market?

FURTHER READING



Review the following:   



Scientific state: https://scholar.google.com / Technological state: http://freepatentonline.com / https://patents.google.com/ Commercial state: https://www.google.com

Contribution of the technology to the value proposition: Description of the different value our proposal brings, valorization of this contribution in terms of new functionalities or business metrics(Relation between technology and competitive advantage)



R&D&i Capacity/ External collaborations in R&D&i(Specification of theR&D&i capacity, Collaborators...)



Intellectual property strategy, coherence with the sector and business model (Patents generated, intellectual property for software, brands and designs, NDAs signed, registers of varieties, etc.)

209

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BUSINESS PLANNING

5. Market, clients and marketing aspects (max. 6 pages) Description of the macroenvironment of the market: Analysis of general



political, economic, social and technological factors that can affect to the project at macro level (Quality of the analysis and impact in the business

FURTHER READING

model)



Review the following website: https://www.iea.org/ Description of the sector: Description of the desirability of the sector according to the competition in it (Identify barriers to entry, existing rivalry,

FURTHER READING

bargaining power and substitute products)



Review the following to clarify the concept of Competitor Analysis:

http://www.venturehothouse.co.uk/cms/assets/_managed/cms/files/Co mpetitorAnalysis.pdf Market

size

and

customer

segmentation:

Specify

information

sources,

channel of access to the market, customer segment to be catered and identification of subset of early adopters (Information sources. Size and accessibility

the

relevant

market.

Homogeneity

the

segment.

Justification of the relation between customer segment and problem to be solved).

FURTHER READING



Review the following to clarify the concept of Channel Management in Utilities:http://www.hitachiconsulting.com/sites/catalog/Lists/Collate ral/Channel%20Management%20in%20Utilities_SO.pdf



Review the following: “Using a consumersegmentation approach to make energyefficiency gains in the residential market”www.mckinsey.com/~/media/McKinsey/dotcom/client_service/EPN G/PDFs/Using_a_consumersegmentation_approach_to_make_energy efficiency_gains_in_the_residential_market

210

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BUSINESS PLANNING



Marketing Strategy:Description of the product/service, price, distribution channel

and

advertising

vehicles

disseminate

the

product/service

(Definition and coherence of the strategy with the focus market)  See Unit 6 of this Module



Scalability

analysis

and

internationalization

possibilities:Analysis

the

impact of the turnover increase in the fixed and variable costs structure. Identification of other relevant markets where the same problem exists and preliminary entry strategy (Definition and coherence of the strategy with the focus market) In the Unit 3 of this Module the new paradigm of the Energy industry is shown and can be a source for the identification of adjacent markets. 6. Management and operations (max. 2 pages) Draw the organization chart and explain what the functional areas of the business are, who will be responsible for each functional area and how your products/services will be produced (Describe manufacturing processes, proprietary technology and key supplier relationships) 7. Operational plan (max. 2) Describe the objectives to be achieved in a biannual or annual period, as well as the actions to be implemented, the team to carry out each action, the time they will take, the needed resources and who should be informed about each action. The objectives must be defined following the SMART criteria: - Specific -

Measurable

Achievable

Relevant

Timebound

8. Financial forecasting Complete this section considering the content of Unit 7.

211

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BUSINESS PLANNING

ADVICE: try to develop a lean document that can be read quickly by the person you are presenting it to. Around 20 pages plus financial forecasting should be enough to explain the main aspects of your business idea and how it is going to work. Use references to expand the information related to each section. Be concise The executive summary must describe how you are going to make money from the beginning and use simple language throughout in order to let stakeholders understand what your business is all about from a quick glance at your plan. Be specific Being specific is just as important as being concise. The details will help you drill down into how you will actually deliver your plan. Know your market A big part of knowing whether your business will be successful is understanding your audience. Make sure your plan is clear about your target market – who will you be selling to and how many other companies are already selling similar products? Know your finances The other essential part of a business plan is the finance section. If your business isn’t going to make any money, it won’t be successful so you need to be very clear on how you will make a profit. Use it to your advantage – your plan will be incredibly useful when it comes to securing loans and investment, but that’s not its only use. It’s also a personal tool to help you understand your objectives.

212

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BUSINESS PLANNING Identify the existing solutions related to your idea at scientific,



technological and commercial level. Identify the main competitors and key aspects of the industry to be



analyzed. Make a competitors analysis considering the next template: Name, location and business size



Product/Service

Price

Strengths

Weaknesses

Briefly, identify the main elements of you business plan using the

TASK

next template:

Source: http://diytoolkit.org/tools/businessplan2/

213

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

FURTHER READING

Burns, Paul (1996). Small Business and Entrepreneurship. Chapter: The business plan. Part of the series Macmillan Small Business Series pp 180197.

How to Write a Great Business Plan (Harvard Business Review Classics), by William ASahlman. Link to the pdf.: https://www.google.es/url?sa=t&rct=j&q=&esrc=s &source=web&cd=3&cad=rja&uact=8&ved=0ahUK Ewir9fXS5M7VAhXJI1AKHdUHDucQFggyMAI&url=ht tps%3A%2F%2Fcanvas.harvard.edu%2Fcourses%2 F11278%2Ffiles%2F1746174%2Fdownload%3Fveri fier%3DgpqMSn0lXC05elJdPsRa6dwCTfNUsGPXdG ekoTMf%26wrap%3D1&usg=AFQjCNE0bLd0UiY7SC RWyx5urdMxJeIGoQ

Sahlman, William A. (1997). How to Write a Great Business Plan. Harvard Business Review pp 98108

Find free templates, examples, guides and finance options in the next website: https://www.gov.uk/writebusinessplan EXAMPLES OF DIFFERENT BUSINESS PLANS Tonga Power Limited Business Plan http://www.tongapower.to/Portals/2/downloads/ Final%20BusinesPlan%202017.pdf: Business Plan for Solar Energy System Installations and Energy Efficiency Retrofits: http://www.truevaluemetrics.org/DBpdfs/Energy/S olar/SEER_BusinessPlan_130223c.pdf Solar Water Heater Distributor Business Plan: http://www.bplans.co.uk/solar_water_heater_distri butor_business_plan/executive_summary_fc.cfm SunMine Business Plan: http://www.sunmine.ca/uploads/3/1/6/3/31637 493/sunmine_business_plan_complete.pdf

214

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

FURTHER READING ANALYSIS OF CASES IN ENERGY SECTOR The business case for microgrids (2011): https://w3.usa.siemens.com/smartgrid/us/en/mic rogrid/Documents/The%20business%20case%20f or%20microgrids_Siemens%20white%20paper.pdf Energy Efficient Business Case for Energy Efficient Building Retrofit and Renovation inU.S.A. (2011): https://energy.gov/sites/prod/files/2013/12/f5/ business_case_for_energy_efficiency_retrofit_renov ation_smr_2011.pdf SERVICE AND PRODUCT: https://www.quora.com/Whatisthedifference betweenaservicebasedandaproductbased company LEAN TEMPLATES Business model: http://diytoolkit.org/tools/businessmodel

canvas/ Business plan: http://diytoolkit.org/tools/businessplan2/

215

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 3

STRATEGY DEVELOPMENT

Strategy development can be considered as the process to define the frontiers in which a company is going to move on and the tactics in order to win. It provides focus, direction and action in order to move the organization from where they are now to where they want to go. The main difference with the business plan is that the strategy defines the framework for the long term while the business plan defines the things to do within that framework in the short term. UNIT OBJECTIVE During this unit learners will understand the importance of the strategy, how to describe the vision, the mission and the goals and main objectives of the venture, as a basic step to be coherent in each section of the business plan and to have the main framework for the presentation of the company to stakeholders

KEYWORDS  What is strategy  Strategy development  Culture and values  Mission and vision  Business objectives  Value proposition  Analysis and learning  Business implementation

216

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 3

STRATEGY DEVELOPMENT

RECORD OFCONTENTS STRATEGY DEVELOPMENT STRATEGY AND BUSINESS MODEL .................................................................. 218 WHAT IS STRATEGY? ................................................................................................ 220 DEVELOPING A STRATEGYTHE STRATEGY TREEA VISUAL WAY TO DEFINE YOUR STRATEGY........................................................................................ 231 LEAN STRATEGY, A WAY TO IMPLEMENT AND MANAGE YOUR STRATEGY ......................................................................................................................... 238

217

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

2 .1

MODULE 3

STRATEGY AND BUSINESS MODEL

“

A business model is an abstract representation of some aspect of a firm’s strategy; it outlines the essential details one needs to know to understand how a firm can successfully deliver value to its customers Seddon and Geoffrey Lewis

218

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

STRATEGY AND BUSINESS MODEL

As seen above, it is not easy to give a unique definition about the difference between the two concepts, but those conclusions can help you to understand them in a better way. Once we have read about the relations between the three main concepts of this module (Strategy, Business Model and Business Plan), we try to represent our point of view in the next image:

219

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

2 .2

MODULE 3

WHAT IS STRATEGY?

“

The essence of strategy is choosing what not to do Michael Porter If someone else is making money on what you choose not to do, it just might be a sign that you have a good strategy Freek Vermeulen Strategy without entrepreneurship is central planning; entrepreneurship without strategy leads to chaos David Collis

There is a lot of confusion about strategy nowadays, it is a word that has been used indiscriminately, but most of the companies are not sure what that really means, but most of the company leaders agree that their corporations need a strategy. They know the success has to be earned, and probably it is much more difficult today than years ago because of the complexity of the market, so the definition of the way to win (your strategy) is much more important at this moment of business history than even before.

“

Strategy is the big picture on how an organization is going to win

One of the aspects that confuse managers is the way they have to think about competition. Usually, and probably because it is some kind of human factor, we want to be the best, we want to be the first one, and we think that is the only way to be success. But in business, there is no best, because for that you should have the best product, the best customer service, the best logistics, the best partners, and so on. If you try to be the best in everything, there is going to be always somebody improving the performance on some of those aspects because they are going to be focus on it, and even for just one aspect you have many different ways to be success. For example: What is the best product?

220

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

WHAT IS STRATEGY? Well, it really depends on the need or the problem you are trying to cover or solve. Is Mercedes better than Kia? Both companies compete in the same Industry, but they are focus on different things, and probably both are doing pretty well on profitability. All depend on who the customer is, what kind of needs your main customer segments have, etc.; and here we can find one of the most important things to have into consideration in business: to define your strategy you have to know everything about your potential customers, competitors and the marketplace as a whole. Contrary to what happens in other areas, for example sports, in business is really dangerous to try to compete to be the best, try to compete on the same dimensions with others, trying to sell the same product or trying to fight with the competitors to take advantages in the use of the same distribution channels; the way to compete should be the differentiation, mainly for startups with limited amount of resources. The managers should be focus on creating a company that offers something unique in some aspect of the business in which they have an advantage over its competitors and offer more benefits to society. On the other hand, in the definition of the company strategy, managers tend to confuse different concepts. If you ask managers about what their company strategy is, plenty of them will answer things like “We want to be number one in the market” or “We want to grow faster the nest 5 years”, but those are not strategies; they are goals. Strategy involves making choices, genuine choices, and be the number one in the marketplace is not very genuine, most of the companies wants that. They can also answer things like “We want to internationalize” or “We want to double our R&D budget”, but even this is not strategy; those are specific actions. And also, some of them will answer things like “Our strategy is to be the greenest company in Europe in the new energy paradigm”, but again, this is not a strategy, this can be considered a vision. Strategy is more than all that, it compiles all those aspects and more and too many most companies do not have a clear strategy, which is the main cause of business disaster in the medium term. They spend a lot of resources, dedicate a lot of time trying to win in some market space, but a lot of time all that effort is not enough to survive because there is not a proper strategy defined.

221

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

WHAT IS STRATEGY?

The strategy is really all the choices you make on how you are going to distinguish yourself to deliver a unique value to your customers. And this is compound by the company vision, values, goals, objectives, action plans, etc. To start the definition of our company strategy, we have to understand that the performance in a business level is a function of two things:  Every company competes in an industry and this industry has a structure. We must to have a clear picture of that structure because it defines the attractiveness of the business Industry Analysis.  Once we know the industry structure, we have to discover the place where we can play, the space of the market where we can occupy a position to win Positioning Thinking. And we have to include both of them on the definition of our strategy; we have to know constantly the health of the industry and the best position to compete with our resources and capabilities.

Industry Structure

Position within Industry

Considering the industry structure, every industry has many different aspects between them, but we can find fundamental aspects that all of them include, and the Porter’s 5 Forces, described in Unit 4, are a good way to define these common aspects.

222

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

WHAT IS STRATEGY?

Example of Value Chain on energy storage industry.Source: https://www.fool.com

“

It is critical to do a deep industry analysis and try to understand how it is going to evolve to develop a good business strategy

Considering the position area, the key strategic challenge for most businesses is to find a way of achieving a sustainable competitive advantage over the other competing products and firms in a market, how you are going to be over the average in terms of profitability within your industry, how you are going to achieve superiority in performance. A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. These are the only two ways to be more profitable according to Michael Porter1, by reducing the cost of your products in order to sell more, or by differentiation, delivering a unique value proposition with a higher price. And the starting point of the development of a strategy is answering the questions “What are we going to be, differentiators or lower cost? Are we going to be focus on many customers or just on a narrow segment?”

223

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

WHAT IS STRATEGY?

Source: http://www.foodtech‐portal.eu/

“

Strategy is based on a differentiated customer value proposition. Satisfying customers is the source of sustainable value creation. Kaplan and Norton

And of course, businesses starting only can survive serving innovative products and services, being unique in some aspect of the business, and this is the only option to identify an interesting segment of customers willing to pay a reasonable price for your product, avoiding a price fight with your competitors.

224

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

WHAT IS STRATEGY?

Source: www.tutor2u.net

Another concept to take into consideration for the definition of the strategy is the Value Chain, explains also in the Unit 4. The Value Chain says that in any business we have to manage a whole set of activities, all the company has to do to design a product, produce it, sell it, provide service after the sale, etc. It is a framework to represent the company as a set of activities. Michael Porter1 proposed a generalpurpose value chain that companies can use to examine all of their activities, and see how they're connected. The way in which value chain activities are performed determines costs and affects profits, so this tool can help you understand the sources of value for your organization.

225

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

WHAT IS STRATEGY?

Porter’s Value Chain

In Porter’s framework, we can find a set of headings that are common for every business. But every business is different, and the lower levels of every heading should define each of those businesses. The two main groups of activities headings are the Support Activities, which are like those activities that affect to the whole process of the value chain, and the Primary Activities, which are those activities necessary to create value step by step. And the idea to develop the business strategy is that the competitive advantage that lets you build a sustainable business comes from the performance of those activities or choices the company does on how to configure that value chain. If you decide to compete by costs, you will have to figure out how to carry out a concrete number of activities in a more efficient way than the competence. If you decide to compete by differentiation, you will have to figure out how to create higher value across the value change in order to find customers willing to pay a higher price, and that “Extra value” could be in the design or in the logistics or in the service, or even on several of them. Value Chain is a very powerful tool to define how you are going to compete in the industry, how you are going to position to win.

226

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

WHAT IS STRATEGY?

Energy Value Chain Example

As said before, to pursue competitive advantage, you have two ways of doing that:  Being operational effective: doing the same thing better  COST  Working on strategic positioning: having an unique value proposition  DIFFERENTIATION The first one is almost always the main job of the leaders. If you are not operational effective, strategy does not matter. But at some point other companies are going to copy the best practices you have implemented, and doing the same you are not going to be unique. So that, even being very efficient, implementing the best practices all the time, at some point the competition is going to start to be focus on the price, and the price will start to go down, and this is a very dangerous situation for a business that wants to be sustainable. Too many times leaders are focus only on operational effectiveness and they forget to work on the development of a unique value proposition. Strategy must include strategic positioning, which is the set of choices you make about how you are going to be different from the competitors and for that, you need to find aspects of the Value Chain that you are going to be able to define in and unique way. If your competitors are competing on logistics, you need to find another way to compete, for example, being unique on after sales support, or developing an innovative product, and so on.

227

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

WHAT IS STRATEGY?

Operational Effectiveness

Strategic Positioning

So, operational effectiveness is necessary but not enough, you need to create a unique value. Both aspects are critical, but most of the time the attention is put only on executing the best practices to compete, and leaders forget to dedicate time in the creation of the competitive advantage to create a sustainable business over the time.

Source: https://www.slideshare.net/hitnrun10/what‐is‐ strategy‐30278968

Another important toll developed by Michael Porter in 1.996 for the definition of the business strategy is the Aactivity System Maps. It shows how a company’s strategic position is contained in a set of tailored activities designed to deliver it. In companies with a clear strategic position, a number of higherorder strategic themes (in blue) can be identified and implemented through clusters of tightly linked activities (in green), as you can see in the next example of IKEA:

228

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

“

WHAT IS STRATEGY?

Atributes of Good Strategists 



 

Good Strategists have a different Value Chain from competitors (Value Chain is aligning to Value proposition). You need to think about ways to develop some of your activities in a different way (production, logistics, customer services, etc.) Good Strategists make tradeoffs. If you want to be very good on something (related to your value proposition), you are going to choose what not to do. You cannot be very good on everything, and trying to please every customer is a disaster. Good Strategists define clear links between the activities of the Value Chain. Activities of the Value Chain have to reinforce each other. Good Strategists are continually improving their processes and the implementation of the strategy to be operationally effective, but they do not change the strategy, they keep focus on the chosen value proposition.

As the strategist of your new venture, if you can get these attributes, you will have a good chance to develop a profitable and sustainable business. For most of the companies is very difficult to choose what not to do, what kind of customer you are not going to serve, this is a real acid test of a strategy. So, we can say that strategy is the willingness to make customers unhappy. Good strategies are really difficult to imitate because you cannot just copy one thing, you need to copy the whole activities system. Again, the strategy must help you to identify what not to do, and the option you choose will define the path you will take to compete in the marketplace. Although you cannot see the shape of the path until you start walking, you can always decide the direction to take from the beginning. And this direction should be known by all the employees because everyone makes daily decisions and decisions are interdependent, what a department does affects to other departments, and every little choice should be aligned with the company vision and mission, in order to achieve the desired objectives. Strategy must be your critical alignment tool to make sure that everybody is rowing in sync. The strategy must help you to do the next things:   

Choose a viable opportunity considering the market your are entering in. Stay focused within the defined boundaries. Empower your employees and manage your resources to support the distinctive value proposition of the company.

229

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

“

WHAT IS STRATEGY?

StrategyStatements 

Strategy is not planning, it is not a set of initiatives with timeframes associated and resources assigned.



Strategy makes planning easier because it enables discernment of what is critical and what is not.



Strategy involves making choices; genuine choices.



A strategy has to be communicated within the organization. It has to influence the actions and decisions of every worker.



Strategy is about enforcing, keep the direction, avoiding distractions, avoiding imitation, avoiding to please every customer, …

And strategy must answer the next questions:      

TASK

“

Is your business idea sustainable? How you are going to maintain your business? What is your unique competitive advantage? What is going to be your position in the marketplace? What capabilities need to be in place? What management system must be set up? And basically: Why are you going to win?

Strategy involves defining a company’s longterm position in the marketplace, making the hard tradeoffs about what the company will and will not do to provide value to customers, and forging hardto replicate fit among parts of the “activity system” the firm constructs to deliver value to customers, all with a view to making a superior return on investment. Review the following video link to clarify the concept: What is strategy? https://www.youtube.com/watch?v=TD7WSLeQtVw

230

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

2 .3

MODULE 3 DEVELOPING A STRATEGY

THE STRATEGY TREE A VISUAL WAY TO DEFINE YOUR STRATEGY

In innovative companies all the elements of the strategy and the articulation of them have to be designed to support the distinctive value proposition. There are a lot of tools to define your strategy, and most of them are good enough, but here we are going to present a very interesting one because it let you describe, in an orderly and visual way, all the elements and the interrelation between them, in order to build a coherence and robust strategy. It is based on some of the methods and tools already presented, design thinking, visual thinking and storytelling, and it is going to help us to describe our company strategy from the roots. The Strategic Tree is a methodology used to design and visualize your business strategy. The tool permits to place the key elements of the business and relate them in only one picture, zooming in or zooming out, obtaining more or less details through switching theoretical lenses and repositioning them in the corresponding field. The Strategic Tree is used during the first step of foundation of a new business or to redesign an existing business, which could be a small, medium or large company. It helps managers to visualize all the strategic drivers at a glance, and settles the key elements of the business so as to deepen in accordance with the defined milestones in a second step. It can easily be used together with other tools as Canvas Business Generation, the Blueprint to design the service or to write the Business Plan.

231

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

DEVELOPING A STRATEGY

THE STRATEGY TREE A VISUAL WAY TO DEFINE YOUR STRATEGY

Source:Industrial Organization Schoolwww.eoi.es/portal/en

The way we propose to develop the exercise is using a Strategic Tree Canvas like the one proposed here:

Using Postit® labels, we will fill up the tree from the bottom to the top, in order to have a complete picture of the company’s purpose. Although we will present a possible order down below, it can change and we can always add some of the labels in other order if some part inspires us to fill another.

232

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

DEVELOPING A STRATEGY

THE STRATEGY TREE A VISUAL WAY TO DEFINE YOUR STRATEGY

STEP 1 – Identify the indepth insights (roots reservoir) As your corporate identity should be based on this aspect, it is vital to always introduce all kinds of experiences from your hard drive (studies, travels, books, movies, referees, successes and failures, etc…) and that you never have had but should be part of your aspirations, as the indepth insights. Representative experiences forge our business path, shared in part or totally by the team. STEP 2 – Identify the values If innovation is the key of your business, the values will set up and support your main tasks and both the relationship with your customers, suppliers and partners. It may be useful to give same values a special wording as there are many different shades among them, as for example emotional innovation, technological innovation, cultural innovation or natural innovation. The values, The authentic values, not the lovely ones we can see in a lot of respectable websites, emanate from the “indepth insights”. In the next image, we add both inspirational values, those that we wish to have, and settled values, those that we know we have. Value examples:



Reflexive capacity



Intuition



Ability to reason



Responsible



Organized



Persuasive

233

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

DEVELOPING A STRATEGY

THE STRATEGY TREE A VISUAL WAY TO DEFINE YOUR STRATEGY

STEP 3 – Define the mission The mission has always been formulated in terms of “what you do”, but it really should be based on “what you do it for”, ultimately “why”. It should be explained shortly and contain a reference of the products and services you offer as well as the values on which your company is built on. It is our mission, although it can be nuanced. The whole methodology is based on the principles of Design Thinking, all can be nuanced, consistency and coherence prevail. Mission example: “Our mission is to offer cuttingedge photovoltaic technology to all our clients in order to boost a green culture around the world, respecting our common values, our managing style and the principles of the business” STEP 4 – Define utopian vision These are the main motivations which drive your business to success. Design and implement a motivating structure due to your indepth knowledge, values and mission. Remember that we are effectively motivated and moved by desires and dreams and not by requirements. In this methodology, the utopian vision is where our dreams have their corresponding place, as a lighthouse or a compass. Utopian vision example: “To become a global company leading the use of reliable solar power and which contributes to the protection of the environment for future generations and the transition to a world without fossil fuels” STEP 5 Value proposition This area links up the business with the audience: users, clients, stakeholders, etc. It refers to the products or services you offer, and will be deeply define in Module 4. This element is basic to build the storytelling. In the next link you can see a 3 minutes video that describes perfectly the value proposition of a company based on energy savings: http://www.camfil.us/Filter Technology/EnergySavings/LCCLifeCycleCost/ValuePropositionvideo/

234

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

DEVELOPING A STRATEGY

THE STRATEGY TREE A VISUAL WAY TO DEFINE YOUR STRATEGY

STEP 6 – Define the public In this step you have to respond to the question “For who?”     

Customers Internal and external collaborators Financial entities Administration Social collectives

Try to align your audience with your values as far as possible. The most important public, Customers, is broadly explain in the next Unit (Customer needs analysis) and in the Module 4 (Customer segmentation block of Business Model Canvas) STEP 7 – Identify your position in the industry You have to know where you are if you want to design where you want to be. Go to unit 4 to know the tools to carry out an environmental analysis. STEP 8 – Define the Business operational view or operational vision It constitutes the trunk and the visible part of the tree being an essential part of the followup. It is the view which allows situating measurable and credible targets in the operational plans. To do so, and in order to assess whatever you have obtained, significant milestones and events have to be settled. Operational vision example: “To become the European leader in solar power installed by the end of 2020” STEP 9 – Define processes & operations These activities and tasks should be done in order to make the added value work. As every process contains a resource in itself, the lack of this resource should force to learn about it or to ally with other parties (next step). In this section, it will be useful to generate a Process Map supported from the Canvas Business Model (deeply explained in Module 4), covering financial and administrative management, production and marketing. In the next link you can see a 3 minutes video that describes perfectly the value proposition of a company based on energy savings: http://www.camfil.us/Filter Technology/EnergySavings/LCCLifeCycleCost/ValuePropositionvideo/

235

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

DEVELOPING A STRATEGY

THE STRATEGY TREE A VISUAL WAY TO DEFINE YOUR STRATEGY

STEP 10 – Identify partnerships and learning processes The creation of strategic alliances or partnerships might be understood as a key contribution to a process. In case a process includes a special key driver in itself, it has to be otherwise incorporated, by learning proceedings and/or by partnerships, aligned with our values. In this step you should be able to identify those activities needed in your processes in which you need external collaboration and the related capabilities to be developed in the company STEP 11 – Define metrics for triple bottom line An organization is measured in relation to results. Today the triple bottom line focuses corporations not just on the economic value they impact but also on the environmental and social value they add, making decisions as a whole concept, looking at the three perspectives, measuring the economic, social and environmental footprint. Here you should define metrics per area (ecological, economic and social) aligned with the objectives to be achieved (based on operational vision and operational plans). There are not fixed indicators, each company must define those more convenient to develop its own strategy. Some examples of indicators can be base on the next aspects: Economical:   

Growth Costs Revenue

Social:   

Employee welfare Fair trade Charitable contributions

Ecological   

Resource consumption Waste Management Land use

236

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

DEVELOPING A STRATEGY

THE STRATEGY TREE A VISUAL WAY TO DEFINE YOUR STRATEGY

STEP 12 – Define the company storytelling Our audience, users, customers or shareholders need to understand us as a whole. Our history has to be based on three different but related points of view: 



Impulsedriven world of an individual, exploring an amusing and detailed anecdote, easy to remember. It could be linked to the utopian vision. The rational part, driven by the logic and the understandable. It’s mainly linked to our Value Proposition Emotional aspects, in line with our values and indepth insights. It’s the main link to retain users and customers. This is the way that we achieve the mutual engagement.

If you want to know more about how to build your business story, read the next article:http://www.dummies.com/careers/business communication/11storystructuresforbusinessstorytelling/ STEP 13 – Develop the operational plan See the Unit 1 about business planning, where you have to define the operational plan.

237

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

2 .4

MODULE 3 LEAN STRATEGY, A WAY TO IMPLEMENT AND MANAGE YOUR STRATEGY

Entrepreneurs tend to forget strategy as basic element to start a company and make it sustainable, while traditional companies tend to not to pay enough attention to innovation as a basic element to compete. The importance of strategy is that it lets you to define the boundaries of the space where you should keep focus on, while in a very dynamic world you have to keep in touch with the market continuously and keep making experiments in order to discover the best options for you to compete in that market. Once we have the strategy structure defines, the space we have to move in, it is time to design the way to implement and improve it, through the most efficient way. According to David Collis1, by combining traditional strategy, defining boundaries, with lean startup practices, making experiments to explore the right innovations, companies can align employees around a common purpose, making the most of limited resources, learning from the market, and then adjusting the strategy to better fit that market. According to Strategy should provide overall direction and alignment, serving as the channel that novel ideas must pass and a measuring stick for evaluating the success of experiments with them. Collis proposes a 5 stages process for developing an efficient strategy: STAGE 1 – Define the vision Define what the organization sees as its ultimate purpose. This is the Utopian Vision defined in the step 4 of the Strategic Tree. STAGE 2 – Analysis Review the company’s strengths, weaknesses, opportunities, threats, resources and capabilities. See Step 7 of Strategic Tree and Unit 4 (Environment analysis).

238

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

LEAN STRATEGY A WAY TO IMPLEMENTAND MANAGE YOUR STRATEGY STAGE 3 – Deliberate strategy

This comprises business scope (the boundaries around what the organization will and will not do), competitive advantage (why a company’s customers should prefer its products rather than those of rivals), and objectives (principal short term initiatives/measures with accompanying metrics which the organization needs to adopt in pursuit of its Vision. Senior executives should agree the result of this stage and the space in the industry where the company can cover customer needs in a better way than competitors should be identified. See steps 5, 7, 8 and 13 of Strategic Tree. STAGE 4 – Learning Managers at all levels must be empowered to make daily operational decisions and try things out, guided by the strategy. The strategy acts as a filter to know what type of ideas can be implemented through experiments in order to discover new ways to improve the company performance in a gradually way. This is part of the next stage. STAGE 5 – Emergent strategy As an innovator, you have to make experiments. Innovation is about building and failing, repeatedly. Each experiment teaches you what it takes to keep your company standing. Feedback and findings from the sum of all the independent operational choices gradually reshape/adjust the detail of the deliberate strategy over time. In response to environmental changes and the findings of experiments, the venture builds new internal capabilities and, if necessary, revises the original deliberate strategy. Then the process begins all over again.

So, here you have the combination of two methodologies to define, implement and improve your strategy as the constantly changing lighthouse that let you take informed decisions about in what direction your company should go. The Strategic Tree let you describe all the elements that a strategy should contained while the Lean Strategy method let you implement and improve that strategy combining the todown and the bottomup approach.

239

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

Source:I“Lean Strategy”, David Collis.

LEAN STRATEGY A WAY TO IMPLEMENTAND MANAGE YOUR STRATEGY

Read the following article via the link below: https://www.strategybusiness.com/article/00355?gko=9fa18

TASKs

Why companies as Google could be key partners or competitors of new energy companies? Identify one segment of the new energy value chain and try to define a good value proposition. Identify 2 strengths, 2 weaknesses, 2 opportunities and 2 threats in that environment. Read the following article via the link below: http://www.businessinsider.com/the5stepstrategyprcoess20132 Try to define your business strategy in less than 5 pages answering the next questions:  What is your winning aspiration?  Where will you play?  How will you win?  What capabilities must be in place?  What management systems are required?

240

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES Ogel, L.& Castillo, A. 2012: Strategic tree. ArDIn.

Arte, Diseño e Ingeniería, 1, 106130

Porter, M. E. (1985) Competitive Advantage: Creating and Sustaining Superior Performance. Free Press, New York, 1985. Porter, M. E. (1996) What is Strategy?. Harvard Business Review, Nov/Dec 1996 Seddon, Peter and Lewis, Geoffrey, "Strategy and Business Models: What's the Difference?" (2003). PACIS 2003 Proceedings. 17.

241

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 3

CUSTOMER NEED ANALYSIS

Customer need analysis is necessary in order to define the value proposition according to real problems and needs. The development of the solution cannot be done without interaction with the market, and very often the communication with potential clients will define the product/service that make you success and it will be very different to the one you were thinking about at the beginning. UNIT OBJECTIVE During this unit the main methodologies used for the identification of real needs and problems nowadays will be presented, as the first step to create successful ventures. And introduction of the current needs within the energy sector from the customer point of view will be given, methodologies as Customer Development (Steve Blank) will be explained, different tools to describe the potential clients will be shown, types of customer segments (referenced to the information given in the business model module) will be explained and examples on real cases will be shown.

KEYWORDS  New energy paradigm  Energy trends  Consumer behaviour  Customer discovery  Customer validation  Customer creation  Customer building  Customer segmentation

242

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 3

CUSTOMER NEED ANALYSIS

RECORD OFCONTENTS CUSTOMER NEED ANALYSIS NEW ENERGY PARADIGM ........................................................................................ 244 CUSTOMER DEVELOPMENTA POWERFUL METHODOLOGY TO IDENTIFYCUSTOMER REAL PROBLEMS AND NEEDS ............................. 251 CUSTOMER VALIDATION ......................................................................... 252 CUSTOMER SEGMENTATION ................................................................................ 255

243

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3 .1

MODULE 3 NEW ENERGY PARADIGM

From the beginning, definition of the business model, the strategy and the business plan, to the end, implementation of actions, you must identify continuously real problems and needs in the marketplace, defining your customer segments and interacting with them in order to keep developing your business.

“

There is only one boss: The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else Sam Walton

Technology is changing the customer expectation of what to expect from energy companies. New elements are causing new opportunities and new demands from the marketplace. While the traditional business model has been based on pillars such as grid security and service reliability; customer service: environmental responsibility; and managing investment, there are several persistent trends that are that traditional business model, such as:       

The need to reduce the greenhouse gas emissions. The increasing demand of electricity. The decline of production costs for renewable energy technologies. The political support for energy efficiency. The implementation of smart grid technologies. The growing interest and activity around the electrical vehicle. Increasing recognition of domestic natural gas

This is causing that some specialized business sectors are expanding the ability and purpose of the traditional value chain and a much more complex energy ecosystem is emerging.

244

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

NEW ENERGY PARADIGM

New extended Value Chain. Source: Cognizant

245

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

Emerging energy ecosystems. Source: PWC

NEW ENERGY PARADIGM

In this complex environment, customers will play a more active role and the use of technology is incentivizing them to manage energy consumption and generate their own energy. Consumers are becoming more demanding; they want more control over their expenditures and environmental impact and more information about their energy usage. But they also have much more to offer in return to power providers and other participants than just payment for energy consumed, and this central field is going to be a very rich source of new business opportunities in the energy sector.

246

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

NEW ENERGY PARADIGM

Exchange of value in the old and new paradigm. Source: IBM Institute for Business Value

Percentage of respondents rating the following strategies as likely or highly likely to be successful in a distributed generation market. Source: PWC

Furthermore, according to the 13th PwC Annual Global Power & Utilities Survey (2013), where 53 power and utilities companies from 35 different countries participated, 82% of the participants see distributed power generation as an ‘opportunity’ versus only 18% rating it as a ‘threat’. In this future scenario, the 67% of those participants see the provision of distributed generation services to customers as the strategy most likely to succeed, but other options such as helping consumers to save energy though efficiency contracts or helping “prosumers” (consumers that generate their own electricity) to share energy through intelligent grids are not bad options at all.

247

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

NEW ENERGY PARADIGM



  

be digital, connected, and social thanks to technologies like social media, mobile connectivity, smart meters, big data, etc. demand (and receive) greater choice of energy supply, new products and services, payment options and “greener” options be empowered with information and the ability to manage energy usage demand better overall experience adopt technologies that will impact the energy infrastructure, such as distributed generation, net metering, electric vehicles, smart devices, etc.

The consequence will be that traditional energy companies will have to make a great effort to redirect their strategies, and new ventures will have a great pool of opportunities waiting for innovative business models. The energy companies of the future will have to be prepared for aspects such as a permanent connected consumer, the management of big data to extracts insights that help us to offer better service, the constant interaction with the customer, the offering of transparent information and new experiences to customers and knowing the role to play “behind the meter”.

248

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

NEW ENERGY PARADIGM

In this new paradigm, we can suppose that 4 types of customers are going to coexist in the more complex energy ecosystem: 



The Energy Contented Customer: gridconnected customer with a very limited interest in energy matters. Happy with a reliable service without seeking the best offer or deal. The Energy Restless Customer: gridconnected customer that seeks the best offer, service or value from their energy supplier. Not interested in going further into own energy management. The Energy Manager Customer: customer attentive to energy consumption and management, and ready to act (consumption optimization, heating system controls etc.) The Energy Generator Customer: customer equipped with power generation and/or storage systems (wind, solar, EV, etc.). Very interested in grid interactivity but becoming less griddependent and potentially moving offgrid.

TASK

Of course, we cannot forget those customers that can be a mix of the ones above, such as an Energy Generator Manager, that can produce part of his own energy and interact in a efficient way with the grid to cover all the energy needs.

Watch the following video “A history of the future, the world in 2025” Jeremy Rifkin, 31 January 2017:youtu.be/TUVegx9Za4

249

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3 .2

MODULE 3

CUSTOMER DEVELOPMENT

A POWERFUL METHODOLOGY TO IDENTIFY CUSTOMER REAL PROBLEMS AND NEEDS

“

You can't just ask customers what they want and then try to give that to them. By the time you get it built, they'll want something new. Steve Jobs

The trends and suppositions about future scenarios can be useful to define the starting point, but in the creation of a company you will have to keep discovering what the customer real problems and needs are in order to define an business model that fits and a methodology like Customer Development1 can help us to implement an effective way to do so. The Customer Development methodology was created by Steve Blank and it consists in a 4 steps process: 

Customer discovery first captures the founders’ vision and

turns

hypotheses.

into

Then

series

develops

business a

plan

model to

test

customer reactions to those hypotheses and turn them into facts. 

Customer

validation

tests

whether

the

resulting

business model is repeatable and scalable. If not, founders should return to customer discovery. 

Customer creation is the start of execution. It builds enduser

demand

and

drives

into

the

sales

channel to scale the business. 

Company building transitions the organization from a startup

company

focused

executing

validated model.

250

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

CUSTOMER DEVELOPMENT

A POWERFUL METHODOLOGY TO IDENTIFY CUSTOMER REAL PROBLEMS AND NEEDS

“

Your product is a starting point. A loyal customer is the goal

ource: IBM Institute for Business Value

Ron Kaufman

Strictly, the identification of real needs and problems in the marketplace is made in the two first steps, so in this unit we are going to explain in a practical way how to implement those steps. The goal of Customer Discovery is just what the name implies: finding out who the customers for your product are and whether the problem you believe you are solving is important to them. More formally, this step involves discovering whether the problem, product and customer hypotheses in your business plan are correct. To do this, you need to leave guesswork behind and get outside the building in order to learn what the highvalue customer problems are, what it is about your product that solves these problems, and who specifically your customer is (for example, who has the power to make or influence the buying decision). What you find out will also help you shape your initial value propositions. An important insight is that the goal of customer development is not to collect feature lists from prospective customers, nor is it to run lots of focus groups. In a startup, it is the founders and product development that defines the first product. The job of the customer development is to see whether there are customers and a market for the product that vision. (Read this last sentence again, it is not intuitively obvious, but puts the stake in the ground of where the initial product spec comes from).

251

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3.2.1

CUSTOMER DEVELOPMENT

A POWERFUL METHODOLOGY TO IDENTIFY CUSTOMER REAL PROBLEMS AND NEEDS CUSTOMER VALIDATION

Customer Validation is where the rubber meets the road. The goal of this step is to build a repeatable sales road map for the sales and marketing teams that will follow later. The sales road map is the playbook of the proven and repeatable sales process that has been fieldtested by successfully selling the product to early customers. Customer validation proves that you have found a set of customers and a market that react positively to the product by relieving those customers of some of their money. A customer purchase in this step validates lots of polite words about your product. In essence, customer discovery and customer validation corroborate your business model. Completing these first two steps you should verify your market, locates your customers, tests the perceived value of your product, identifies the economic buyer, establishes your pricing and channel strategy, and checks out your sales cycle and process. If, and only if, you find a group of repeatable customers with a repeatable sales process, and then find that those customers equal a profitable business model, do you move to the next step, Customer Creation. When customers did not respond as their business models predicted, further execution on the same failed plan guaranteed disaster.

“

Most startups fail from a lack of customers than from a failure of product development Steve Blank

252

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

CUSTOMER DEVELOPMENT

A POWERFUL METHODOLOGY TO IDENTIFY CUSTOMER REAL PROBLEMS AND NEEDS CUSTOMER VALIDATION

Mega‐trends in energy industry and potential solutions. Source: https://www.fortum.com/en/

In the next table you can find useful information about new trends and potential solutions to cover them.

Once we have a first version of our value proposition it is time for the primary analysis conducting interviews to potential clients to validate who they are and why they would buy our solutions. To apply the methodology, you will have to use the tool Business Model Canvas, extensively described in the Module 4, focusing on the right part without losing sight to the rest of blocks.

253

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

CUSTOMER DEVELOPMENT

TASK

A POWERFUL METHODOLOGY TO IDENTIFY CUSTOMER REAL PROBLEMS AND NEEDS CUSTOMER VALIDATION

Watch the following video: “Steve Blank: Business Models and Customer Development” https://www.youtube.com/playlist?list=PLw540Wq5kay8RCvYu7D5r5wZcedugkZO

254

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3 .3

MODULE 3 CUSTOMER SEGMENTATION

You will have to figure out who your potential customers are, considering your value proposition, and this is made through customer segmentation trying to get information about geographical, social and demographic characteristics of our potential clients. At this stage, we have to know if we are going to sell our solution to another company o directly to final users, which is called B2B and B2C models, because depending on that, we are going to analysis some aspects or others. .openviewpartners.com/customer‐segmentation/#.WS7whmjyiUk Segmentation schemes B2B:    



Geographic base / reach Industry / subindustry / industry served / customer served Product class / product usage Organization size (revenue, employees, etc), product delivery model / product or packaging format / special technology / process methodology Special use / needs

ww.cebglobal.com/blogs/five‐common‐b2c‐segmentation‐schemes/ Segmentation schemes B2C:     

Needs Lifecycle with company Life stage Value Potential value

See Unit 6 to know more about Customer Segmentation. Once we have the fist hypotheses about what the problem is, how we can solve it and who can be our clients, we will put them in the Business Model Canvas (Value Proposition and Customer Segments blocks)

255

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

CUSTOMER SEGMENTATION

Then, we will take this first version of the Business Model Canvas and go out to talk with potential customers and industry experts in order to get data to validate our guesses and acquire knowledge. This data will redefine our hypotheses and we will have to validate them again, through new experiments and new tests until we discover the real problems to be solved or real needs to be covered and the real customer segments to be reached. Hypothesis example: Our main customer will be male, 24 to 35 years old, lives in urban areas and like Apple. Experiment and test example: run a “google adwords” campaign for virtual products or organize face to face interviews for physical products. Then we have to analyze the data obtained and confront it to our hypothesis. Although the stage of search can be more aligned with a startup philosophy and the stage of execution to a traditional company purpose, the first two steps of Customer Development can also be applied to Big Companies for the development new business lines based on innovation. See the next example of Customer Development in GE Energy (slides from 106 to 135): https://www.slideshare.net/sblank/arpaesteveblankpresentation/106 Build_A_100M_Factory

COMPREHENSION QUESTIONS

1. The Business Model does not matter if you have a Business Plan developed a. False b. True 2. The Business Plan is only useful for emerging companies a. False b. True 3. The only good strategy is the one that permit the company to be the best in every aspect of the business. a. False b. True 4. Customer segmentation is the practice of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests and spending habits. a. False b. True

256

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

FURTHER READING

Blank, S. 2013. The Four Steps to the Epiphany: Successful Strategies for Products That Win Rifkin, J. 2013. The Third Industrial Revolution: How Lateral Power is Transforming Energy, the Economy, and the World

The German Energy Transition: The Internet of Things, Zero Marginal Cost Renewable Energy, and the Third Industrial Revolution By Jeremy Rifkin https://www.bee ev.de/fileadmin/Publikationen/Sonstiges/3_19_20 15_Digital_Germany_For_March_26th_German_Ener gy_Transition_Dialogue_Event.pdf Customer engagement in an era of energy transformation http://www.pwc.com/gx/en/oilgas energy/pdf/pwccustomerengagement.pdf

257

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 3

ENVIRONMENTAL ANALYSIS

Analysing the environment is a strategic process to identify all external and internal units, which can affect the performance of the organization according to renowned economists. UNIT OBJECTIVE During this unit an overview will be given on the differences between different analysis methods (SWOT, Pestle, Porter...). Discussions will show the possible and probable effects of different external forces and conditions and how these, influence the organizational survival and growth strategies

KEYWORDS  Environmental analysis  Business analysis  Porter model  Industry analysis  Internal and external analysis  Value Chain  Generic strategies  SWOT analysis

258

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 3

ENVIRONMENTAL ANALYSIS

RECORD OFCONTENTS

ENVIRONMENTAL ANALYSIS MICHAEL PORTER ......................................................................................................... 260 GENERIC STRATERGIES.........................................................................................261 VALUE CHAIN.............................................................................................................262 PORTER’S FIVE FORCES ......................................................................................265

ALBERT HUMPHREY .................................................................................................... 267 SWOT ANALYSIS ......................................................................................................268 PESTEL ANALYSIS ...................................................................................................270 STEEP/STEEPLE ANALYSIS ................................................................................271

259

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

4.1

MODULE 3

MICHAEL PORTER

“

Strategy is about making choices, tradeoffs; It's about deliberately choosing to be different. Michael Porter

Porter serves as an advisor to business, government, and the social sector. He serves as strategy advisor to international companies, including Caterpillar, Procter & Gamble, Scotts MiracleGro, Royal Dutch Shell and Taiwan Semiconductor. He is member of public boards of directors of Thermo Fisher Scientific and Parametric Technology Corporation. He is a professor at the Bishop William Lawrence University and at Harvard Business School. Papers/Books:    

Competitive Strategy (1980) Competitive Advantage (1985) Competitive Advantage of Nations (1990) On Competition (1998)

260

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

4.1.1

MODULE 3 MICHAEL PORTER

Source: A Refinement of Porter´s Strategies (p.100), by Wright P., 1987, Strategic Management Journal

GENERIC STRATERGIES

This model targets three successful generic strategies for creating a defensible position and outperforming competitors in each industry. Those three strategies either focuses on cost leadership, differentiation/focus and can be applied to any kind of business. The aim of these generic strategies is the creation or preservation of competitive advantages. It is about the improvement of the position in the competition with the competitors. According to Porter a company must only choose one of these strategies or risk to lose resources. The strategy of the coast leadership is directed to be the cheapest one among all competitors by “natural” advantages like a favourable location. The strategy of the differentiation focuses on the creation and protection of something unique, either a product or service, that important for the customer as for example the prominent product quality. The strategy of differenation/focus aim is to concentrate on certain parts of the market instead of the whole market like on a group of people, geographic markets or a product line segment. (Dess, Davis 1984)

261

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

4.1.2

MODULE 3 MICHAEL PORTER

Source:

VALUE CHAIN

If someone wants to analyse a company it is important to split the it into areas which allows you to look at some single components more exactly. The value chain is a tool for identifying ways to create more customer value.This model identifies nine strategically relevant activities that create value and cost in a specific business. These nine activities are divided into primary and support activities. To know about the costs and performance of the competitors as benchmark is important forcomparing these to the own ones. According to this model, every firm is a synthesis of activities performed to design, produce, market, deliver, and support its product. With every step of the value chain the value of the product will be increased. The value added must be higher than the genesis costs.The aim of all activities is the creation of value, shown as profit (Kotler, 2012).

262

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MICHAEL PORTER

Financial assessment of a biodiesel value chain: case study of Chiapas, Mexico http://www.emeraldinsight.com/doi/full/10.1108/MRR0820130196

CASE STUDY

VALUE CHAIN

Inbound logistics: There are about 10,000 hectares of Jatropha Curcascrops, pruned twice a year. The subproducts, obtained by reaping operations, are branches and leaves called biomasses. But they are non usable and cannot be sold or reused. Once the fruit is reaped, it must be cleaned and its peel and pulp extracted, but no benefits are obtained from its subsequent sale. Farmers obtain the oil from the seed and extract it with a mechanical process (pressmachine). The torta obtained is only used as compost in the original field. However, with an anaerobic digestion process it could be transformed into biogas and could besold. 15 percent of the fruit weight corresponds to its three seeds, but only 35 percent of such mass can generate oil extracted from pressing. This means that for each kilogram ofJatrophafruit, 52.5 grams of oil result (0.15*0.35*1,000), i.e. 525 liters/hectare. The government of Chiapas pays the seed oil producers US$0.8239 for each liter. The oil is transported to biodiesel production plants by special tanker trucks or barrels to be transformed by the transterification process. Operations: Two production plants were made operational with full equipment: one in TapachulaandtheotherinTuxtlaGutierrez.ThetotalinvestmentcametoUS$1,850,0 00,including three production modules, expenses related to importation, installation andtraining.Tapachula’s plant has a Hindu extractor that extracts up to ten tons of seeds per day,and a reactor with British technology which produce up to 20,000 liters per day. TheTuxtla Gutierrez’s plant has Swedish and Mexican technology with a capacity of 10,000biodiesellitersperdayandalsoservesasaninvestigationcenter.Thelifeofthe equipment is estimated to reach ten years of constant operation. Therefore, the operationcost was estimated at US$0.2293 per liter, including depreciation.

Outbound logistics: ThegovernmentoftheStateofChiapashasbeengivenpermissiongivenbytheEnergy Secretary’s Office to transport the biodiesel fuel from its production plants toselling locations. Special tanker trucks or plastic containers transport the fuel to TuxtlaGutierrez, where up to 80,000 liters can be stored. The costs incurred during this stageof the value chain increases the selling price by b $0 0549 li f bi di l Thi i f d h f i h The European Commission support for the production of this publication does not constitute an endorsement of the contents which reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.

263

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MICHAEL PORTER

Financial assessment of a biodiesel value chain: case study of Chiapas, Mexico

CASE STUDY

VALUE CHAIN

Marketing and sales :The biodiesel sales station (Plate 3) is open to the general public and has two storagetanks of 40,000 liters each. The biodiesel station consists of two high flow dispensers capable of managing 200 liters of biodiesel per minute with two hoses per dispenser. The facilities include administrative offices, restrooms, a warehouse and an automatic control room. ThedispenseristhepropertyoftheStateGovernment,whichpaysnorent.Theadminist rative expenses consist of a payroll for seven people in charge of the offices andsales, which represents approximately US$3,844.96 monthly; US$0.0062 per liter. Whensumming up all costs, Chiapas State can sell the biodiesel for US$1.1699 per liter, on average. There is a marginal profit on sales of 3.33 percent. However, the biodiesel could be sold as a mixture together with fossil diesel. Some formulas suggest combining 5 or10 percent of biodiesel with 95 or 90 percent of diesel. The mixture is commerciallyknownasBiodieselfiveandBiodieselten(B5andB 10),respectively.Undersuchconditions,thepricedoesnotsignificantlyincrease(abo utUS$1.0514),andthecostbenefit of production is worth the expense.Some formulas suggest combining 5 or10 percent of biodiesel with 95 or 90 percent of diesel. The mixture is commerciallyknown as Biodiesel five and Biodiesel ten (B5 and B10), respectively. Undersuchconditions, the price does not significantly increase (about US$1.0514), and thecostbenefit of production is worth the expense. Service: The main clients for the biodiesel are the Conejo and Tapachulteco buses. They belong to the public transportation departments of Tuxtla Gutierrez and Tapachula, so sales come mostly from internal consumption. People in the sales office provide postsale service, so no extra cost is attributed to this value chain activity. The service consists in advising clients about usage, how the fuel works in diesel motors and the environmental benefits. However, if the government established by law that all transportation with diesel engines should use biodiesel or at least the B5 or B10 mixture, the number of customers would surely increase. For this reason, more appropriate user control should be implemented. Records could be kept of repeat customers, which can be done through the registration of car or truck license plates. It would be helpful to take a customer satisfaction survey to know if customers received good service and to corroborate the quality of the biofuel.

264

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

4.1.3

MODULE 3

MICHAEL PORTER

Threat of new entrants

Bargaining power of suppliers

Rivalry among existing competito rs

Bargaining power of buyers

Threat of substitute products or services

Source: A Refinement of Porter´s Strategies (p.100), by Wright P., 1987, Strategic Management Journal

PORTER’S FIVE FORCES

This model is based on the idea that the attraction of a branch is determined by the five essential competitive forces. The aim of this model is to develop a strategy for longterm profits in your company. It helps companies to understand the structure of its industry and to find a position is more profitable and less insecure to attack. The stronger the menace by these five competitors is, the more unattractive the branch gets because it is more difficult to achieve a lasting competitive advantage. Enterprises should try to act in a branch with an attractive structure and build there a position which is not easy to vulnerable. The right strategy of an enterprise can have an effect on the five forces. This can raise the attraction of a branch. Indeed, it can also destroy the structure of the branch if enterprises want to chance it for its own advantage without thinking about longterm effects for this branch.

265

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MICHAEL PORTER PORTER’S FIVE FORCES

The barging power of the suppliers determines how much the suppliers can put through their interests in a connection with an enterprise. A high power of the suppliers will lead to the fact that these can either require higher prices or deliver worse quality for the same price. This affects the companies profit negatively so the branch is more attractive the more slightly the power of the suppliers are. The barging power of the buyers also determine how much the buyers can put through their interests in a connection with an enterprise. A higher power of the buyers will lead to the fact that these can either require lower prices or better quality for the same price. This affects the companies profit negatively so the branch is more attractive the more slightly the power of the buyers are. Threat of new entrants describes the situation when new competitors enter the market and thereby the pricing pressure raise. The prices will sink because these new competitors want to will customers. Thereby the attractivity of the branch sinks. The danger that new competitors enter into the market depends on the height of the market entry barriers. Higher barriers mean a more protected position for the already available competitors and this raise the branch attraction. Threat of substitute products or services describes similar productsorderservices. For example, they fulfill similar customer needs but they are differently perceived from the customer, respond to other customer groups or are expelled in other regions. Those products influence the branch negatively because the customers could change their requirement for products easily. Rivarlyamong existing competitors determine the competitive intensity in the branch which influence the attraction of the branch. A higher competitive intensity manifests itself either as a prize competition or as an achievement competition. Both form of competition affect the profit negatively and with it the market attraction. (Porter, 2008)

266

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

4 .2

MODULE 3

ALBERT HUMPHREY

American business and management consultant who is specialized in organizational management and cultural change.   

University of Illinois (B.Sc. Engineering) MIT (M.Sc. Chemical engineering) Harvard University (MBA)

Chemical

Tools:  

SWOT Analysis, during work at Stanford Research Institute (now SRI International) Founder of TAM (Team Action Management) together with the Stakeholder Concept referenced by business leaders, economists and politicians.

267

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

4.2.1

MODULE 3

ALBERT HUMPHREY

SWOT ANALYSIS

The overall evaluation of a company’s strengths, weaknesses, opportunities, and threats is called SWOT analysis. It’s a way of monitoring the external and internal marketing environment.Strengths and weaknesses describe the situation within an enterprise and chances and risks describe the situation in the market. A SWOT analysis can be carried out for a company, product, place, industry, or person. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favourable and unfavourable to achieve that objective.

STRENGHT

OPPOTUNITIES

WEAKNESSES

THREATS

Strength: characteristics of the business or project that give it an advantage over others Weaknesses: characteristics of the business that place the business or project at a disadvantage relative to others Opportunities: elements in the environment that the business or project could exploit to its advantage Threats: elements in the environment that could cause trouble for the business or project

268

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

ALBERT HUMPHREY

Investigating EUTurkey renewable cooperation opportunities: a SWOT analysis

CASE STUDY

SWOT ANALYSIS

Source: 0011

http://www.emeraldinsight.com/doi/full/10.1108/IJESM042015

269

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

4.2.2

MODULE 3 ALBERT HUMPHREY

PESTEL ANALYSIS

It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macro environmental factors that the company should take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.

• Political Environment

• Econimical Environment

• Social Environment

• Technological Environment

• Environmental Environment

• Legal Environment

270

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

4.2.3

MODULE 3 ALBERT HUMPHREY

STEEP/STEEPLE ANALYSIS

Steep/Steeple Analysis is a strategic planning tool for strategic positioning.

Steep is the basis of analysis of business models, in Steeple thefactor of Legal and Ethical are added to a wider view. S – Social

Cultural changes will happen in business environment. Population growth, consumer behaviour, age structure…

T – Technological

Technological changes have an impact on the market Impact on demand, also pose opportunities

E – Economic

Watch changes of economic, inflation, economic growth, int. trade…

E – Environmental

Watch positive or negative impacts of your business

P – Political

STEEPLE

L – Legal

E – Ethical

Changes in government might change economic, social or legal aspects Uptodate at political factors Check legal limits and regulations, and when they might to change (compliance) Social Responsibilities Basis for what is right and what not, and what customers may think about your business

271

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

FURTHER READING

Porter, M.E. (2008).The Five Competitive Forces That Shape Strategy. Harvard Business Review. January 2008, pp. 79–93 Dess,G., Davis, P.S., (1984) Porter’s (1980) Generix Strategies as Determinates of Strategic Group Membership and Organizational Performance.The Academy Journal, Volume 27, Issue 3, pp 467488 Kotler, Keller 14th Edition

(2012).

Marketing

management,

Harvard Business Review http://s3.amazonaws.com/academia.edu.documen ts/32580687/HBR_on_Strategy.pdf?AWSAccessKe yId=AKIAIWOWYYGZ2Y53UL3A&Expires=14989872 28&Signature=kLX%2BJewh5Wwe2NAPNoFvOdWM U8U%3D&responsecontent disposition=inline%3B%20filename%3DHBR_on_Str ategy.pdf#page=25 Example for SWOT Analysis http://iearetd.org/wp content/uploads/2012/04/REBIZZfinalreport.pdf Pest analysis of Renewable Energy sector in Canada: http://www.businesswire.com/news/home/201002 23006187/en/ResearchMarketsPESTANALYSIS RenewableEnergy Renewable Energy Policy Review, Identification of Gaps and Solutions in Ghana: http://www.energycom.gov.gh/files/Renewable%2 0Energy%20Policy%20and%20Regulatory%20Gap %20%20%20%20%20Analysis%20Final(2015).pdf Difference between Steep and Steeple: http://pestleanalysis.com/steepandsteeple analysis/ https://www.cipd.co.uk/knowledge/strategy/organ isationaldevelopment/pestleanalysisfactsheet Financial assessment of a biodiesel value chain: case study of Chiapas, Mexico http://www.emeraldinsight.com/doi/full/10.1108/ MRR0820130196 Investigating EUTurkey renewable cooperation opportunities: a SWOT analysis http://www.emeraldinsight.com/doi/full/10.1108/I JESM0420150011

Renewable energy cooperation between the EU and North Africa: Findings of a SWOT analysis http://www.emeraldinsight.com/doi/full/10.1108/I JESM1120140005

272

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 3

RISK ANALYSIS

Risk analysis are an essential business tool because they can help to identify and understand possible risks. To carry out a risk analysis, it is necessary to identify the possible threats and then estimate the likelihood that these threats will materialize. KEYWORDS UNIT OBJECTIVE During this unit will be presented the idea of risk analysis, by differentiation of market risks, supplier risks and different analysis methods for risk analysis like sensitivity analysis, scenario analysis or monte carlo simulation. Examples will be discussed together.

 Business risk analysis  Business processes  Risk management  Future business decisions  Risk analysis techniques  Qualitative risks  Quantitative risks

273

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 3

RISK ANALYSIS

RECORD OFCONTENTS RISK ANALYSIS RISKS.................................................................................................................................... 275 RISK MANAGEMENT .................................................................................................... 276 TYPES OF RISK ANALYSIS ..................................................................................... 279 RISK ANALYSIS TECHNIQUES .............................................................................. 280 ENVIRONMENTAL ANALYSIS .................................................................................. 282

274

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

5 .1

MODULE 3

RISKS

“

The biggest risk is not taking any risk... In a world that changing really quickly, the only strategy that is guaranteed to fail is not taking risks Mark Zuckerberg

The potential of gaining or losing something of value is called risk. Values can be gained or lost when taking risk resulting from a given action or inaction, foreseen or unforeseen. (Cline, 2015) Risk can also be defined as the intentional interaction with uncertainty. Uncertainty is a potential, unpredictable, and uncontrollable outcome; risk is a consequence of action taken in spite of uncertainty. (Antunes, 2015) Risks can come from various sources including uncertainty in financial markets, threats from project failures (at any phase in design, development, production, or sustainment lifecycles), legal liabilities, credit risk, accidents, natural causes and disasters, deliberate attack from an adversary, or events of uncertain or unpredictable rootcause. There are two types while positive events standards have been National Institute of standards.

of events i.e. negative events can be classified as risks are classified as opportunities. Several risk management developed including the Project Management Institute, the Standards and Technology, actuarial societies, and ISO

Management strategies usually include:     

Avoiding the threat Reducing the negative effect or probability of the threat Transferring all/part of the threats to another party Retaining some/ all of the potential/actual consequences particular threat Opposites for opportunities

275

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

5 .2

MODULE 3

RISK MANAGEMENT

“

If you don’t invest in risk management, it doesn’t matter what business you’re in, it’s a risky business Gary Cohn

Risk management is the identification, assessment, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events (Hubbard, 2009) or to maximize the realization of opportunities. Risk management’s objective is to assure uncertainty does not deflect the endeavor from the business goals. (Antunes; Gonzalez 2015).

Method

• Identify, characterize threats

• assess the vunerability assets to specific threats

• determine the risk

• Identify ways to reduce those risks

• Prioritize risk reduction measures

276

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

RISK MANAGEMENT

Principles of risk management according to the International Organization for Standardization (ISO) Riskmanagementshould:            

create value – resources expended to mitigate risk should be less than the consequence of inaction be an integral part of organizational processes be part of decision making process explicitly address uncertainty and assumptions be a systematic and structured process be based on the best available information be tailorable take human factors into account be transparent and inclusive be dynamic, iterative and responsive to change be capable of continual improvement and enhancement be continually or periodically reassessed

Process of risk management according to the ISO 31 000 



Establish the context  Identification of risk in a selected domain of interest  Planning the remainder of the process  Mapping out: the social scope of risk management, the identity and objectives of stakeholders, the basis upon which risks will be evaluated, constraints  Defining a framework for the activity and an agenda for identification  Developing an analysis of risks involved in a process  Mitigation or solution of risks using available technological, human and organizational resources Identification This step is about identify potential risks Risk identification start with the source of the problem and those from the competitors or with the problem itself. There are two kinds of analysis: Source and problem analysis.

277

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET



RISK MANAGEMENT



Assessment After the identification of the risk the must been rated to their potential severity of impact and to the probability of occurrence.

278

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

5 .3

MODULE 3

TYPES OF RISK ANALYSIS

Quantitative risk analysis Quantitative Risk analysis is often called probabilistic risk analysis or probabilistic risk assessment (PRA). The analysis describes the consequences in numerical units such as dollars, time or lives lost. Quantitative risk analysis answers following three questions:   

What can happen or what can go wrong? How likely is it that it will happen? If it happens what are the consequences? Qualitative Risk analysis

Qualitative Risk analysis is a project management technique to define the probability of a risk occurring and the impact it will have. Impact typically affects schedule, budget, resources, deliverables, costs. Pseudoqualitative risk analysis Pseudoqualitative risk analysis assigns numbers to consequences out of which a risk matrix is generated.

the

likelihood

and

Types of Risk Analysis

Quantitative

Qualitative

Pseudo‐qualitative

279

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

5 .4

MODULE 3

RISK ANALYSIS TECHNIQUES

The choice of method of sensitivity analysis is typically dictated by several problems, constraints or settings. E.g. Correlated inputs, nonlinearity, multiple interactions. Sensitivity analysis Typical methods for a sensitivity analysis are:     

Onatatime (OAT/OFAT) Local methods / partial derivative Scatter plots Regression analysis Variancebased methods…. Monte Carlo simulation

There are ways of using probabilities that are not Monte Carlo simulations — for example, deterministic modelling using singlepoint estimates. Each uncertain variable within a model is assigned a “best guess” estimate. Scenarios (such as best, worst, or most likely case) for each input variable are chosen and the results recorded. Basic steps:  

 

Assess the range of the variables being considered and determine the probability distribution most suited to each. For each variable within its specific range, select a value randomly chosen, taking account of the probability distribution for the occurrence of the variable. Run a deterministic analysis using the combination of values selected for each one of the variables. Repeat steps 2 and 3 a number of times to obtain the probability distribution of the result. Typically between 100 and 1000 iterations are required depending on the number of variables and the degree of confidence required.

280

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

RISK ANALYSIS TECHNIQUES

Scenario analysis

Climate change effects on airborne pathogenic bioaerosol concentrations: a scenario analysis

CASE STUDY

Scenario analysis is a process of analysing possible future events by considering alternative possible outcomes.

The aim of this explorative study was to investigate the range of expected airborne pathogen concentrations during an outbreak or release in a future climate compared to a historical climatic period (1981–2010). One climate change scenario for the period 2016–2045 (‘‘Scenario2030’’) and four scenarios for the period 2036–2065 (‘‘Scenario2050’’) as defined by the Royal Netherlands Meteorological Institute (KNMI) were used. They regard changes in temperature, precipitation, wind speed, and global radiation Methods: Concentration modelling, Climate scenarios, Timeseries conversion Results: The results showed that modelled concentrations were modified several percentage points on average as a result of climate change. On average, concentrations were reduced in four out of five scenarios. Wind speed and global radiation were of critical importance, which determine horizontal and vertical dilution. Modelled concentrations decreased on average, but large positive and negative hourly averaged effects were calculated (from 67 to +639 %). This explorative study shows that further research should include pathogen inactivation and more detailed probability functions on precipitation, snow, and largescale circulation. Find the complete case here: https://link.springer.com/article/10.1007/s1045301694355

281

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

ENVIRONMENTAL ANALYSIS

1. What is Risk Analysis?

2. Name the different types of risks

COMPREHENSION QUESTIONS

3. What is risk management?

4. What does management strategies usually include? a. Transferring all/part of the threats to another party b. Identify ways to reduce those risks c. Reducing the negative effect or probability of the threat d. Developing an analysis of risks involved in a process 5. What is quantitative risk analysis?

6. What are risks?

7. What are the basic steps of the Montecarlo simulation?

8. According to ISO risk management should be tailorabe, be transparent and inclusive? a. True b. False

282

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

FURTHER READING

Risk Management An Analytical Study. IOSR Journal of Business and Management. Feb 2014. pp. 83–89. Retrieved 6 June 2016.

Society of risk analysis: http://www.sra.org/

Cline, Preston B. (2015). The Merging of Risk Analysis and Adventure Education. Wilderness Risk Management. 5 (1): 43–45. Retrieved 12 December 2016 Hubbard, D. (2009). The Failure of Risk Management: Why It's Broken and How to Fix It. John Wiley & Sons. p. 46. Antunes, R., Gonzalez, V. (2015). A Production Model for Construction: A Theoretical Framework ISO/IEC Guide 73:2009 (2009). Risk management — Vocabulary. International Organization for Standardization. ISO/DIS 31000 (2009). Risk management — Principles and guidelines on implementation. International Organization for Standardization. M. Rausand Methods,

(2011)Risk and

Assessment: Theory, Applications

Cox, L.A. Jr. (2008).What's Wrong Matrices?Risk Analysis, Vol. 28, No. 2

with

Risk

Perception of Risks in renewable energy projects http://www.sciencedirect.com/science/article/pii/S 0301421509009458 Renewable energy sources project appraisal under uncertainty: the case of wind energy exploitation within a changing energy market environment http://www.sciencedirect.com/science/article/pii/S 0301421501000969 Quantitative Risk Management http://www.corpsriskanalysisgateway.us/lms/cours e.cfml?crs=14&crspg=168 http://web.abo.fi/fak/mnf/mate/tammerfors08/em brechts_tuesday.pdf Energy Modelling Forum of Stanford University for different topics: https://emf.stanford.edu/ Monte Carlo Simulation using Excel: Case study in financial forecasting https://link.springer.com/chapter/10.1057/978113 7484956_16

Hassani B. (2016). Scenario Analysis in Risk Management. Springer Kroese, D. P.; Brereton, T.; Taimre, T.; Botev, Z. I. (2014). Why the Monte Carlo method is so important today. WIREs Comput Stat. 6: 386–392. J.P.G. van Leuken, A.N. Swart, P.Droogers, A. van Paul, D. Heedrik, A.H. Havelaar (2016): Climate change effects on airborne pathogenic bioaerosol concentrations: a scenario analysis, SpringerLink

283

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 3

MARKETING / BRANDING

Risk analysis are an essential business tool because they can help to identify and understand possible risks. To carry out a risk analysis, it is necessary to identify the possible threats and then estimate the likelihood that these threats will materialize. UNIT OBJECTIVE During this unit, the idea behind a brand as well as tips and tricks on how to build a brand and use it for marketing purpose will be presented. A small view on the customer journey will give an insight on what customers do expect and how marketing/brand management can use this.

KEYWORDS  Marketing  Branding  Brand Strategy  Brand Management  Customer journey  Marketing Management

284

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 3

MARKETING / BRANDING

RECORD OFCONTENTS MARKETING / BRANDING MARKETING ORIENTATION......................................................................................286 MARKETING RESEARCH

286

MARKETING SEGMENTATION

287

MARKETING COMMUNICATION

289

MARKETING MIX

293

BRAND MANAGEMENT ...............................................................................................295 BRAND EQUITY

296

COSTUMER JOURNEY

297

MARKETING / BRANDING ........................................................................................299

285

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

6 .1

MODULE 3

MARKETING ORIENTATION

There are different factors that business may consider around their marketing strategy except than the customer.       

Product orientation Sales orientation Production orientation Market Orientation Customer orientation – Customer Journey Organizational orientation Mutually beneficial exchange

6.1.1

MARKETING ORIENTATION

MARKETING RESEARCH

Marketing research is the systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation facing the company. Gaining marketing insights is crucial for marketing success. If marketers lack consumer insights, they often get in trouble.  Define the problem  Develop research plan  Collect information  Analyse information  Present findings  Make decision

286

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MARKETING ORIENTATION MARKETING RESEARCH

The definition of the problem must be very clear and exact and originate from close collaboration between marketing manager and marketing research. It is important to separate the problem and the goal neither narrow nor to for away from each other. First the research aims and research questions are fixed and then the investigation aims must be set. The required information must be described; data references and survey instruments must be fixed. At the beginning the need of the information must be determined. Then the primary and secondary data are planned. Primary data are new, especially for the given plan upraised data. The elevation is more expensive than the collection of secondary data but it is possible to make more exact declarations about the present problem. Secondary data are already available data from internal and external references which were raised for another purpose and not for the concrete problem. Secondary data is less expensive and quickly available, helps to understand the problem better and can be used as a standard of comparison for primary data. (Kotler, Keller 2012).

6.1.2

MARKETING ORIENTATION

MARKETING SEGMENTATION

A market segment consists of a group of customers who share a similar set of needs and wants. Market segmentation separates the whole market into welldefined segments. The group of customers in one segment share a similar set of needs and wants. The marketer’s task is to identify the appropriate number and nature of market segments and decide which one(s) to target (Kotler, Keller 2012).

287

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MARKETING ORIENTATION MARKETING RESEARCH

One possible research type is to look on the descriptive characteristics

Geographic

Demographic

Psychographic

Behavioral

Possible Levels of Segmentation

Mass Market: The products are made to cater the needs and wants of all the people. Full market coverage: One firm produces all products for all customer groups. Multiple segments: The products are made to multiple segments. Single segments: The products are made to one segment. Individual as segments:The products are made for the individuals. The ultimate level of segmentation leads to customization Customization: The customer can design their own products according to their needs.

288

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

6.1.3

MARKETING ORIENTATION

MARKETING COMMUNICATION

Communication is the process of convey information between two or more people. The communication process is the steps people/companies take to archive successful communication. Communication is a process and if the process breaks down, communication will fail. It is important to understand the fundamental elements of effective communication. In marketing communication exist two useful models: macro model and micro model. Macromodel: The communication process model Senders must know who they want to reach and what response they want to get. They must encode their messages so the target audience can decode them. They must transmit the message through media that reach the target audience and develop feedback channels to monitor the responses. The message is more effective if the sender’s experience and the receiver’s experience overlaps.

289

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MARKETING ORIENTATION MARKETING COMMUNICATION

One possible research type descriptive characteristics.

look

the

Sender: The principal who would like to dispatch the message. Encoding: The message is encoded as a symbol e.g. words. Message: The arrangement of words, pictures, symbols which are really published Media: The ways of communication from the sender to the receiver Decoding: The process in which the receiver assigns certain meanings to the symbols. Receiver:The individual or the group which receives the message. Response: message.

The

reaction

the

receiver

the

Feedback: The part if the effect which is transmitted to the sender Noise: Disturbances of the communication process which were not included in the plan.

290

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MARKETING ORIENTATION MARKETING COMMUNICATION Micromodels of Communications

These models concentrate on the specific response from the consumer to the communications. In all these models consumers need to pass three stages: cognitive, affective and behaviour. Four classic response hierarchy models:

Choosing the right sequences is important for a successful communication. Different sequences:  



“Leanfeeldo” sequence: The audience has high involvement with a product category and wish for high differentiation eg. a house. “Dofeellean” sequence: The audience has high involvement but no wish for high differentiation within the product category eg. airline ticket. “Learndofeel” sequence: The audience has low involvement and wishes for a little differentiation eg. batteries.

291

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MARKETING ORIENTATION MARKETING COMMUNICATION

Modes of marketing communications:



Advertising:Advertising is any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor.



Sales promotion:Sales promotion is any variety of shortterm incentives to encourage trial or purchase of a product or service.



Events and experiences:Events and experiences are company sponsored activities and programs designed to create daily or special brandrelated interactions with consumers.



Public relations and publicity:Public relations and publicity are a variety of programs directed internally to employees of the company or externally to consumers, other firms, the government, and media



Direct marketing:Direct marketing isthe use of mail, telephone, fax, e mail, or Internet to communicatedirectlywithorsolicit response or dialogue fromspecificcustomers and prospects.



Interactive marketing: Interactive marketing is online activities and programs designed to engage customers or prospects.



Wordofmouth marketing:Wordofmouth marketing refers to people topeople oral, written, or electronic communications.



Personal selling:Personal selling is facetoface interaction with one or more prospective purchasers for the purpose of making presentations, answering questions, and procuring orders.

292

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

6.1.4

MARKETING ORIENTATION

MARKETING MIX

The marketing mix is a foundation model in marketing and the most important part in a marketing strategy. The marketing mix has been defined as the "set of marketing tools that the firm uses to pursue its marketing objectives in the target market". (Kotler, 2000) McCarthy's 4 Ps

Price

Promotion

Marketing mix

Product

Product     

Product variety Quality Design Features Brand name

STEEPLE

Promotion     

Packaging Sizes Services Warranties Returns

    

Sales promotion Advertising Sales force Public relations Direct marketing

Place

Price     

Place

List price Discounts Allowances Payment period Credit terms

     

Channels Coverage Assortments Locations Inventory Transport

293

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

6.1.5

Awareness

Favorability

Consideration

Intent to Purchase

MARKETING ORIENTATION Conversion

COSTUMER JOURNEY

Customer journey describes the different stages which a customer goes through before he decides to purchase a product. It takes every touch point between the customer and the company into consideration.

Awareness

Favorability

Intent to Purchase

Consideration

Conversion

Awareness: To create Awareness for a product Favorability: The interest for a product gets stronger by the customer Consideration: The customer thinks about buying the product Intent to Purchase: The customer wants to buy the product Conversion: The customer buys the product Customer journey is the interaction between an organization and a customer over the duration of their relationship. Customer experience implies customer involvement at different levels – such as rational, emotional, sensorial, physical, and spiritual.Customer experience is created by the contribution of not only the customers' values but also by the contribution of the company providing the experience.



Customer relationship management



Retail environment



Digital customer journey



Sales experience



Customer journey mapping

294

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

6 .2

MODULE 3

BRAND MANAGEMENT

In marketing, brand management is the analysis and planning on how that brand is perceived in the market. Developing a good relationship with the target market is essential for brand management. Tangible elements of brand management include the product itself; look, price, the packaging, etc. The intangible elements are the experience that the consumer has had with the brand, and also the relationship that they have with that brand. A brand manager would oversee all of these things (Nielson).

“

Brand management is a function of marketing that uses techniques to increase the perceived value of a product line or brand over time. Effective brand management enables the price of products to go up and builds loyal customers through positive brand associations and images or a strong awareness of the brand. Developing a strategic plan to maintain brand equity or gain brand value requires a comprehensive understanding of the brand, its target market and the company's overall vision.

295

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

6.2.1

BRAND MANAGEMENT

BRAND EQUITY

The American Marketing Association defines a brand as “a name, term, sign, symbol, or design or a combination of them, intended to identify the goods or services of one seller or group of sellersand to differentiate them from those of competitors.”A brand is thus a product or service whose dimensions differentiate it in some way from other products or services designed to satisfy the same need. These differences may be functional, rational, or tangible—related to product performance of the brand. They may also be more symbolic, emotional, or intangible—related to what the brandrepresents or means in a more abstract sense(Kotler, Keller 2012).

“

Branding is endowing products and services with the power of a brand. It’s all about creating differences between products. Marketers need to teach consumers “who” the product is—by giving it a name and other brand elements to identify it—as well as what the product does and why consumers should care. Branding creates mental structures that help consumers organize their knowledge about products and services in a way that clarifies their decision making and, in the process, provides value to the firm Kotler, Keller

296

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

6.2.2

BRANDMANAGEMENT

COSTUMER JOURNEY

Best Global Brand Rankings 2016 by interbrand.com

Brand orientation refers to "the degree to which the organization values brands and its practices are oriented towards building brand capabilities". (Bridson, Evans 2004) It is a deliberate approach to working with brands, both internally and externally. The most important driving force behind this increased interest in strong brands is the accelerating pace of globalization. This has resulted in an evertougher competitive situation on many markets. A product's superiority is in itself no longer sufficient to guarantee its success. The fast pace of technological development and the increased speed with which imitations turn up on the market have dramatically shortened product lifecycles. The consequence is that productrelated competitive advantages soon risk being transformed into competitive prerequisites. For this reason, increasing numbers of companies are looking for other, more enduring, competitive tools like brands.

297

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

6.2.2

BRANDMANAGEMENT

COSTUMER JOURNEY

The model emphasizes the duality of brands—the rational route to brand building is on the left side of the pyramid and the emotional route is on the right side. Creating significant brand equity requires reaching the top of the brand pyramid, which occurs only if the right building blocks are put into place. Brand salience is how often and how easily customers think of the brand under various purchase or consumption situations.  Brand performance is how well the product or service meets customers’ functional needs.  Brand imagery describes the extrinsic properties of the product or service, including the ways in which the brand attempts to meet customers’ psychological or social needs.  Brand judgments focus on customers’ own personal opinions and evaluations.  Brand feelings are customers’ emotional responses and reactions with respect to the brand.  Brand resonance describes the relationship customers have with the brand and the extent (Kotler, Keller 2012)



298

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MARKETING / BRANDING 9. Branding is a process involved in creating a unique name and image for a product/company in the mind of the consumers. The aim is to establish a nonsignificant presence in the market and to create differences between products. a. True b. False 10. Which

factors

COMPREHENSION QUESTIONS

a. b. c. d.

may

companies

consider

except

customers?

Product Orientation Employee Orientation Sales Orientation Market Orientation

11. Name the different steps in marketing research: (Fill in the right answer!)

12. What is marketing segmentation?

13. Name three modes of communication:

14. Customer experience implies customer involvement at different levels – such as rational, emotional and spiritual. a. True b. False 15. What is the difference between primary and secondary data?

16. What are stages of customer journey? a. b. c. d.

Awareness Favourability Intent to Purchase Loyalty

299

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

Aaker, D. A., Joachimsthaler, E. (2000). Brand Leadership. New York: The Free Press. pp. 1–6 Management,

Brand Management Definiton,Availableat:http://www.investopedia.com/ terms/b/brandmanagement.asp, Retrieved 19 September 2017.

Bampo, M.; Ewing, M. T.; Mather, D. R.; Stewart, D.; Wallace, M. (2008). The effect of the social structure of digital networks on viral marketing performance.

Best Global Brands 2016 Rankings. interbrand.com. Available at: http://interbrand.com/bestbrands/bestglobal brands/2016/ranking/Retrieved 19 September 2017.

Kotler, P. (2000). (Millennium Edition)

Marketing

Ogilvy, D (1995) The Image and the brand: a new approach to creative operations, Speech given at AAAA Luncheon in Chicago, 4 October 4, 1955 and cited in Schwarzkopf, S., "Turning Trade Marks into Brands: how Advertising Agencies Created Brands in the Global Market Place, 19001930" CGR Working Paper, Queen Mary University, London, 18 August 2008

Bridson, K., Evans, J. (2004). The secret to a fashion advantage is brand orientation. International Journal of Retail and Distribution Management. 32 (8): 403–411.

Moutinho, L. (2000) Segmentation, Targeting, Positioning and Strategic Marketing, Chapter 5 in Strategic Management in Tourism, Moutinho, L. (ed), CAB International, 2000, pp 121166 Nielson: Understanding the power of a brand (2015) Available at: http://www.nielsen.com/us/en/insights/news/201 5/understandingthepowerofabrandname.html, Retrieved 19 September 2017. Smith, Wendell R. (1956).Product Differentiation and Market Segmentation as Alternative Marketing Strategies. Journal of Marketing. 21 (1): 3–8 Stanton, William J (1984). marketing. McGrawHill Kotler, Keller 14th Edition

(2012):

Fundamentals

Marketing

management,

300

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

FURTHER READING

Nielsen, understanding the power of a brand name! http://www.nielsen.com/us/en/insights/news/2015 /understandingthepowerofabrandname.html

Green marketing strategies: an examination of stakeholders and the opportunities they present https://link.springer.com/article/10.1007/s11747 01002270 The secret to a fashion advantage is brand orientation http://www.emeraldinsight.com/doi/abs/10.1108/0 9590550410546223

Marketing: Brands & Branding https://www.youtube.com/watch?v=THQxPG34Ry0

301

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 3

FINANCIAL FORECASTING

Financial Forecasting identifies trends in external and internal data and analyse trends to provide decision makers with information about the financial status of the company at some point in the future. UNIT OBJECTIVE During this unit, the different methods of financial forecasting as well as the reason for these forecasts will be presented. Different Methods will include quantitative and qualitative methods such as causal methods, market research, Delphi method, etc.

KEYWORDS  Financial forecasting  Business outcomes  Internal and external business data  Future business modelling  Budget preparation process  Financial business decisions

302

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 3

FINANCIAL FORECASTING

RECORD OFCONTENTS

FINANCIAL FORECASTING

FINANCIAL FORECASTING ....................................................................................... 304 FINANCIAL MODELING............................................................................................... 304 QUALITATIVE TECHNIQUES OFFINANCIAL FORECASTING ................ 306 QUANTITATIVE TECHNIQUES OFFINANCIAL FORECASTING............. 309

303

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

7 .1

MODULE 3

FINANCIAL FORECASTING

Financial forecasting is an estimate of future financial outcomes using internal and external data. Most of the times here complex programs are used for different models of financial forecasting to get data from different sources together. It is important for:     

Finance Human Resources IT Marketing Operations

Time Horizon   

Shortrange: Less than three months Mediumrange: Three months to three years Longrange: More than three years

7 .2

MODULE 3 FINANCIAL MODELING

Financial modelling is a general term and means different things but usually relates either to accounting and corporate finance or to quantitative finance applications. Financial modelling is a mathematical model. Its task is building an abstract representation (a model) of a real world financial situation.

304

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

FINANCIAL MODELING



“

Accounting & Corporate finance In accounting and corporate finance, financial modelling usually means the preparation of detailed models related to the company and their purpose is to make decisions and financials analysis. Included applications could be business valuation, scenario planning and management decision making, capital budgeting, cost of capital calculations, financial statement analysis and project finance. These models are generally created around financial statements, calculations and monthly, quarterly or annual outputs. Quantitative finance In quantitative finance, financial modelling describes the development of a sophisticated mathematical model. These models deal with asset prices, market movements, portfolio returns and the like. Included applications could be option pricing and calculation of their “Greeks”, derivatives, modelling the term structure of interest rates and credit spreads, credit scoring and provisioning, corporate financial activity prediction problems, portfolio optimization, real options, risk modelling and value at the risk, dynamic financial analysis, pairs trading and credit calculation adjustment.

There are always implicit assumptions behind a model and its solution method. But human beings have limited foresight and great imagination, so that, inevitably, a model will be used in ways its creator never intended. This is especially true in trading environments… but it’s also a matter of principle: you just cannot foresee everything. So, even a “correct” model, “correctly” solved, can lead to problems. The more complex the model, the greater the possibility. Emanuel Derman

305

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

7 .3

MODULE 3

QUALITATIVE TECHNIQUES OF FINANCIAL FORECASTING

Jury of Executive Opinions: This method is a sales forecasting method which involves a small group of highlevel managers from different departments and forecast the sales for the given period. These forecasts happen on the experience and specialisation of the managers. There are two types of this method:  

Top Jury method: Only top executives. Percolated Jury method: The top executives and several marketing, finance, production and other departments’ executives. Reference Class Forecasting:

Reference Class Forecasting is a method that takes an outside view on planned actions. This method involves predicting the outcome of a planned action based on similar scenarios in other times or places. This is used to defy predictions that are arrived at based only on human judgment. According to that people tend to underestimate the costs, completion times and risk of planned actions while overestimate the benefits of the same actions. Reference class forecasting for a specific project involves the following three steps:   

Identify a reference class of past, similar projects. Establish a probability distribution for the selected reference class for the parameter that is being forecast. Compare the specific project with the reference class distribution, to establish the most likely outcome for the specific project.

306

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

QUALITATIVE TECHNIQUES OF FINANCIAL FORECASTING Delphi Technique:

The Delphi method is a structured communication technique or method, originally developed as a systematic, interactive forecasting method which relies on a panel of experts. A series of questionnaires are prepared and answered by a group of experts. During this process, the experts are kept separate from each other. The process is stopped after a predefined stop criterion (e.g. number of rounds, achievement of consensus, and stability of results) and the mean or median scores of the final rounds determine the results. Key characteristics of this method:  Anonymity of the participants The identity of the participants is not revealed, neither during the process nor after the process. The participants are completely anonymous. This allows the participants the free expression of their opinions and critiques. 

Structuring of information flow The answers from the participants are collected in the form of answers to questionnaires and their comments to these answers.



Regular feedback Participants can revise their earlier statements and comment their own forecasts, the responses of others and the progress of the panel.



Role of facilitator Facilitator is the name of the person who controls the Delphi method. This person coordinates the responses of the participants, who are selected by a good reason, usually because of knowledge or an especially opinion/view. The facilitator sends out the questionnaires to the panel and collects and analyse the responses.

Sales Force Polling: In this method companies use the insights of the salespersons because they have close contact with the consumers and through that they have a big knowledge about the behaviour of the consumer. In this method of forecasting, the estimates are derived based on the average of sales force polling. It uses specific knowledge from the people who are closest to the customers. This method can place responsibility for attaining the forecast in the hands of those who most affect the actual results.The information can be broken down easily (territory, product, customer, salesperson)

307

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

QUALITATIVE TECHNIQUES OF FINANCIAL FORECASTING

Consumer Surveys:

A Delphi study to project the future of alternative energy and its implication to engineering technology

CASE STUDY

Businesses often conduct their own market surveys of consumers. The data is collected via telephonic conversations, personal interviews or survey questionnaires, and extensive statistical analysis is conducted to generate forecasts. Extensive statistical analysis usually is applied to survey results in order to test hypotheses regarding consumer behaviour.

Method: Delphi panel of experts 1. Round: An openended questionnaire mailed via email asking the panel of experts to respond to three general questions:  What major areas constitute the areas that need to be considered relative to educating students about Alternative energies?  What alternative energy technological developments and implementations are likely to occur in the next 5, 10, 15, and 20 years?  What major obstacles or problems are holding up the development and implementation of the alternative energies listed in question #2? 2. Round: The results from the panel of experts were analyzed and compiled to produce an online survey instrument (via surveymonkey.com) to simplify the data collection process and lessen the burden placed on the panel of experts for responding to the questionnaire. The researchers then compiled the results of the 2nd round and present them in the following section of this paper. Find the complete case here: https://www.google.at/url?sa=t&rct=j&q=&esrc=s&source=web&cd=7&cad=rja&uact=8&ved=0 ahUKEwj4hbm1m6fTAhVHL8AKHXuvCmEQFghNMAY&url=https%3A%2F%2Fpeer.asee.org%2Fa delphistudytoprojectthefutureofalternativeenergyanditsimplicationtoengineering technology.pdf&usg=AFQjCNHoG47Z5EXWTplREypLA_V0n9blTQ&sig2=Yw nyEMJFerVPxnnEoq2QA&bvm=bv.152479541,d.ZWM

308

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

7 .4

MODULE 3 QUANTITATIVE TECHNIQUES OF FINANCIAL FORECASTING

Proforma Financial Statements Pro forma financial statements are the complete set of financial reports issued by an entity, incorporating assumptions or hypothetical conditions about events that may have occurred in the past or which may occur in the future. This method use sales figures and coasts from previous two/three years after excluding certain onetimecoasts. This method is mainly used in mergers and acquisitions, as well as in cases where a new company is forming and statements are needed to request capital from investors. TimeSeries Forecasting Timeseries forecasting is a popular quantitative forecasting technique, in which data is gathered over a period of time to identify trends. This method calculates future values based on previously observed values. Some techniques that fall within this method are simple averaging and exponential smoothing. Cause and Effect Method: The Cause and Effect method examines the causeand effect relationships of the variable with other relevant variables such as changes in consumers’ disposable incomes, the interest rate, the level of consumer confidence, and unemployment levels. This method uses past time series on many relevant variables to produce the forecast for the variable of interest.

309

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

FINANCIAL FORECASTING

1. Financial Forecasting identifies trends in external data and analyse trends to provide decision makers with information about the future market. a. True b. False 2. What is financial modelling?

COMPREHENSION QUESTIONS

3. Which a. b. c.

data is financial forecasting using? Internal data External data Both

4. Describe the delphi method:

5. Name the key characteristics of the Delphi method:

6. Are the participants in the Delphi method able to revise their earlier statements? a. Yes b. No 7. What a. b. c. d.

are Qualitative techniques of financial forecasting? Delphi technique Cause and effect method Consumer surveys Jury of executive opinions

8. Describe the Jury of executive opinions:

310

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

FURTHER READING

Dalkey, N.; Helmer, O. (1963). An Experimental Application of the Delphi Method to the use of experts. Management Science. 9 (3)

General

Rowe, Wright (1999): The Delphi technique as a forecasting tool: issues and analysis. International Journal of Forecasting, Volume 15, Issue 4, October 1999 Iniyan S., Sumathy K (2003) The application of a Delphi technique in the linear programming optimization of future renewable energy options for India, Biomass Bioenergy 23:3950 Rouch, D. ,Stienecker, A. (2007): A Delphi Study to Project the Future of Alternative Energy and its Implication to Engineering Technology in American Society for Engineering Education

Winston,

Wayne

(2014).

Microsoft

Excel

2013

Data Analysis and Business Modeling. Microsoft Press.

ISBN

9780735669130

Corporate finance Soubeiga, Modeling:

Eric A

(2013).

Professional’s

Mastering

Financial

Guide

Building

Financial Models in Excel. New York: McGrawHill. ISBN

9780071808507

Tjia, John (2003). Building Financial Models. New York: McGrawHill. ISBN 0071402101 Quantitative finance Joerg Kienitz; Daniel Wetterau (2012). Financial Modelling: Theory, Implementation and Practice with MATLAB Source. Hoboken, NJ: Wiley. ISBN 0470744898 A

Delphi

Alternative

Study

Energy

Project and

its

the

Future

Implication

Engineering Technology https://www.google.at/url?sa=t&rct=j&q=&esrc=s& source=web&cd=7&cad=rja&uact=8&ved=0ahUKEw j4hbm1m6fTAhVHL8AKHXuvCmEQFghNMAY&url=htt ps%3A%2F%2Fpeer.asee.org%2Fadelphistudyto projectthefutureofalternativeenergyandits implicationtoengineering technology.pdf&usg=AFQjCNHoG47Z5EXWTplREypL A_V0n9blTQ&sig2=Yw nyEMJFerVPxnnEoq2QA&bvm=bv.152479541,d.ZWM

311

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

312

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE

Business Model Canvas

UNIT 1From Business Idea to Business Model Canvas UNIT 2The 9 Building Blocks of the Business Model Canvas UNIT 3Getting started with your own canvas

313

MODULE

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

Business Model Canvas

SUMMARY OF THE MODULE During this training module learners will use the Business Model Canvas innovation tool and will learn about the nine building blocks that make up the business model canvas. As well, will discover how the business model canvas can play a key role in help to transform a new idea into a profitable reality. The Business Model Canvas is a strategic management and entrepreneurial tool. It allows describing, designing, challenging, inventing, and pivotinga business model always focused in the energy sector. The business model canvas was invented by Alex Osterwalder and Yves Pigneur, authors of the bestselling book Business Model Generation. They wrote the book with the help of 470 business model canvas practitioners from 45 countries. So, the business model canvas tool has been validated by university researchers and fieldtested by innovators and entrepreneurs. This fourth module is based in a learning program, which means both learning and doing. Let’s learn the ninesegments of a business model: Customer Segments, Value Proposition, Channels, Customer Relationships, Key Resources, Key Activities, Key Partners, Revenue Streams, and Cost Structure.

314

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE

Business Model Canvas

OBJECTIVES  You will select the idea that has the best chance to address the challenge or solve the problem. You will identify the challenge that you want to solve or address.  You will build the model, using the business model canvas and its nine building blocks as our guide. You will have the knowledge and skills to complete a one page business model canvas  You will identify and lift the customer segments.  You will determine what value can you create to deliver that will be most important to the customer segment that you chose.  You will determine how you will communicate, and deliver the value propositions to the customer segment.  How can we best build authentic relationships with customers and strategic partners that lead to deep trust and deep loyalty.  Revenue streams. This is what's meant by capturing the value that you create and deliver.  Key resources typically fall into four categories, physical, human, intellectual, and financial resources. This building block focuses on the assets you will need to deliver the value propositions.  Select the idea that has the best chance to address the challenge or solve the problem. You will identify the challenge that you want to solve or address.

315

MODULE

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

Business Model Canvas  Build the model, using the business model canvas and its nine building blocks as our guide. You will have the knowledge and skills to complete a one page business model canvas  Identify and lift the customer segments.  Determine what value can you create to deliver that will be most important to the customer segment that you chose.  Determine how you will communicate, and deliver the value propositions to the customer segment.  How can we best build authentic relationships with customers and strategic partners that lead to deep trust and deep loyalty.  Revenue streams. This is what's meant by capturing the value that you create and deliver. How do you make a reasonable amount of money for your efforts?  Key resources typically fall into four categories, physical, human, intellectual, and financial resources. This building block focuses on the assets you will need to deliver the value propositions.  Key activities. These are the most important actions that company takes to operate successfully. Activities typically include operations, production, sales and marketing, and finance administration.  Key partnerships. This building block is very important. Partnerships in many ways have become the cornerstone of most business models. Partnerships typically include strategic alliances between non competitive.  Cost structure. You will need to identify all of the costs that will be involved with creating and delivering the customer value proposition, that you promise inyour business model.

…

DURATION

40h 316

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 4

FROM BUSINESS IDEA TO BUSINESS MODEL CANVAS

You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete Buckmisnter Fuller In order to succeed a great business idea needs a great business model. So, what do we mean when we say “business model” and what does a Business Model Canvas look like? A business model is nine building blocks that fit together to provide the working foundation of how your business will create product, identify customer segments, deliver that product to various types of customers and generate revenue. Your business model also identifies the key resources, activities, partnerships and costs that are related to product creation and delivery. A business model as a story that explains how your enterprise will create, deliver and capture value. You can use this story to explain your plan to investors, lenders, potential partners or your fatherinlaw. A Business Model Canvas is a system for creating a snapshot of how these nine business building blocks fit together that allows you to easily examine different business models and choose the right one for you and your business.It allows you to communicate your business plan in a moredvsg

317

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 4

FROM BUSINESS IDEA TO BUSINESS MODEL CANVAS

concise way than a typical business plan and is easily reworked when you discover that your first (or second or third) idea has a fatal flaw. The Business Model Canvas allows you to:  Design  Describe  Discuss  Innovate  Challenge  Change  Improve  Invent  Pivot Even if customers love your value propositions (the solution you are providing for their problem), you could fail if your business model is not scalable or financially sustainable. If you don’t have reliable channels to reach your customers or if your infrastructure collapses when your business grows, a good idea can flop. Working through the many possibilities as part of constructing your Business Model Canvas allows you to consider all the segments required to build a successful and sustainable business.

318

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 4

FROM BUSINESS IDEA TO BUSINESS MODEL CANVAS

KEYWORDS

UNIT OBJECTIVE During this unit, learners will understand what is a business model, what is a business model canvas and the need to apply an innovative business model instead of the traditional one in the energy sector. Oncelearners will understand these general terms, they will identify the challenge that really passionate learners, or the problem they want to address with the business model canvas tool. They will identify an idea or a prototype solution using their experience or intuition that will use to construct the business model canvas.

 Business model (BM)  Innovative Business Model (IBM)  Business model Canvas (BMC)  Innovation  Prosumers  Energy Efficiency (EE)  Energy Service organization (ESCO)  Energy Performance Contract (EPC)  Measurement & Verification (M&V)  ThirdParty Financing (TPF).  Chauffage  Shared Savings Agreements (SSA)

319

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 3

WHAT IS A BUSINESS MODEL?

RECORD OFCONTENTS WHAT IS A BUSINESS MODEL? THE BUSINESS MODEL CONCEPT ....................................................................... 321 BUSINESS MODEL CANVAS (BMC)OVERVIEW ............................................... 322 WHY ARE NEW BUSINESS MODELSNEEDED IN THE ENERGY SECTOR?............................................................................................................................... 324 INNOVATIVE BUSINESS MODELS (IBM) ............................................................ 326 IMPORTANCE OF INNOVATIVEBUSINESS MODELS ................................... 328 BENCHMARK OF INNOVATIVE BUSINESS MODELS IN THE ENERGY SECTOR ................................................................................................................................. 329

320

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1 .1

MODULE 4 THE BUSINESS MODEL CONCEPT

In order to start with our unit objective, addressed to identify your challenge to construct you BMC (business model canvas), you should know differences between BM (business model) and BMC. A business model can be defined as the tool that companies use to deliver value to customers, entitle customers to pay for value and convert those payments into profit. A business model establishes the content, structure and governance of transactions designed to create value through the exploitation of business opportunities. Even though “business model” is a very popular term in the contemporary literature and usually refers to “the way the company does business”, there is no definition of business model that is fully accepted by the business community. The following section will offer the overview of the widely used definitions and introduces the business modelframeworks. Shafer, Smith and Linder (2005) have found 12 different definitions of “business model” offered in the relevant literature with 42 different business model components or unique building blocks [p. 200]. As a result of their analysis and attempt to give a contribution to the literature, they offered their own definition as a synthesis of the earlier work in this area, but still trying to make it easily understood, communicated and remembered. “Business Model is a representation of a firm’s underlying core logic and strategic choices for creating and capturing value within a value network” [Shafer, Smith and Linder, 2005, p.202] Two highly respected authors in the field of strategic management and entrepreneurship, professors Amit and Zott have also investigated the topic of business model and based their own definition on the activity system. They claim that “Business model is a system of interconnected and interdependent activities that determines the way the company does business with its customers, partners and vendors“(Amit and Zott, 2005, p.42).

321

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1 .2

MODULE 4 BUSINESS MODEL CANVAS (BMC) OVERVIEW

Along with the attempt to define business models, the authors have also put an effort indeveloping different frameworks aiming to explain what the components of business model are, how business model may be (re)invented and most importantly, how it can be managed for the sake of creating an additional value for the company. There have been dozens of business model frameworks, but only few of them have actually had the practical value. So, the business model definition and conceptualisation from “Business Model Generation” [Osterwalder, A., 2010] named business model canvas, has been chosen for this chapter because it provides a consistent and reliable framework that has been extensively tested and recently applied in the areas of the energy management. Business model canvas is used as an analytical framework, due to the fact that energy transformation is primarily concerned with questions of value creation and value capture for prosumers. The Business Model Canvas shows how the business model can work as a whole and how its individual elements can interact. To do this, the company and its products are broken down into basic components, and these are visualised in the form of a predesigned poster. Using the compact, concise format, the key business model assumptions can be recorded as sketches and handwritten text during a meeting. The participants can sketch out a concept chart in the literal sense without losing key elements. Time can then be taken to compare the raw concepts and to evaluate their commercial benefit. This tool also helps to prepare a business idea to be presented to management for a decision on implementation. The method is simple to apply and follows the approach of «fail fast, fail early, fail often» for the more agile the environment the quicker the feedback, and the shorter the feedback loops the steeper the learning curve. This produces pragmatic solutions for future innovation quickly and with a minimum of effort.

322

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BUSINESS MODEL CANVAS (BMC) OVERVIEW

Business model canvas is characterised by the following parameters: Customer segments: Groups of people or organizations a company aims to reach and serve. Value propositions: Products and services create value for a specific customer segment.

that

Channels: Company’s means of communication with its customer segments. Customer relationships: Types of relationships a company establishes and maintains with specific customer segments. Revenue streams: Revenue a company generates from each customer segment. Key resources: Assets required to offer and deliver the aforementioned elements. Key activities: Activities involved in offering and delivering the aforementioned elements. Key partners: Network of suppliers and partners supporting the business model execution. Cost structure: Costs incurred when operating a business model.

323

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1 .3

MODULE 4 WHY ARE NEW BUSINESS MODELS NEEDED IN THE ENERGY SECTOR?

The value chain of the energy production and supply process is changing in terms of key trends and the main barriers towards a sustainable future, customer demand, government policies, increased competition and due to the entrance of new actors and elements. The existing structure does not fit with the new demands for decentralised generation, electric devices and appliances, or storage requirements, so the structure of the energy market and the role of power producers are undergoing fundamental changes. Energy is the cornerstone of human live. In the modern economy, almost all goods and services have energy implications, from the buildings we live in to the vehicles we use for transport or the food we eat requires energy. Its extensive scope implies that it both impacts and is affected by social, political, technological and market evolutions. In Europe, the energy sector is indeed a key component of economic growth and its employment sector. By way of example, the renewable energy sector alone employed over one million people in Europe and created a turnover of around €143.6 billion in 2014 [EurObserv'ER, 2015]. As well, energy supply is changing towards a more decentralised system in which both customers and endusers are playing a fundamental role. Novel models are quite homogenously distributed. However, innovation is mainly positioned at the new stages (decentralised power upload, electric devices and appliances, and storage). Regarding the main innovation types identified, technological and configuration changes are leading the way in the move towards a more sustainable energy system in which interconnection and customer engagement are key. The new scenario brings not only new ways of interaction between companies, customers and all the actors present in the value chain of the energy sector but creates new stages and roles.

324

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

WHY ARE NEW BUSINESS MODELS NEEDED IN THE ENERGY SECTOR?

Value chain of the energy supply sector and main actors (Swedish Energy Agency, 2014)

Innovative business models are emerging: ESCO, EPC, SSA,partnerships, PSS functionality and customer engagement. Partnerships between companies are enabling the development of new offerings to customers. In addition, firms provide more and more services instead of products, including those that encourage correct behaviours and satisfy users needs. The last trend is customer engagement. Innovative business models attempt to foster greater commitment from customers, making them more conscious of energy usage and consumption. Energy Performance Contracting (EPC) approach as a vehicle in the development of the Energy Efficiency (EE) market in developing countries. The two dominant EPC models in the world are shared savings and guaranteed savings. In Europe, a third approach is used called “chauffage” and they will be developed in the following chapters. ESCOs develop, implement and provide or arrange financing for upfront EE investments for its clients. Repayments from savings allow clients to compensate ESCO’s ongoing savings monitoring, Measurement & Verification (M&V) costs and assumption of risk through EPC or ThirdParty Financing (TPF).

325

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

WHY ARE NEW BUSINESS MODELS NEEDED IN THE ENERGY SECTOR?

The fundamental concept of the ESCO business model is that the client does not have to come up with any upfront capital investment and is only responsible for repaying the investment made or arranged by the ESCO. The transition of the energy system is happening now and is being boosted by all of these innovative business models. These models are not only bringing about new ways of interaction between companies, customers and all the actors present in the value chain but are also creating new stages and roles for all involved. [Entrust, 2016, p. 9]

1 .4

MODULE 4 INNOVATIVE BUSINESS MODELS (IBM)

“

Innovate or die Forbes

Innovation has played a key role in the energy system but most of the time the term is misunderstood and confused with others like creativity, change, or invention. There are many definitions of innovation: The Oxford Dictionary of English defines the term innovate as to “make changes in something established, especially by introducing new methods, ideas, or products” (Oxford Dictionary of English, 2016). Innovation is definitely one of the most widely used terms in the current business literature. “Innovate or die”, the frequently used proverb, is the best way to describe the importance of innovation nowadays. Innovation has always had the power to change the rules of the game, but in daytoday work and fastchanging business environment, it seems that innovations are needed to be the subject of constant attention.

326

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

INNOVATIVE BUSINESS MODELS (IBM))

Innovative business model can support the creation of disruptive innovation that generally asks for new competitive approaches, for example, to lower prices or reduce the risks and costs of ownership for customers. In times of instability and crisis, companies generally reinvent themselves, rather than fostering incremental innovation or deploying defensive or reactive tactics in the market [Lindgardt Z. et al, 2009]. The concept of business models in general, but especially in the context of innovations, is not given the corresponding importance in the theoretical and practical literature. Although the term is often mentioned in the literature, it is rarely analysed. We are going to fill this gap giving the fact that many great technological innovations fail commercially, solely because they are not followed by the (innovative) business model (IBM) thatis powerful to yield value for both, customers and company [Teece, 2010, p.183] In an attempt to define IBMs, Mitchell and Coles [2003, p.17] explain that IBMs are “thereplacements within the business models that companies make in order to provide production service offerings to customers and end users that were not previously available” In this sense, it can be said that authors equalize the meaning of radical productinnovation and IBM., p. 9] A different definition is offered by Alexander Osterwalder and Yves Pigneur, the creatorsof Business Model Canvas. They have explained in their book “Business ModelGeneration: A Handbook for Visionaries, Game Changers and Challengers” that mostindustries in the past were characterized by a dominant business model but this notion ischanging radically. Nowadays, different business models compete in the same marketsand boundaries between industries are blurring. IBMs are not about looking back orlooking to competitors since IBM is not about copying or benchmarking but about “creatingnew mechanisms to create values and derive revenues”. According to them, IBM is “about challenging orthodoxies to design original models that meet unsatisfied, newor hidden customer needs (p .200232)”.

327

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1 .5

MODULE 4 IMPORTANCE OF INNOVATIVE BUSINESS MODELS

As mentioned in the Boston Consulting Group report on the IBM, IBM is especially important in times of instability. Although it is more challenging than product innovation, IBM also delivers superior returns. IBM can be used for different purposes, either as a defensive move to protect a dying core business or as an offensive move to proactively explore new avenues of growth (Lindgardt et al., 2009, p. 2). Technological innovations nowadays do not ensure high profits for the company unless they are followed by an innovative business model, allowing the company to reap advantage fromsuch technological innovation. According to Amit and Zott (2012), IBMs are significant importance for managers, entrepreneurs and academic researchers for three major reasons (p. 42). Firstly, IBM nowadays represents often underutilized source of future value. Secondly, competitors might find more difficult to imitate or replicate an entire novel activity system tan a single novel product or process. And lastly, managers should never undermine the competitor’s efforts in the IBM area since such innovations are a potentially powerfulcompetitive tool. In this sense, managers have to be aware that competitive threats mostly come from outside their traditional industry boundaries. Finally, Amit and Zott conclude that IBMs help companies to either create a new market or allow them to create and exploit new opportunities in the existing market. Although changes to business model design may be subtle and sometimes do not have a potential to disrupt an industry, they can still yield important benefits to innovators.

328

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

1 .6

MODULE 4 BENCHMARK OF INNOVATIVE BUSINESS MODELS IN THE ENERGY SECTOR

We are going to focus this chapter in a benchmark of the IBM and mainly in a new actor of the value chain of the energy sector: Chauffage, Shared Savings Agreements (SSA) and Energy Performance Contracting (EPC). For each example the structure of the value chain is defined first, together with the identification of the traditional and emerging key actors. Moreover, a description of the emerging business models is included. Finally, a business model canvas based on the type of innovation source is presented. A chauffage, also referred to as comfort contracting, is a contract form that is developed to provide a “function” (for example: keeping a room at 21º C) and incorporates energy efficiency on both the supply side and the demand side. However, demandside EE measures are often “light” when compared with and EPC (chauffage does not include comprehensive retrofitting measures or equipment substitution) and are essentially focused on management and optimization of the building’s operational conditions. An energy service organization (ESCO) takes over complete responsibility for the provision to the client of an agreed set of energy services (e.g. space heat, lighting, motive power, etc.). This arrangement is an extreme form of energy management outsourcing. Where the energy supply market is competitive, the ESCO in a chauffage arrangement also takes over full responsibility for fuel/electricity purchasing. The fee paid by the client under a chauffage arrangement is calculated based on its existing energy bill minus a percentage saving (often in the range of 510 %). Thus, the client is guaranteed an immediate saving user’ needs relative to its current bill. Geet is an example of an Italian company implementing this business model. The service seeks to satisfy user’s needs and encourages right behaviors.

329

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BENCHMARK OF INNOVATIVE BUSINESS MODELS IN THE ENERGY SECTOR

Chauffage business model Canvas

The shared savings agreement (SSA) is a type of Energy Performance Contract (EPC) in which an ESCO finances the project for implementation of EE measures at the customer facilities. Then, savings obtained with the project are shared between the client and the ESCO during a period previously determined and with share rates previously agreed. The ESCO obtains financing as usual for implementing the project. EE measures are generally directed at demand side measures but supply side measures (such as setting up efficient heat boilers) can also be incorporated. The Shared savings model is a winwin situation for both the ESCO and the customer. The ESCO finances the total investment of the project and it is totally responsible for repaying the loan while the customer improves the energy efficiency and reduces its energy consumption. ENERGIKA is an example of an Italian company providing this kind of business model. In this BM case, the main innovation sources come from financing and optimisation.

330

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BENCHMARK OF INNOVATIVE BUSINESS MODELS IN THE ENERGY SECTOR

Shared Saving Agreements (SSA) business model Canvas

Energy Performance Contracting (EPC) is a form of “creative financing” for capital improvement which allows funding energy upgrades from cost reductions. Under an EPC arrangement an external organisation (Energy Service Company ESCO) implements a project to deliver energy efficiency, and uses the stream of income from the cost savings, to repay the costs of the project, including the costs of the investment. Essentially the ESCO will not receive its payment unless the project delivers energy savings as expected [European Comission, 2016]. Energy companies such as Iberdrola in Spain or EDF in France deliver energy following EPC contracts. This business model introduces a new financing scheme in construction projects. It is an innovative way for ESCOs to implement energy efficient measures within buildings.

331

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

BENCHMARK OF INNOVATIVE BUSINESS MODELS IN THE ENERGY SECTOR

The energy performance contracting model canvas

332

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

WHAT IS A BUSINESS MODEL?

Review the following video links: 

ACTIVITY

  

 

TASKS



After watching the video “Getting from business Idea to business model”, what is the most important thing you have learned?



After watching the video “Prototyping”, identify your prototype solution.



Getting from business Idea to business model: https://www.youtube.com/watch?v=wwShFsSFbY Visualizing your business model: https://www.youtube.com/watch?v=wlKPBaC0jA Prototyping: https://www.youtube.com/watch?v=iA5MVUNkSkM&t=9s Navigating your environment https://www.youtube.com/watch?v=7O36YBn9x_4&list=PLBh9h0LW oawphbpUvC1DofjagNqG1Qdf3&index=4 Proving it: https://www.youtube.com/watch?v=2gd_vhNYT4 Telling your story: https://www.youtube.com/watch?v=SshglHDKQCc&index=6&list=PL Bh9h0LWoawphbpUvC1DofjagNqG1Qdf3

After watching the video “Telling your story”, briefly identify your

333

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 4

THE 9 BUILDING BLOCKS OF THE BUSINESS MODEL CANVAS

During this unit, we'll learn about the nine building blocks that make up the business model canvas. And we'll discover how the business model canvas can play a key role in helping us transform a new idea into a profitable reality. The 9 building blocks of the business model canvas are:  The Customers Segment  Value Proposition  Channels  Customer Relationships  Revenue Streams  Key Resources  Key Activities  Key Partnerships  Cost Structure UNIT OBJECTIVE The purpose of this unit is build a common language for learners participating in the creation of a new business model canvas. By the end of this program, you will have the knowledge and skills to complete a onepage business model canvas which is a requirement of this learning module.

KEYWORDS  Customer segments  Value proposition  Channels  Customer relationships  Revenue streams  Key resources  Key activities  Key partners  Cost structure

334

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 4

THE 9 BUILDING BLOCKS OF THE BUSINESS MODEL CANVAS

RECORD OFCONTENTS THE 9 BUILDING BLOCKS OF THE BUSINESS MODEL CANVAS CUSTOMER SEGMENT ........................................................................................................ 336 VALUE PROPOSITION ......................................................................................................... 337 CHANNELS ................................................................................................................................. 338 CUSTOMER RELATIONSHIPS .......................................................................................... 340 REVENUE STREAMS ............................................................................................................. 341 KEY RESOURCES ................................................................................................................... 343 KEY ACTIVITIES....................................................................................................................... 345 KEY PARTNERS ....................................................................................................................... 345 COST STRUCTURE ............................................................................................................... 347

335

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

2 .1

MODULE 4

CUSTOMER SEGMENT

Business model experts recommend that we start with customer segments. This building block defines the different groups of people to reach and serve.

Customer categories

Customer segments typically fall into three categories. Mass market, this is where we focus on one large group with all these similar needs. Niche markets, sometimes it's better to cater to the needs of a specific group with very specific needs. And then the third customer segment is segmented markets. This falls somewhere in between mass and niche markets. This is where we distinguish between groups with slightly different needs.

TASKS

Clients are the target where the business will be headed. They can be one or more groups of clients, but correctly distinguished from each other.



After watching the video “Visualizing your business model”, what is the most important thing you have learned?



Identify your customer segments that might be the most interested in your idea.

336

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

2 .2

MODULE 4 VALUE PROPOSITION

Value propositionis a bundle of products, services, and benefits. Some benefits maybe represent a breakthrough innovation or the benefits may be similar to existing products and services but offers new features and functions that are indeed important to the customer segment. The key is identifying the customer’s most critical pain and then finding ways to help relieve that pain. Value propositions typically fall into three categories. The first one, is quantitative. Creating new value by improving speed of service, price for quality, or adding new features or improvements. These value propositions are sometimes called getting the job done or price competitiveness, or convenience. The next category is called qualitative, creating products and services that improve custom experience via new designs by improved emotional interfaces. These value propositions are called performance or customization or status enhancement including helping one, someone improve their personal brand.

Value proposition categories

The last category is called game changing. This is where your creating products and services that truly disrupt an industry.

We'll need to determine what value can we create to deliver that will be most important to the customer segment that we chose. Joint with our goal, we have to define what we are going to offer to customer. Different offers can be defined according to the Groups of customers

337

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

VALUE PROPOSITION

TASKS

Answer these questions: 

What help do we offer?



What problem do we help solve?



After watching the video “Prototyping”, what is the most important thing you have learned? Identify your customer segments.



2 .3

MODULE 4

CHANNELS

Channels are the mechanism for how we communicate with and deliver our value propositions to our customer segment. What channels have in common is that they are touch points that play a critical role in customer satisfaction and customer retention. Channels are typically broken down into types and phases, examples of channel types are sales force, web sales, stores, wholesalers, and depending on the type of product, distribution centers. The traditional channel phases are awareness, evaluation, purchase, delivery and after sales.

TASKS

We'll need to determine channels how we will communicate, and deliver the value propositions to the customer segment.

Answer these questions: 

How does the customer find out about our existence?



How will we do so that the client receives our value proposition?

338

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

The five distinct phases of channels

CHANNELS

Channels have five distinct phases. Each channel can cover some or all of these phases  Awareness – How do we raise awareness about our company?  Evaluation – How do we help customers evaluate our organisation’s Value Proposition?  Purchase – How do we allow customers to purchase specific products and services?  Delivery – How do we deliver a Value Proposition to customers?  After Sales – How do we provide postpurchase support?

339

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

2 .4

MODULE 4 CUSTOMER RELATIONSHIPS

Customer relationships are very closely tied to channels. Every business needs to decide what kind of relationship will be required in order to make the business model work. Customer segments and customer relationships can range from highly personal to highly automated. Categories typically include, personal assistants, dedicated personal assistants, which happens a lot in the business to business marketplace, self service, automated services and at the ultimate level, the cocreation of products and services with your customers.

Identifying Channels and Customer Relationships

It's important that all entrepreneurs and innovators remember that the strategy you use to attract and acquire customers, may be very different from the strategy you use to retain your best customers. In fact, research shows that the best path to profitability often comes more from customer retention than customer acquisition.

340

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

CUSTOMER RELATIONSHIPS

TASKS

Answer these questions: 

How to integrate the customer into our business model?



How do we make the client stay connected to our proposal?



After watching the video “Navigating the Environment”, what is the most important thing you have learned?



Describe your channels for your idea.



Describe and determinate the desired customer relationships.

2 .5

MODULE 4 REVENUE STREAMS

The revenue streams building block attempts to answer the question, for what value or price will the customer segment be willing to pay? Those common techniques to determine your pricing strategy is fixed list pricing, discount pricing, that's where you typically start high. And perhaps, offer significant discounts to attract early customers. Volume dependent pricing and market dependent pricing. The two main categories of revenue streams include transactional revenues, like when you purchase a car or something on amazon.com and recurring revenues. Good examples of these are subscription fees, usage fees and licensing fees.

341

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REVENUE STREAMS

Revenue Streams definition

TASKs

Answer these questions:

 

How do we make a reasonable amount of money for our efforts? What income, in what concept and with whom?



Identify and describe the revenue streams needed to deliver your value proposition to your most important Customer Segment.

342

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

2 .6

MODULE 4 KEY RESOURCES

We need to determine the key resources needed to create and deliver our value propositions. The main types of key resources include physical resources. This category includes physical assets like machinery, plants, warehouses, vehicles or point of sale systems to name just a few. The next category is human and intellectual. Almost every business today requires human resources and they are most critical in our new knowledge intensive marketplace. Intellectual resources often include your branding, proprietary knowledge, which is also sometimes called intellectual capital. Other examples of intellectual resources are patents. And of course, your customer database. And last but certainly not least, financial resources. The majority o business models require significant financial resources that come from a combination of sources including cash, lines of credit from a bank and perhaps, offering stock options in return for investments. And for many new businesses, the financial resources typically come from your own assets and sometimes with family and friends.

343

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

KEY RESOURCES

Key resources definition

Answer these questions:

TASKs

  

What are we? Our tangible and intangible resources (experience, contacts, skills ...) What elements do we have to build the value proposition? Determine and describe the Key Resources you will need to deliver the Value Proposition. Provide specific examples whenever possible.

344

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

2 .7

MODULE 4

KEY ACTIVITIES

The key activities are the most important actions that a company takes to operate. These are the key activities needed to create and deliver the value propositions as well as the develop and maintain the desired customer relationships. The most common types of key activities are operations in production, marketing and sales and of course finance and administration.

TASKs

Answer these questions:  

What do we do to offer our proposal? What activities and processes must be carried out to produce the value supply?



Identify and describe the Key Activities required to deliver your value proposition to your most important customer segment.

2 .8

MODULE 4 KEY PARTNERS

Key partnerships have become a cornerstone of many business models. These are the partners you need to help model, reduce risk, and access key resources.

optimize

your

business

Entrepreneurs often need the knowledge and expertise offered by strategic

345

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

KEY PARTNERS

Launching a new business, or a new product, or a new service is often a team sport not an individual sport.

TASK

The main categories of key partnerships are strategic alliances between non competitors, partnerships between competitors, joint ventures, and buyer supplier alliances. As an example, for my business model canvas project the key activities are designing and building the online planning content. Let me say that again, designing and building the online career planning content. And, developing, implementing, and managing the sales campaigns, using primarily database marketing.



Determine and describe the Key Partnership you will need to deliver the Value Proposition. Provide specific examples whenever possible.

346

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

2 .9

MODULE 4

COST STRUCTURE

The final building block focuses on what costs will be incurred as we create and deliver the value propositions to the customer segments. The most common categories of cost are costdriven and valuedriven. Costs can also be described as fixed costs and variable costs. Costs typically should be minimized in every business model but lowcost structures are more important to some business models than to others. Costdriven business models focus on minimizing costs wherever possible. This approach aims at creating and maintaining the leanest possible cost structure using low price value propositions The valuedriven business models are used by companies who are less concerned with the cost implications, and instead focus on value creation. Everything that means producing the value proposition, carrying out the key activities and having resources, involves costs. These can be economic or other type.

TASKs

Answer the questions:



What is the most important thing I learned in watching Alex Osterwalder video which tells an espresso business model story.



Identify and describe the Key Activities required to deliver your value proposition to your most important customer segment.



Next you need to determine and describe the cost structure for your idea, and then add the decisions to your business model canvas

347

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

COST STRUCTURE

Your current business model, and it's profit logic, acts like a constant gravitational pull. That conforms your innovation to your way of creating, delivering and capturing value. Breaking free of that, gravitational pull is harder than it looks. It takes working like a designer. This gravitational pull has many causes. Clayton Christensen described the financial pull generated by the bias towards efficiency and sustained innovations, innovations that stay within the orbit of your known business and profit logic. Your brain also pulls you, in towards your existing business model. Your brain is biased in favor of your current beliefs. It ignores data that contradicts what you believe to be true about your customers, your market and your profits. Your brain is also motivated not to change your business model. Even when it's failing. Simply because you feel responsible for helping create the model. So, it turns out that innovation is not for the faint of heart. Or the faint of mind. The gravitational pull of our first, or our current, business model helps explain why so much innovation proceeds through painful trial and error. The trial and error is an unavoidable part of learning. The pain however, is mostly selfinflected. If we learn to experiment with our business model and learn as we innovate, we'll reduce the pain and the cost of innovating, while increasing our rates of success. Consider the example of Nestle, among the largest of the world's food companies. Big, competitive, and ever conscious of controlling it's costs, Nestle held a dominant share of almost every industry category it served. In coffee, one of the world's largest and oldest commodities, Nestle dominated the instant coffee category. In the 1970s, Nestlé’s Nescafe brand held the dominant share of instant coffee market. They sold it to the mass market of retail consumers through retail stores that Nestle carefully cultivated with its retail partners. Nestlé’s relationship with its coffee customers, as with all of its package food customers was an arms length relationship of retail transactions. These retail sales generated low margin revenues. So, Nestle focused on innovating in production and marketing in order to make its manufacturing plants efficient, and its portfolio of products strong.

348

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

COST STRUCTURE

Like all commodity businesses, costs were tightly managed and controlled. The only problem with Nestle's dominance of instant coffee was that instant coffee was one of the smaller coffee categories. Roast and ground coffee, made in coffee makers of all types was over twice the size. Roast and ground coffee accounted for 70% of all the coffee consumed in the world. But Nestle was fourth in the roast in ground market. Eager to find ways into the roast in ground market, in 1974 Nestle bought the rights to commercialize a new type of espresso brewing system that used pods of coffee to brew individual servings. Once they have perfected and patented the machine, which they eventually named an Espresso, Nestle set their sights on Espresso consumers and on the existing channels to those Espresso drinkers. The cafes and restaurants where the majority of consumers drank Espresso. The Nespresso machine was compact in size, and its pod brewing process was clean and easy to use. You would've thought that restaurants and cafes would have loved it. But like many an innovator's assumption, this one proved to be false. Nestle had never marketed machines to restaurants or cafes. Once they did they discovered that the barista's viewed the machines as a threat to their livelihood. And that the restaurant kitchens didn't need the space savings, and were not willing to pay higher prices for the cleaner and easy to brew servings. [SOUND] In other words Nestlé’s first business model flopped [SOUND]. In 1986, sensing that the gravitational pull of its existing business model and profit logic was about to kill the struggling innovation, Nestle set up a separate Skunk Work company in a separate building to continue incubating espresso. The new venture expanded its customer segments to include the office market, and partnered with a coffee machine maker who was focused on the same market segment. But this too, flopped. [SOUND] What's an innovator to do? You can think of all these attempts by Nestle as experiments. Each of the experiments gave Nestle an opportunity to learn. Imagine that you're on the team of Nespresso. You've learned that your cafe, restaurant, and office model for the Nespresso business is not working.

349

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 4

GETTING STARTED WITH YOUR OWN CANVAS IN THE ENERGY SECTOR

This Business Model Canvas is ideal for describing your existing business model in a concise format, for creating a general understanding of the core business and for developing insights for its further development, including adaptation of new ideas. It is also a powerful communication tool for showing the function of a new business model. The fact is that a new business idea can lead to disruption, and therefore understanding and acceptance must be supported throughout the company. The Business Model Canvas is an extremely efficient tool, enabling you to concentrate on the essentials when developing your new business idea related to the energy sector. UNIT OBJECTIVE During this unit, we will try to guide you throughthe business creation journey, from a business idea to a business model. It is conceived from the perspective of an Entrepreneur that wants to take an initial business idea and turn it into a feasible business, following a series of activities.The activities follow a series of steps, starting from Step 1‘Sketch your idea’ to Step 2‘Build’and Step 3‘Test’. As a result of these activities, you will define and validate a business model, which will sum up the main outcomes of the process and could be used to draw up your business plan.

KEYWORDS  Prosumer  Smart Grid

350

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

MODULE 4

GETTING STARTED WITH YOUR OWN CANVAS IN THE ENERGY SECTOR

RECORD OFCONTENTS

GETTING STARTED WITH YOUR OWN CANVAS IN THE ENERGY SECTOR

THE BUSINESS MODEL CANVASIN THE ENERGY CONTEXT ........................... 352 TIPS FOR ENTREPRENEURS .................................................................................................. 353 STEP 1: SKETCH YOUR BUSINESS IDEA ..................................................................... 358 STEP 2: BUILD YOUR BUSINESS MODEL .................................................................... 362 STEP 3: TEST YOUR BUSINESS MODEL ...................................................................... 371 CONCLUSION ................................................................................................................................. 372

351

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3 .1

MODULE 4 THE BUSINESS MODEL CANVAS IN THE ENERGY CONTEXT

With the impact of climate change becoming ever more apparent, it's pretty clear that something has to change fast when it comes to our relationship with fossil fuels. Luckily, there do seem to be dramatic shifts underway in how energy is both produced and consumed. Here are some hopeful signs that the energy sector is finally growing up. Most of us have gotten pretty used to Google making big green energy announcements, and Apple has also been leading the way in building new renewables infrastructure. But direct investment in clean energy generation is rapidly becoming the norm, not the exception, where large corporations are concerned—from Microsoft's decision to buy a 110MW wind farm's entire output to Duke Energy finally starting to take renewables seriously, even laggards are beginning to make some serious investments. And that means the leaders will have to do more to stay out in front. It's no secret that there are moneyed interests who are deeply invested in the fossilfuel driven status quo. Given that money talks in our political system, that has meant that there are significant forces seeking to slow a transition to a low carbon economy. There is, however, a new breed of entrepreneur, who's money is not tied to untenable fuel, and who is willing to stand up for a new model of energy. From Dale Vince picking fights with utilities through Elon Musk's increasing influence and can provide a useful counterbalance to the climate skepticism. One of Germany's largest utilities, for example, has just decided to entirely restructure its future business model—positioning itself less as a producer of power, and more as an enabler of renewables and other decentralized forms of power generation. The new paradigm suggests we can all play a part as consumers, as producers, as stores and conservers of energy, and as engaged energy citizens making the best use of the resources we have available to us.

352

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3 .2

MODULE 4

TIPS FOR ENTREPRENEURS

First of all, and before you start your new business model, take into account the following tips: Be ready to changing your initial idea Entrepreneurs normally start the entrepreneurship journey with an idea, and try to develop it is as soon as possible. However, we recommend you to stop for a while and ask yourself: Why do you want to set up that business? What are the drivers behind it? Is there a different way toachieve your goals? During this questioning process, you may come up with other ideas different from the initial one. Be openminded and hink of these other ideas. Don’t stick too much toyour initial idea! Know yourself… and your limits Prior to embarking on the ambitious project of a business creation,you must know yourselves well: skills possessed and needed, abilities,desired worklife balance, the way we work, our relationships withothers, etc. Those elements are extremely important when elaborating any business project, since they will help us anticipate the risks, failureor difficulties. According to that diagnosis, we may find relevant topartner with complementary people. Can I launch and run my business alone? Depending on your aspirations, you may prefer to run the businesson your own. Although this may be advantageous for some activities (hand craft, consultant ...), other more complex ones will require moreresources, including human talent. In any case, it is always advisable tobe surrounded by people that can take an objective look at the project. Also, working in teams and distributing work according to capacities,allows members to focus on their specialties, dramatically improvingresults as a consequence.

353

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TIPS FOR ENTREPRENEURS

Be a Green Entrepreneur Whatever our deepest motivations for being a green entrepreneurare (create your own job, address a social issue, generate a newcommunity dynamic ...), your primary goal is to create economicvalue by addressing an environmental issue. Think big Setting ambitious goals for ourselves can push us to reach for greaterheights and do better. All of course, while enjoying each small steptowards success. Set up a good team Don’t try to manage all the business alone. Concentrate on yourspecialty, in the domain you shine, and let others do what you cannotdo (or do poorly). Similarly, no matter how innovative the idea maybe, it is worthless if you do not sell it. And you need a good teamfor that, one that can deal with the core business and manage thefundamental tasks... Look around you and identify who will help youin this task and engage them! Source the best resource you needand built up partnerships. Identify the stakeholders Amongst the stakeholders, you may find easier to identify yourcustomers first. Customers, as well as other stakeholders, will havea critical role for building your value proposition, and define thestructure of your business model. Do as you can to involve at earlyphase the stakeholders and keep in mind that some of them may bediscovered later. Involve customers and stakeholders Whereas involving your customers in a cocreation process is a prerequisite for the rapid success of your project, it may be tricky toget your others stakeholders into the same level or engagement. Onthe basis of your interviews with your stakeholders, think carefullyabout whom you can expect a full implication from, and rank the levelof engagement, from the weakest (for example via regular feedbackon the project) to the highest (cocreation).

354

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TIPS FOR ENTREPRENEURS

Look at international market opportunities When identifying potential customers, don’t forget to look atinternational market opportunities! Although marketing productsinternationally may require adaptations and be costly, it is an optionwe should consider at a very early stage of our green business project.The potential is great in some sectors such as ecotourism. Think economic sustainability We have to bear in mind that a green business is a business, meaningthat, besides the green aspects we want to highlight, we must notforget that our client may consider other criteria to justify his/her purchasing decision, including design, cost, technical specifications,convenience, health, etc. Have a unique value proposition This is the essential point of our business project. The value proposition should bring customers something new that will prompt them to turnaside from competitors.Consider the Web 2.0 revolution. The internet revolution has emerged as the new reality affecting social and economic life, as well as the way we do business. Most of the communication and marketing channels have a web 2.0 component. Each internet user is potentially a customer. Social networks, organized by topic, interest or affinity, are the soundingboard of marketing trends in realtime. Customers go on the internet and look for consumer reviews before purchasing. Do not underestimate the power of web 2.0 technologies in your green business model, especially when you target a market that goes beyond the local level. Partner with your supply chain You can also try to promote sustainability through your supply chain, pushing your suppliers to be more aware about design and askingthem to incorporate ecodesign strategies. You can involve them in cocreation processes to align ecodesign strategies towards a common purpose.

355

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TIPS FOR ENTREPRENEURS

Communicate wisely If you are interested in certifying your product you can learn more about available labels, their technical and legal requirements and their costs. Alleviating startup capital You do not necessarily need high investments to launch a product/ service. Development cost can be alleviated in different ways, as you will see later. Moreover, don’t think you need to develop every part of your project: finding the right partner to outsource your activities can help you save a lot of time and money. Be aware of new business models Over the last decades, a trend for a more wellreasoned consumption pattern has been regularly growing: buying local, choosing a better quality at the expense of a higher price, fostering shortcircuit consumption... We are observing new patterns of consumption, that are led by environmental and health concerns. More particularly, the circular and collaborative economy tend to bring communities and actors together, around common objectives that aim at limiting the impact of and reuse resources in a more efficient way. New business models can emerge from the new paradigm of the sharing economy.This consists of moving from an economy of ownership to one of service functionality. You may be paid in proportion to the real water savings you are able to achieve thanks to your services (instead of selling watersaving devices). Don’t be frightened of failure Failure is a necessary step to success, so learning and improving from it is an integral part of the entrepreneurial process. Must I be rich to set up a business? We do not necessarily need high investments to launch a product/service. Development cost can be alleviated in different ways. Moreover, we do not have to develop every part of the project by ourselves: finding the right partner to outsource activities can save a lot of time and money.

356

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

TIPS FOR ENTREPRENEURS

Try hard to convince financing institutions The finance sector may be reluctant to finance emerging new ventures. It’s up to you to convince them about the economic relevancy of our project. Whoever the financier or investor you approach may be, the meeting has to be thoroughly prepared. In 5 minutes, you should be able toexplain clearly what the value proposition offered is, the clients, how the business will be profitable, and why you are the right team to dothe job. If you meet potential investors, know that most often they will base their decision on personality and motivation first, on thecredibility of the management team, and lastly the performance of the product/service. Ideally, you may start mobilizing ‘love money’ first (from family or friends) for building up startup capital. That would ease the way towards financial institutions. Stay connected The uncertain environment of our new business activity demands for constant access to uptodate information about legal and political frameworks, competitive solutions, customers needs, costs, etc. Webbased solutions, but also direct contact with experts or clients,will help alleviate risks and formulate effective strategies. You canalways do better towards continuous improvement.

357

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3 .3

MODULE 4 STEP 1: SKETCH YOUR BUSINESS IDEA

For the first step, you will only need a white paper with plenty of enthusiasm! Do you have a business idea in your mind? Let’s describe it!

TASKs

Sketch it by briefly answering the following questions.  What is your initial business idea?  What are you going to offer (product, service)?  Who may be your customers? And your partners? You can follow my proposal to facilitate the process of describing your idea. My proposal is based on supply electricity to rural areas and solar photovoltaic should be the technology instead of fuel generation.

TASKs

Sketch it by briefly answering the following questions.

 What is your initial business idea?  Provision of solar energy to rural areas, whichwill help to reduce poverty in these areas.  What are you going to offer (product, service)?  I will offer the delivery, installation and maintenanceof solar PV Systems.  Who may be your customers? And your partners?  My customers may be the households with some income and small businesses. My partners could be the government,the local communities and the suppliers and technicians.

358

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

STEP 1: SKETCH YOUR BUSINESS IDEA

Identify problems and needs. Problems:  Noise from generators  Gas emissions from burning fuel and kerosene  Oil leakages.

TASKs

Needs:

    

They need a stable electricity supply because the availability of fuel to run household electricitygenerators is unreliable and difficult, and fuel prices are very unstable. Furthermore, energy deficiency is often seen as one of the obstacles for rural development. Without local opportunities youth tend to migrate to urban areas. Poor electricity access. Poor living conditions of rural people. Health problems related to environmental damage. Low job opportunities as a result of the situation. To improve the relatives living conditions.

After having identified the problems and needs, it is the timeto zoom out and look at the local, regional and global contextaround your business idea. Pay special attention to thoseaspects that may either boost or constrain the developmentof your idea. Brainstorm: think about the conditions, changes and trends in the local, regional and global context that can affect your business in the future. These aspects can be grouped into the following categories: Political (P), Economic (E), Social (S), Technological (T), Environmental (E) and Legal (L). Prioritize: select the most relevant aspects for your business (maximum five) and write them down in the following box. Confront: it would be great if you could bring some insights on how you would confront these aspects!

359

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

STEP 1: SKETCH YOUR BUSINESS IDEA What are the aspects (political, economic, social, technological,environmental and legal) of the context that can affect your business?

TASKs

A. Environmental aspects: Decreased availability of metals and accumulation of toxic waste. B. Political aspects: Rural electrification policies and planning. C. Technological aspects: Improvement in the efficiency of solar panels and lack of prepard technicians for PV servicing. D. Economic aspects: limitations on access to credit. Can you bring some insights to confront the most relevant forces? A. The lack of cadmium telluride, gallium selenide and other precious metals can limit the production of solar panels, mounting systems and batteries, increasing their costs. On the other side, it will be necessary to manage solar panels at their end of life. B. It is necessary to involve the government in the project from the very beginning, and be aware of any new regulations coming in place. C. The improvement of efficiency will make the business more profitable, whereas the lack of technicians will need that we will have to train them. D. The lack of access to credit may compromise the start of the Set your goals Recap: Revise exercises 11 and 12. Capture in a white paper ‘Problems and needs’ the most relevantproblems and needs that your project is seekingto tackle. Be aware that you can also add personalor team objectives. Set objectives: Reframe the problems and needsinto specific objectives to solve or confront them(remember when defining the objectives, thecontext in which you operate in). Measure progress: Optionally, you can setindicators that will help you measure theprogress towards the set objectives. However,this is something complementary at this stage.

360

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

STEP 1: SKETCH YOUR BUSINESS IDEA Problems and needs

Understand the context

Environmental: Noise from generators; Gas emissions; oil leakages.

Environmental aspects: Decreased availability of metals and accumulation of toxic waste.

Social: poor electricity access and living conditions because electricity is produced far away from the consumer; and job opportunities in rural areas are low.

Political aspects: Rural electrification policies and planning.

Customer’s needs: Unstable electricity supply.

Technological aspects: Improvement in the efficiency of solar panels and lack of prepared technicians for PV servicing. Economic aspects: limitations on access to credit.

Summary of context and objectives

Project objectives

To provide clean electricity that requires small infrastructure development. To supply rural people with reliable electricity. To improve socioeconomic development of rural areas.

Vision statement A rural region with light and better living conditions

Mission statement To supply rural people with reliable solar PV electricity in anaffordable and sustainable way.

361

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3 .4

MODULE 4

STEP 2: BUILD YOUR BUSINESS MODEL

It is time to design stepbystep your business by using the Business Model Canvas:  Identify the customers and key stakeholders related to your business objectives. First of all, take a piece of paper and list the stakeholders that may influence your project’s objectives or may be affected by them.Can you give the names ofreal actors and organizations? Map: Place the stakeholders on the matrix according to the level of influence they haveon your project and the extent in which they are affected by it.

Effects of the business on stakeholders

362

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

STEP 2: BUILD YOUR BUSINESS MODEL Concentrate first onthe righttop quadrant. Then, choose which stakeholders placed in the lefttop and rightbottom quadrants are worth paying attention to. Probably the relationships that you will establish with them will be different. Ignore the rest of stakeholders. Now, assess the ‘gives and gets’ and set the balance between each stake holder. Identify who will be willing to pay for your value, and think about how you will engage with each of thestakeholders. Stake holders in the right – top quadrant are the most relevant stake holder and are the more important than those in the lower quadrant. Go back to the stakeholders’ map and identify those that will pay for your service/product. These will beyour customers. Think if they are homogeneous or if you can divide them into groups depending on their characteristics.Each of these groups is called a customer segment.  Create the value proposition with them and asses your own following next tips:  Are embedded in great business models  Focus on few pain relievers and gain creators, but do those extremely well  Focus on jobs, pains, or gains that a large number of customers have or for which a small number is willing to pay a lot of money  Align with how customers measure success  Focus on the most significant jobs, most severe pains, and most relevant gains  Differentiate from competition in a meaningful way  Address functional, emotional and social jobs all together  Outperform competition substantially on at least one dimension  Are difficult to copy  Focus on unsatisfied jobs, pains, and gains

363

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

STEP 2: BUILD YOUR BUSINESS MODEL

 Identify the channels and relationships with your customer segments and design the activities and resources to develop your business. Explore how you will reach your customers and what kind of relationship you will establish with them. Describe the interaction journey of a customer with your service/product. Emotions: emotional stages of the customer during the journey. Touch points & channels: points service/product and the customers.

and

means

contact

between

the

Feelings & thoughts: sensations and rational ideas of your customer in relation to each stage of the journey. Stages: each of the steps in the customers’ journey, from becoming aware of your service/product to use –discovery, assessment, purchase. Once you have described the journey it is important toanalyze the stages that need action in order to improve painpoints and to maximize pleasure points. It's about providingcalming elements to alleviate the pain as well as adding valueto reinforce pleasure points. Find out about the resourcesthat you will need for it. Now, it is time to define the key activities and key resourcesthat will be involved in the generation, management anddelivery of your value proposition. Write a list of Key activities. Remember that some of them may be related with specific activities of your business niche market, other may be related to general management. Both are very important, don’t forget it! Try to answer the following questions that help you to identify your Key Activities.  What activities and tasks do you need to accomplish to create your Value Proposition, solve a specific challenge or maintain a high level of innovation in your business?  What activities and tasks do you need to accomplish to produce your products or supply your services?  What activities and tasks do you need to accomplish to create an efficient and valuable network or platform in order to promote sales, distribution and communication withstakeholders?  What activities and tasks do you need to accomplish to createan efficient and valuable supply chain management system?  What do you need to deal with supplier?

364

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

STEP 2: BUILD YOUR BUSINESS MODEL Write a list of Key resources considering everything you need to create, deliver and manage your products, services and perform business operations. Try to answer the following questions that help you to identify your Key Resources.  What human resources does your value proposition require?  What about the people working for/ with you?  What physical resources are important for your business?(Think about facilities, machinery, vehicles)  Which intellectual and digital resources do you need?  Do you need licences, patents, software?  Which type of financial capital do you need? Have youinvestments, loans or other financial issues (e.g. machineryleasing) related with your business?  Estimate the expected costs and revenues. List the investment costs that you needto start your business (e.g. purchase of products, officesor factories, training and education, etc.) and list the mostimportant costs inherent to your business model (differentiatebetween fixed and variable costs). Price: try to give an estimate cost for each of the items. Transform: it is important to reduce the fixed costs asmuch as possible. Think about a possible strategy to do it. Sum up: give the total fixed and variable costs. Recap: spot if something needs special or further attention. To finish with this second step, you can download and print in A3 the template of the Business model Canvas in order to complete the whole exercises: http://tinyurl.com/33zjwxq

TASKs

Complete your BMC with all the data gathered.

Take as examples the BMC’s completed: BMC 1: CASE STUDY, SOLAR PHOTOVOLTAIC IN RURAL AREAS BMC 2: CHAUFFAGE, A COMFORT CONTRACTING BMC 3: PURE ENERGY RETAILER (only supply energy or gas to end customer) BMC 4: ENERGY COOPERATIVE (supplies energy to its members and promote a 100% renewable model) The European Commission support for the production of this publication does not constitute an endorsement of the contents which reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.

365

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

366

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

STEP 2: BUILD YOUR BUSINESS MODEL First step of this proposal project was to provide Photovoltaic (PV) panels to endusers. One of the most relevantpains to take into account, that customers did not want tobuy PV solar systems. Also, the price their clients were ableto pay for the service was low. Subsidies were not reliableto ensure the economical sustainability of the project northe participation of clients in it. To overcome these downsides, they had to find a way toprovide electricity without the need to buy PV systems andto increase the revenues in order to reduce prices. Recycling PV systems could open another revenuestream that contributes to reduce the price of the serviceand the dependence on external subsidies. But, what could be done to provide energy if customers don’t wantto buy PV panels? Up to know the value proposition was aproduct (PV solar panels). After a first test, the fact that customers statethat they won’t purchase solar PV systems,obliges Solar PV company to look for analternative solution. They resolve it offeringa service instead: they will provide electricityon a Feeforservice basis. In this context, our prototype should turn into a new business model, focused into a new ESCO company. Following you can see other examples of Business model canvas that will inspire you.In this context, our prototype should turn into a new business model, focused into a new ESCO company. Following you can see other examples of Business model canvas that will inspire you.

367

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

368

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

369

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

370

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3 .5

MODULE 4 STEP 3: TEST YOUR BUSINESS MODEL

Now, it is time for a TEST, as a means to improve the value propositionand to bring it closer to real needs andexpectations, you want to cocreate your valueproposition with your customers and maybesome stakeholders, and at the same time lookfor information on similar projects. Maybe you have already done one or more tests. If so, just complement them. Go out and talk to your customers and stakeholders and ask them about your questions. Get as much information as possible about thearea where you will base your business, yourcustomers and your stakeholders. Use the test card to capture the information that youcollect from interviews or observations. You may indicate dataabout the participant take notes and sum up your learnings. Once you have contrasted your assumptions and youhave gathered information from your customers and keystakeholders, probably you have discovered something or youhave learned some lessons. You must integrate all these intoyour value proposition and pivot it.

TASKs

What will you modify from your value proposition in orderto incorporate the input gathered? Download the TEST CARD: https://assets.strategyzer.com/assets/resources/thetestcard.pdf Watch the following video and complete your TEST CARD: https://www.youtube.com/watch?v=cW46ySJmLD8 Once you checked all the information gathered, you will adjust your prototype to the customer’s expectation, but also you will adjust specific problems or difficultiesthat may have arisen with your stakeholders and partners, then, you will have your business model designed and validated!

371

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

3 .6

MODULE 4 CONCLUSION

And that is the end for the journey (for now). First of all, congratulations on completing your BUSINESS MODEL CANVAS (BMC). Now, whenever there are changes made within your current proposal, idea or prototype, you will be able to quickly update and revise your BMC in a matter of minutes, The BMC is a powerful tool to quickly andeffectively guide you through proper strategic planning. Since this is a work in progress, we would love to hear from you on any recommendations and/ or suggestion on its value and how you could see it changing. Please contact us: www.ibmplus.eu

372

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

1. Global Health Observatory. Urban Population Growth. Available online: http://www.who.int/ gho/urban_health/situation_trends/urban_populat ion_growth_text/en/ (accessed on 9 July 2014).

8. European Energy Exchange AG. Available online: http://www.eex.com/en#/en (accessed on 9 July 2014).

2. United States Census Bureau. US and World Population Clock. Available online: http://www.census.gov/popclock/ (accessed on 9 July 2014). 3. Gellings, C.W. What is the Smart Grid? In The Smart Grid: Enabling Energy Efficiency and Demand Response; The Fairmont Press, Inc.: Lilburn, GA, USA, 2009. 4. United States Department of Energy. Benefits of Demand Response in Electricity Markets and Recommendations for Achieving Them. Available online: http://energy.gov/sites/prod/files/ oeprod/DocumentsandMedia/DOE_Benefits_of_De mand_Response_in_Electricity_Markets_and_ Recommendations_for_Achieving_Them_Report_to_ Congress.pdf (accessed on 9 July 2014). 5. Chiu, W.Y.; Sun, H.; Poor, H.V. Demandside energy storage system management in smart grid. In Proceedings of the 2012 IEEE Third International Conference on Smart Grid Communications (SmartGridComm), Tainan, Taiwan, 5–8 November 2012; pp. 73–78. 6. Rathnayaka, A.J.D.; Potdar, V.M.; Dillon, T.; Hussain, O.; Kuruppu, S. Goaloriented prosumer community groups for the smart grid. IEEE Technol. Soc. Mag. 2014, 33, 41–48. 7. Goncalves da Silva, P.; Ilic, D.; Karnouskos, S. The Impact of smart grid prosumer grouping on forecasting accuracy and its benefits for local electricity market trading. IEEE Trans. Smart Grid 2014, 5, 402–410.

9. Karnouskos, S. Future smart grid prosumer services. In Proceedings of the 2011 2nd IEEE PES International Conference and Exhibition on Innovative Smart Grid Technologies (ISGT Europe), Manchester, UK, 5–7 December 2011; pp. 1–2. 10. Grijalva, S.; Tariq, M.U. Prosumerbased smart grid architecture enables a flat, sustainable electricity industry. In Proceedings of the 2011 IEEE PES Innovative Smart Grid Technologies (ISGT), Hilton Anaheim, CA, USA, 17–19 January 2011; pp. 1–6. 11. Kato, S.; Nishihara, H.; Taniguchi, I.; Fukui, M.; Sakakibara, K. Analysis on battery storage utilization in decentralized solar energy networks based on a mathematical programming model. In Proceedings of the 2012 Joint 6th International Conference on Soft Computing and Intelligent Systems (SCIS) and 13th International Symposium on Advanced Intelligent Systems (ISIS), Kobe, Japan, 20–24 November 2012; pp. 651–656. 12. Popovic, Z.; Cackovic, V. Advanced metering infrastructure in the context of smart grids. In Proceedings of the 2014 IEEE International Energy Conference (ENERGYCON), Cavtat, Croatia, 13–16 May 2014; pp. 1509–1514. 13. Römer, B.; Reichhart, P.; Kranz, J.; Picot, A. The role of smart metering and decentralized electricity storage for smart grids: The importance of positive externalities. Energy Policy 2012, 50, 486–495.

373

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

14. Deng, R.; Maharjanyz, S.; Cao, X.; Chen, J.; Zhangyz, Y.; Gjessingyz, S. Sensingdelay tradeoff for communication in cognitive radio enabled smart grid. In Proceedings of 2011 IEEE International Conference on the Smart Grid Communications (SmartGridComm), Brussels, Belgium, 17–20 October 2011; pp. 155–160. 15. Kosut, O.; Jia, L.; Thomas, R.J.; Tong, L. Malicious Data Attacks on the smart grid. IEEE Trans. Smart Grid 2011, 2, 645–658. 16. Smart Grids Project Portal. Available online: https://portal.smartgridsprojects.eu/Pages/ default.aspx (accessed on 9 July 2014). 17. eGOTHAM Project (SustainableSmart Grid Open System for the Aggregated Control, Monitoring and Management of Energy) Artemis Website. Available online: http://www. e gotham.eu/ (accessed on 9 July 2014). 18. GRID4EU Home Web Site. Available online: http://www.grid4eu.eu/ (accessed on 9 July 2014). 19. MeRegio Web Site. Available online: http://www.meregio.de/en/ (accessed on 9 July 2014). 20. I3RES Project Web Site. Available online: http://www.i3res.eu/v1/ (accessed on 9 July 2014). Energies 2014, 7 6169 21. Lee, J.; Jung D.K.; Kim, Y.; Lee, Y.W.; Kim, Y.M. Smart grid solutions, services, and business models focused on telco. In Proceedings of the 2010 IEEE/IFIP Network Operations and Management Symposium Workshops (NOMS Wksps), Osaka, Japan, 19–23 April 2010; pp. 323–326.

REFERENCES 22. Arnautovic, E.; Svetinovic, D.; Diabat, A. Business interactions modeling for systems of systems engineering: smart grid example. In Proceedings of the 7th International Conference on System of Systems Engineering (SoSE), Genoa, Italy, 16–19 July 2012; pp. 107–112. 23. Vos, A. Effective business models for demand response under the smart grid paradigm. In Proceedings of the PSCE’09, IEEE/PES Power Systems Conference and Exposition, Seattle, WA, USA, 15–18 March 2009; p. 1. 24. Teece, D.J. Business models, business strategy and innovation. Long Range Plan. 2010, 43, 172–194. 25. Amit, R.; Zott, C. Value creation in e business. Strateg. Manag. J. 2001, 22, 493– 520. 26. Amit, R.H.; Zott, C.; Massa, L. The Business Model: Theoretical Roots, Recent Developments, and Future Research; University of Navarra: Pamplona, Spain, 2010. 27. Osterwalder, A.; Pigneur, Y. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers; John Wiley & Sons: Hoboken, NJ, USA, 2010. 28. Okkonen, L.; Suhonen, N. Business models of heat entrepreneurship in Finland. Energy Policy 2010, 38, 3443–3452. 29. Richter, M. Utilities’ business models for renewable energy: A review. Renew. Sustain. Energy Rev. 2012, 16, 2483–2493. 30. Richter, M. German utilities and distributed PV: How to overcome barriers to business model innovation. Renew. Energy 2013, 55, 456–466.

374

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

31. Richter, M. Business model innovation for sustainable energy: German utilities and renewable energy. Energy Policy 2013, 62, 1226– 1237.

40. Schaltegger, S.; LüdekeFreund, F.; Hansen, E.G. Business cases for sustainability: The role of business model innovation for corporate sustainability. Int. J. Innov. Sustain. Dev. 2012, 6, 95–119.

32. Osterwalder, A. The Business Model Ontology: A Proposition in a Design Science Approach. Ph.D. Thesis, University of Lausanne, Lausanne, Switzerland, 2004. 33. He, X.; Delarue, E.; D’haeseleer, W.; Glachant, J.M. A novel business model for aggregating the values of electricity storage. Energy Policy 2011, 39, 1575–1585. 34. Kley, F.; Lerch, C.; Dallinger, D. New business models for electric cars—A holistic approach. Energy Policy 2011, 39, 3392–3403. 35. Loock, M. Going beyond best technology and lowest price: On renewable energy investors’ preference for servicedriven business models. Energy Policy 2012, 40, 21–27. 36. Shrimali, G.; Slaski, X.; Thurber, M.C.; Zerriffi, H. Improved stoves in India: A study of sustainable business models. Energy Policy 2011, 39, 7543–7556. 37. BadenFuller, C.; Morgan, M.S. Business models as models. Long Range Plan. 2010, 43, 156–171. 38. Wustenhagen, R.; Boehnke, J. Business models for sustainable energy. Syst. Innov. Sustain. 1 Perspect. Radic. Chang. Sustain. Consum. Prod. 2008, 1, 70–79. 39. Zott, C.; Amit, R. The fit between product market strategy and business model: Implications for firm performance. Strateg. Manag. J. 2008, 29, 1–26.

41. Johnson, M.W. Seizing the White Space: Business Model Innovation for Growth and Renewal; Harvard Business Press: Boston, MA, USA, 2010. 42. Wirtz, B.W.; Schilke, O.; Ullrich, S. Strategic development of business models: implications of the Web 2.0 for creating value on the internet. Long Range Plan. 2010, 43, 272–290. 43. Geelen, D.; Reinders, A.; Keyson, D. Empowering the enduser in smart grids: Recommendations for the design of products and services. Energy Policy 2013, 61, 151–161. 44. Verbong, G.P.J.; Beemsterboer, S.; Sengers, F. Smart grids or smart users? Involving users in developing a low carbon electricity economy. Energy Policy 2013, 52, 117–125. 45. Dahlstrand, U.; Biel, A. Pro environmental habits: Propensity levels in behavioral change. J. Appl. Soc. Psychol. 1997, 27, 588–601. 46. Verplanken, B.; Wood, W. Interventions to break and create consumer habits. J. Pub. Policy Mark. 2006, 25, 90–103. 47. Gardner, G.T.; Stern, P.C. Environmental Problems and Human Behavior; Allyn & Bacon: Needham, MA, USA, 1996. 48. Rogers, E.M. Diffusion of Innovations; Simon and Schuster: New York, NY, USA, 2010. 49. Wilson, C.; Dowlatabadi, H. Models of decision making and residential energy use. Annu. Rev. Environ. Resour. 2007, 32, 169–203.

375

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

50. Wolsink, M. The research agenda on social acceptance of distributed generation in smart grids: Renewable as common pool resources. Renew. Sustain. Energy Rev. 2012, 16, 822–835.

57. Guthridge, G.; Dary, M.; Monahan, R.; Manley Casimir, N.; Barsky, K.; Wong, Z.; Bonzom, S. Demand Side Management Portfolio Manager System; U.S. Patent 13/367804, 7 Febrary 2012.

51. Benders, R.M.J.; Kok, R.; Moll, H.C.; Wiersma, G.; Noorman, K.J. New approaches for household energy conservation—In search of personal household energy budgets and energy reduction options. Energy Policy 2006, 34, 3612–3622.

58. Valocchi, M.; Schurr, A.; Juliano, J.; Nelson, E. Plugging in The Consumer: Innovating Utility Business Models for the Future. IBM Corporation: Somers, NY, USA, 2007, pp. 1–28. Energies 2014, 7 6171

52. Mengolini, J.V.A. The Social Dimension of Smart Grids; Publications Office of the European Union: Luxembourg, 2013.

59. Guthridge, G.S.; Handcock, N.; Manley Casimir, N. (Smart) Power to the People! Available online: http://www.accenture.com/SiteCollectionDocumen ts/PDF/AccentureOutlookSmartpowertothe peopleSmartgrid.pdf (acessed on 9 July 2014).

53. Kok, K. Shortterm economics of virtual power plants. In Proceedings of the 20th International Conference and Exhibition on Electricity Distribution—Part 1, 2009. CIRED 2009, Prague, Czech Republic, 8–11 June 2009; pp. 1– 4. 54. Karnouskos, S.; de Holanda, T.N. Simulation of a smart grid city with software agents. In Proceedings of the EMS’09 Third UKSim European Symposium on Computer Modeling and Simulation, Athens, Greek, 25–27 November 2009; pp. 424–429. 55. Bremdal, B.A. Prosumer oriented business in the energy market. In Proceedings of the Energy and Finance Conference in Rotterdam, The Erasmus School of Economics, Rotterdam, The Netherlands, 5–6 October 2011. 56. Shandurkova, I.; Bremdal, B.A.; Bacher, R.; Ottesen, S.; Nilsen, A. A Prosumer Oriented Energy Market; IMPROSUME Publication Series #3; NCE Smart Energy Markets: Halden, Sweden, 2012.

60. Pudjianto, D.; Ramsay, C.; Strbac, G. Virtual power plant and system integration of distributed energy resources. IET Renew. Power Gener. 2007, 1, 10–16. 61. Agnetis, A.; Dellino, G.; de Pascale, G.; Innocenti, G.; Pranzo, M.; Vicino, A. Optimization models for consumer flexibility aggregation in smart grids: The ADDRESS approach. In Proceedings of the 2011 IEEE First International Workshop on Smart Grid Modeling and Simulation (SGMS), Brussels, Belgium, 17 October 2011; pp. 96–101. 62. Livieratos, S.; Vogiatzaki, V.E.; Cottis, P.G. A generic framework for the evaluation of the benefits expected from the smart grid. Energies 2013, 6, 988–1008. 63. Bompard, E.F.; Bei, H. Marketbased control in emerging distribution system operation. IEEE Trans. Power Deliv. 2013, 28, 2373–2382.

376

INNOVATIVE TRAINING AND NEW BUSINESS OPPORTUNITIES IN THE ENERGY MARKET

REFERENCES

64. Academic Google Search for “Prosumer Business Through” 2009. Available online: http://scholar.google.es/scholar?q=prosumer+bus iness&hl=es&as_sdt=0%2C5&as_ylo=2009&as_ yhi=2009 (accessed on 25 August 2014). 65. Academic Google Search for “Prosumer Business Through” 2010. Available online: http://scholar.google.es/scholar?q=prosumer+bus iness&hl=es&as_sdt=0%2C5&as_ylo=2010&as_ yhi=2010 (accessed on 25 August 2014). 66. Academic Google Search for “Prosumer Business Through” 2011. Available online: http://scholar.google.es/scholar?q=prosumer+bus iness&hl=es&as_sdt=0%2C5&as_ylo=2011&as_ yhi=2011 (accessed on 25 August 2014).

FURTHER READING

Business model in the energy efficiency sector: ENERMAP https://www.youtube.com/watch?v=4Q9wmF5Pcss Alexander Osterwalder: Tools for Business Model Generation [Entire Talk] http://www.youtube.com/watch?v=8GIbCg8NpBw&f eature=related Video de presentación del modelo (2 minutos y 20 segundos) http://www.youtube.com/watch?v=QoAOzMTLP5s &feature=youtu.be Book“Business Model Generation”. Osterwalder& Yves Pigneur

Alexandre

67. Academic Google Search for “Prosumer Business Through” 2012. Available online: http://scholar.google.es/scholar?q=prosumer+bus iness&hl=es&as_sdt=0%2C5&as_ylo=2012&as_ yhi=2012 (accessed on 25 August 2014). 68. Academic Google Search for “Prosumer Business Through” 2013. Available online: http://scholar.google.es/scholar?q=prosumer+bus iness&hl=es&as_sdt=0%2C5&as_ylo=2013&as_ yhi=2013 (accessed on 25 August 2014).

377