RIJBFA
Volume 3, Issue 4 (April. 2014)
ISSN: 2277- 100X
A Journal of Radix International Educational and Research Consortium RIJBFA RADIX INTERNATIONAL JOURNAL OF BANKING, FINANCE AND ACCOUNTING
BUSINESS MODEL INNOVATION V/S MONITOR’S TEN TYPES OF INNOVATION FRAMEWORK A NEW MANTRA FOR SUCCESSFUL ENTREPRENEURSHIP IN INDIA PROF. MAHESH BENDIGERI Assistant Professor Global Business School, Hubli
ABSTRACT It is rightly said that “When the Game Gets Tough, Change the Game” so goes the today business environment. Severe competition, price war, everyday tariff, introduction of new features, value added services has hit the business tycoons to relook and redesign the business model. In the era of ever changing customer preference, taste and life style. It has become necessity to adapt to those changes and incorporate in the business action to survive and beat the competition. In light of this the buzzing word across the business circle is “innovation”, not just innovation in the product or service but entire business model so as to differentiate and also to ensure better revenue generation. So what qualifies as an innovation? For starters, not everything that is new counts as innovation. It has to be path-breaking, potentially disruptive and sustainable. For the purpose of study, Ten Types of Innovation, a proprietary framework model is used to analyse, out of 10 types how many types does the organization under study include the path breaking innovation. An attempt has also been made to compare the application of Ten Types of Innovation frame work to Global and Indian Companies, to find out whether the model is applicable only in Global Perspective or both. A sample of 10 Indian companies is taken based on the secondary data source to apply the Ten Types of Innovation Framework. The study conclude with a remark that Business Model Innovation is appliable for those industries which are at a stage of saturation and hence BMI is inevitable, but Ten Types of Innovation Framework model is quite applicable for all those industry who wish to incorporate innovation in few area of operation and increase their revenue model and it is more applicable for the early new start ups. From the sample selected it is found that on an average each company incorporated 3 to 4 innovation framework to succeed in their business. So, the conclusion is that being innovate is the rule of thumb, whether the innovation can be in the product, process, finance, delivery.
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RIJBFA
Volume 3, Issue 4 (April. 2014)
ISSN: 2277- 100X
INTRODUCTION The term innovation derives from the Latin word innovatus, which is the noun form of innovare "to renew or change”. Although the term is broadly used, innovation generally refers to the creation of better or more effective products, processes, technologies, or ideas that are accepted by markets, governments, and society. Innovation differs from invention or renovation in that innovation generally signifies a substantial positive change compared to incremental changes. Further Innovation is about creating and capturing value through non-traditional approaches. It isn’t only for rapidly changing, technology companies but to all those who have realized market success and its impact on their industries from innovation. INNOVATION IN BUSINESS In business, innovation is the catalyst to growth. With rapid advancements in transportation and communications over the past few decades, the old world concepts of factor endowments and comparative advantage which focused on an area’s unique inputs are outmoded for today’s global economy. Now, as Harvard economist Michael Porter points out competitive advantage, or the productive use of any inputs, which requires continual innovation is paramount for any specialized firm to succeed. Economist Joseph Schumpeter, who contributed greatly to the study of innovation, argued that industries must incessantly revolutionize the economic structure from within, that is innovate with better or more effective processes and products, such as the shift from the craft shop to factory. He famously asserted that “creative destruction is the essential fact about capitalism.” In addition, entrepreneurs continuously look for better ways to satisfy their consumer base with improved quality, durability, service, and price which come to fruition in innovation with advanced technologies and organizational strategies. 5 Myths of Innovation 1. 2. 3. 4. 5.
Innovation is about creating a hot new product… Innovation comes from being creative… Innovation is expensive, demanding lots of resources… Create hundreds of ideas because of high failure rates.. Early financial analysis is key to approving concepts…
Objectives of the Study
To understand the application of BMI and Monitor Ten Types of Innovation Framework To know what constitute path breaking innovation? Using Innovation Framework To analyze the attributes used in innovation framework model to the selected firm under discussion.
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Volume 3, Issue 4 (April. 2014)
ISSN: 2277- 100X
To know the challenges each firm had and innovation they have done to overcome those challenges.
Methodology It is a descriptive study, hence the data is collected from business today magazine. The data is further analyzed using simple statistical tools like graph and tables. For the purpose of study 8 firm have been selected which qualifies to be an innovate firm through their business model. These firms represent different spectrum of the industry like Print Media, Education, Telecom, IT, FMCG, Govt Agency etc. Limitation of the Study
The study is based on secondary source of survey information. The finding of the study cannot be generalized to the entire firms in the respective sector selected for the study.
LITERATURE REVIEW Extensive literature review on business model innovation is available and it highlights on research model that incorporates existing literature and is based on a number research studies specifically related to the model constructs. The literature review highlights a number of issues and gaps in the academic literature around business model innovation: (i) Business model is often studied without explicitly defining the concept and what constitutes a business model and its components (business model framework);(ii) Despite various attempts by different strategic management scholars to define business model taxonomies (design themes), no single classification dominates the literature. In addition, most of the proposed taxonomies are based on e-Business models established between 1998 and 2000. (iii) Business model innovation is seen as a new dimension of innovation, which spans the traditional modes of product, operational and management innovation. However, there is no clear definition of what it is; and (iv) There is limited empirical research into how businesses create or re-invent their business model as a source of value creation and what the outcome is. In another study done by Christensen and Bower(1996) indicate that large companies often dismiss product innovation because their existing customers don’t value them or the emerging market is too small to interest them. Chesbrough and Rosenbloom(2002) indicate that business model innovation, beside a new value proposition and targeted customers, also requires articulation of a value chain to produce the new product or service, and a plan to establish and maintain a competitative advantage over potential competitors. Moore (2004) suggests that different types of innovation are important at different points in a product’s life cycle. He suggests that niche strategies are useful for firms that offer leading-edge technology to early adopters.
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Volume 3, Issue 4 (April. 2014)
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Concept of Business Model Innovation (BMI): Business Model Innovation (BMI) refers to the creation, or reinvention, of a business itself. Whereas innovation is more typically seen in the form of a new product or service offering, a business model innovation results in an entirely different type of company that competes not only on the value proposition of its offerings, but aligns its profit formula, resources and processes to enhance that value proposition, capture new market segments and alienate competitors. A Business Model consists of two essential elements – the value proposition and the operating modeleach of which has three sub elements. The value proposition has 3 dimensions; Target Segment Product or Service Offering Revenue Model
The operating model has 3 dimensions; * Value Chain * Cost Model * Organization
Examples of BMI where the business model is the core value proposition Tata –Tata Nano 1 Lakh ($2300) city car Apple –iTunes Store + iPod WalMart –Discount retailing Hilti –Power tools leasing/subscription FedEx –Guaranteed overnight delivery Southwest –Low-cost regional air travel A Business Model Typically Consists of Six Components
Source: BCG Research(redesigned)
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Volume 3, Issue 4 (April. 2014)
ISSN: 2277- 100X
RELEVANCE OF BUSINESS MODEL INNOVATION IN PRESENT SCENARIO Business Model Innovation is especially valuable in times of instability. BMI can provide companies a way to break out of intense competition, under which product or process innovations are easily imitated, competitors strategies have converged, and sustained advantage is elusive. It can help address disruptions such as regulatory or technological shifts- that demand fundamentally new competitative approaches. BMI can also help address downturn- specific opportunities, enabling companies, for example, to lower prices or reduce the risks and costs of ownership for customers. It is observed that the companies that flourish in downturns frequently do so by leveraging the crises to reinvent themselves-rather than by simply deploying defensive financial and operational tactics. Moreover during times of crisis, companies often find it easier to gain consensus aroung the bold moves reuired to reconfigure an existing business. BMI may be more challenging than product or process innovation, but is also delivers superior returns. Annual Survey conducted by Boston Consulting Groups and Business Week to identify the most innovative companies, found that; Business Model Innovators earned an average premium that was more than four times greater than the enjoyed by product or process innovators. Further BMI delivered returns that were more sustainable, even after ten years. Business Model Innovators continued to outperform competitors and product and process innovators. Many companies pursue BMI as a defensive move to protect dying core business or defend against aggressive competitors. Business Model Innovation Takes Many Forms……
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Volume 3, Issue 4 (April. 2014)
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CONCEPT OF MONITOR’S TEN TYPES OF INNOVATION FRAMEWORK Most companies equate innovation with the development of new products. But creating new products is only one of ten types of innovation, and on its own, it provides the least return. Ten Types of Innovation framework can help to identify new opportunities in finance, process, offering and delivery. Companies that are able to simultaneously innovate across multiple innovation types will develop offerings that are more difficult to copy and that generate higher returns. Monitor’s Ten Types of Innovation is a proprietory framework that helps broaden the drivers of value of a particular innovation along a much wider spectrum than just what the product or service “does”. Breakthrough innovations almost always include multiple types of innovation atleast 3-4 out of the 10 types in the monitor framework. Profound innovation was observed around business model, network, product performance, and customer experience. However, there is markedly less innovation among Indian companies around product system, service, channel or brand. Product systems and service (post-purchase) can enhance customizability and cement ties with customers by engaging with them throughout the ownership cycle, not just at purchase. In 1999 Doblin, a Chicago based Innovation consulting firm categorized Business Innovation into ten types. Popularly known as ‘Ten types of Innovation’, this framework categorized the innovations into four different areas: Finance, Process, Offering and Delivery. Doblin also provided enough examples that the value for customers may not necessarily come from the core product or service but it can come from other areas as well. Businesses need to develop deeper understanding about customers thereby finding other categories (example: Processes) for value creation. Summary of Ten Types of Innovation Framework Category
Innovation type
Description
Finance
Business Model Network and alliances
How the firm make money? How the firm join forces with other companies for mutual benefit?
Process
Enabling processes Core processes
How the firm support its core processes and workers? How the firm create and add value to its core offerings?
Product performance Product system Service
How the firm design its core offerings? How the firm link and/or provide a platform for multiple products How the firm provide value to customers and consumers beyond and around its products?
Offerings
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Category Delivery
Innovation type
Channel Brand Customer Experience
ISSN: 2277- 100X Description
How the firm gets its offerings to market? How the firms communicate its offerings? How the customers feel when they interact with the company and its offerings?
Table Showing Ten Types of Innovation Framework
Source: Doblin Research
Example of Apple iPod incorporating Ten Types of Innovation Framework
Source: http://businesstoday.intoday.in/story/innovation-monitor-india/1/20180.html ANALYSIS AND FINDINGS For the purpose of study the firms that are selected for application of Monitor Ten Types of Innovation Framework are drawn from case studies that appeared in Business Today Magazine. May 30, 2010 special issue. Brief View about the firm considered for the study: ITC, which established an Internet-based platform to buy from and sell to farmers and expanded the service into a mobile-based channel.
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Volume 3, Issue 4 (April. 2014)
ISSN: 2277- 100X
TCS, which created a branchless rural banking model using cloud computing to enable low-value transactions to a dispersed population. Gyan Shala, a “budget private school” company, which created single-room schools for low-income students that run at lower cost. Moser Baer, a maker of optical disks, expanded into the entertainment industry by offering low-cost home videos. Fabindia, which joined clusters of artisans to become shareholders in companies that supply Fabindia with handicrafts. A government agency (Mahatma Gandhi National Rural Employment Guarantee Act, or MNREGA), which innovated its design and delivery of services to improve performance. Dainik Bhaskar, which successfully launched a new daily newspaper in a new market after taking feedback from more than 1.2 million customers, avoiding a test-market approach. Bharti Airtel, a telecommunications company which expanded into rural markets with a successful mix of pricing, product offerings and customer service outlets. TABLE SHOWING KEY CHALLENGE AND INNOVATION OF SELECTED FIRMS UNDER STUDY. Organization
Punch line
Key Challenge
From Mandi to Market
To build a unique and competitive channel to reach farmers, which is different from the model used by unorganised players and MNCs.
Banking in the Backwaters
To create a rural banking model that is viable against the backdrop of low-value transactions and a dispersed population.
Gyan Shala
No-Frills Learning
To deliver quality, primary and secondary education at affordable prices to a large poor population.
Moser Baer
Taking on Piracy, Profitably
Diversify into branded home video, which was an impulse purchase with customer displaying no brand loyalty.
FAB India
Weaving Scale into Handicrafts
To get global scale out of products that by definition are not made by machines.
ITC e-Choupal
TCS
Innovation An Internet-based two-way platform to procure from and sell to farmers, which has evolved into a mobile-based channel that offers services too. Branchless banking via cloud computing, which enables sharing of resources, software and information. Reduce costs by tapping informal market for teachers and maintain quality with a strong backend that creates standardised content for the lesser-qualified teachers Use technology and pricing advantage in blank disks to create low-price, high-quality products. Got clusters of artisans to become shareholders in companies that in turn supply Fabindia
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Volume 3, Issue 4 (April. 2014)
MNREGA
Reforming Governance and Society at One go
Dainik Bhaskar
Customized from Day One
Bharti Airtel
Mobility for Rural Wallets
To guarantee right to work to one unemployed adult in every rural family all over the country To become a market leader in a new language and a new territory in the face of ntrenched competition, and do so not by trial-and-error To keep its leadership position intact by expanding into rural markets, which needed a totally different strategy, products and service standards
ISSN: 2277- 100X Delivery of benefits legally mandated, flexibility for customisation, enforced financial inclusion Gave Gujarati readers a newspaper customised to their requirements from Day 1, helping avoid the test-market and scale up approach The right mix of product and pricing, strengthened by a vast and unique network of over 25,000 centres to serve customers
APPLICATION OF TEN TYPES OF INNOVATION FRAMEWORK WITH RESPECT TO GLOBAL AND INDIAN COMPANIES. Area
Frame Work
Business Model
Global Company Dell become very successful by pioneering a business model of collecting money before their customers’ PCs were assembled and shipped, resulting a net positive working capital of seven to eight days
Finance
Networking
Enabling Process
Process
Core Process
Offering
Product
Sara Lee, with a large portfolio of consumer food brands, realized that its core competencies were consumer insight, brand management, marketing and distribution. It divested itself of manufacturing operations and formed alliance with manufacturing and supply chain partners Starbucks can deliver its profitable store and coffee experience to customers because it offers better than market compensation and employment benefits to its store workersusually part time, educated, professional and responsive people Wal-Mart grew profitably through core process innovation such as Real Time Inventory management systems, aggressive volume, pricing and delivery contracts and systems that helped store managers identify changing buyer behaviors and respond quickly with new pricing and merchandising The Oxo Good Grips peeler was not only sharp,
Domestic Company ITC e-CHOUPAL bypassed mandis from the procurement process by directly connecting with farmers. Transformed the procurement channel to a distribution channel & Build a services platform. Moser Baer, formed relationships with content providers across regions/languages
FABINDIA - Inventory management enabled by decentralised decisionmaking model and aligning incentives across all network players. Bharti Airtel - Airtel Service Centres help widen service, a roaming distributor helps acquire consumers
MOSER Baer - Established a
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Volume 3, Issue 4 (April. 2014) Performance
Product System
Service
but felt great in the hand and looked good as well. Even though it cost a lot more, it was a smash success and transformed product design in the entire kitchen gadget category Microsoft bundled a variety of productivity enhancement software applications into a single “suite�. This product systematization helped them dominate the software category An international flight on any airline will carry the passengers to the intended destination. But flight on Singapore Airlines, gives the passengers that experience which he never intended to forget with the most attentive, respectful, and pampering preflight, in-flight and post-flight services that one cannot imagine.
ISSN: 2277- 100X new price performance level in the home entertainment industry MNREGA - Customisability of the scheme to satisfy the local community needs. TCS - Facilitates rapid integration of the platform with RRBs.
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Channel
Delivery
Brand
Customer Experience
Martha Stewart Living Omni media developed such a deep understanding of its customers that it knows just where to be (stores, TV shows, magazines, online etc)to drive huge sales volume from a relatively small set of offerings.
Virgin has build a strong position in many categories, including air travel, mobile telephony and financial services by setting higher expectations from brand attitude and experience than was previously the category norm, and in finding new behaviors to dramatize their youthful and fun loving persona. Harley Davidson has created a worldwide community of millions of bike owners, based more on the experience that bike ownership make possible for them than on the features and functions of their bikes.
ISSN: 2277- 100X
MOSER Baer - Adoption of a low-cost “FMCG-type” distribution model complete with regional offices, sales team and a right mix of FMCG and entertainment trade distributors Dainik Bhaskar - Using the research process as a platform to promote the brand.
ITC e-Chopal - Bringing transparency and ease to farmers, both as suppliers of agri-products and as customers of ITC’s value-added products/services
Graph 1: Graph showing ITC e-Choupal application of innovation Framework model.
From the graph ITC e-choupal has satisfied 8 parameters out of 10. It shows that the company has successfully incorporated innovation in various spectrums to add value to the value chain.
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Graph 2: Graph showing TCS application of innovation Framework
From the graph TCS has satisfied only 5 parameters out of 10. It shows that the company has successfully incorporated innovation in the field of networking, product performance, service, core process and customer experience to add up to the value chain. Graph 3: Graph showing Gyana Shala application of innovation Framework model.
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From the graph it reveals that Gyana Shala has satisfied only 4 parameters out of 10. It shows that the company has successfully incorporated innovation in the field of Business Model, Enabling Process, Core Process and Product Performance to add up to the value chain. Graph 4: Graph showing Moser Baer application of innovation Framework model.
From the graph it reveals that Moser Baer has satisfied 6 parameters out of 10. It shows that the company has successfully incorporated innovation in the field of Business Model, Networking, Core Process, Product Performance, Channel, Customer Experience to add up to the value chain. Graph 5: Graph showing FAB India application of innovation Framework model.
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From the graph it reveals that Moser Baer has satisfied 5 parameters out of 10. It shows that the company has successfully incorporated innovation in the field of Networking, enabling process, Core Process, Brand, Customer Experience to add up to the value chain. Graph 6: Graph showing MNREGA application of innovation Framework model
From the graph it reveals that Moser Baer has satisfied 5 parameters out of 10. It shows that even the Govt. has successfully incorporated innovation to make the scheme popular by introduction innovation in the field of enabling process, Core Process, Product Performance, Product system, Customer Experience to add up to the value chain. Graph 7: Graph showing Dainik Bhaskar application of innovation Framework model
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Volume 3, Issue 4 (April. 2014)
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From the graph it reveals that Dainik Bhaskar has satisfied 6 parameters out of 10. It shows that even in print media sector path breaking innovation is the need of the hour to survive in the competitive market. Accordingly Dainik Bhaskar has successfully incorporated innovation in the field of Business Model, enabling process, Core Process, Product Performance, Brand, Customer Experience. Graph 8: Graph showing Bharti Airtel application of innovation Framework model.
Bharti Airtel has satisfied 6 paramater of innovation framework model by introducing innovation in networking, core process, product sytem, service, channel, Customer Experience.
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Summary of Innovation Component introduced by selected companies using Innovation Framework Model
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Graph 9: Summary of Analysis
From the table and graph it is observed that all the 8 firms under study have achieved minimum 3 aspect of innovation framework model. This shows that path breaking innovation is all about introducing innovation in not only product but in other sphere of value chain. FINDINGS
Out of 8 firms under study 50% of them have incorporated innovation in the field of business model, they are ITC e-Choupal, Gyana Shala, Moser Baer, Dainik Bhaskar. From this we can also infer that these firm doesn’t consider service to be prime most important factor, this is proved from the fact that no service innovation is observed in the graph by these firms. In case of ITC e-Choupal Business Model Innovation supported by innovation in other spectrum like networking, enabling process, core process, product performance, product system, and brand and customer experience has benefitted to be path breaking innovation and sustain in the market. In case of Gyana Shala along with business model the innovation was observed in core process, enabling process and product performance.
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Volume 3, Issue 4 (April. 2014)
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In case of Moser Baer also Business Model supported with other component of innovation like networking, core process, product performance, channel and customer experience were observed to qualify to be a path breaking innovation. In case of Dainik Bhaskar also the trend is more or less same in terms of its relationship between business model innovation with other parameter of innovation framework. In some company like FabIndia, TCS, MNREGA, Bharti Airtel innovation is independent of business model. In these companies the innovation is observed in other spectrum of Innovation framework model but not in Business Model. It is also found that Irrespective of sector to which the firms belong, all of them incorporated innovation in the core process of their respective industry to which they belong. Highest component of innovation was observed by ITC e-choupal i.e 8/10, but less component of innovation was observed by Gyana Shala 4/10. Among the 8 firms under study only 2 firms i.e. Bharti Airtel and Moser Baer have incorporated innovation in channel. The reason could be because of the nature of industry in which they are operating makes then to be innovate in channel component.
CONCLUSION In conclusion, as markets mature and become more competitive, innovation has become an imperative for firms to survive and win. Organizations have to think beyond 'just product' and ensure that the innovation, while rooted in a particular aspect of the Ten Types, spans multiple other aspects. Examples drawn from Global and Domestic Companies highlight the key principles that help an organisation innovate across the Ten Types: focusing on fewer, bolder concepts; challenging of industry orthodoxies; leveraging of internal and external networks; de-risking through prototyping; adopting a disciplined approach; and thinking beyond product. BIBLIOGRAPHY 1. Article from Business Today magazine, Dec 11 2011 issue titled “What Global Winner teaches us?” 2. Business Today magazine special issue May 30, 2010 titled “Does innovation really works?” 3. http://www.doblin.com/AboutInno/innotypes.html 4. Report on Business Model Innovation by Zhenya Lindgardth, Martin Reeves, George Stalk and Michael S Deimler Dec 2009 5. www.mybangalore.com
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