Business Model

Cost Structure

Finally, as far as business model canvas elements go, you need to define all potential costs..

The cost structure takes both existing and future costs into account:

●​ Fixed costs are the easiest to determine as they have a singular price or a repetitive

price that doesn’t change. Rent is a good example.

●​ Variable costs, on the other hand, can vary and their high peaks need to be

accounted for. Factors such as temperature can often impact businesses that need to

maintain a certain heat or humidity - they may spend more (or less) in the warmer

months.

●​ Economies of scale and scope, similarly, refer to decreasing costs as the business

expands. This is because larger production can introduce better efficiencies (scale)

while creating new partnerships and improving internal processes, as a result, can

improve the wider organization (scope). For example, you might rely on third-party

providers for immediate support, such as packaging, but move this in-house when it

becomes cost-efficient to do so.

It’s important to understand these variables so that the business model canvas provides a

realistic view of costs right now, as well as where the company aims to be short.

2 - Business Model Innovation

The innovation of business model consist on innovate and do it in a different form from

traditional BM

A BMI is a framework for creating, capturing and delivering value by doing

things differently.

It’s changing the rules of the game.

BMI does not mean to leapfrog competitors with products that have better characteristics.

Most profitable BMI have little to do with products.

The winner can be the firm that moved first to change the rules of the game, or a firm that

came in later and pursued a better business model.

Business Model innovation involves changing the way business is done in terms of capturing

value

The questions are:

-​ How do we create value for customers?

-​ How does our value creation system work: how do we organize value delivery and

how can we build sustainable cost advantages?

-​ How can we monetize this value / How can we convert the added value into profit?

-​ How does our marketing and distribution logic function: how do we attract and retain

customers

The starting point – for the design of these four components of the business model – is the

company’s positioning in the market with the aim of sustainable differentiation

Components of BMI

Positioning

The starting point of business model innovation is a differentiated and innovative

POSITIONING on the market.

• The idea of positioning focuses on the rational or emotional benefits that a buyer will

receive by using the product or service

• It must be unique and sustainable

• Very few companies succeed in positioning themselves sustainably and distinctively

Without effective differentiation, there is no positioning. Without positioning, there is no

uniqueness. Uniqueness ultimately drives the odds of a business model innovation”

PRODUCT and SERVICE LOGIC

Product and service innovations must be aligned with positioning. These innovations

ultimately serve as tools to realize the positioning of the company in the market. Products

and services offer added value if they create a unique product benefit and if the price of the

products is below the benefit

VALUE CREATION LOGIC

Value creation logic refers to how the company shapes its activities and processes, to

market the product or service. The company needs to consider what its “core” and

“non-core” elements are to make a decision on which to source internally and which ones to

outsource. The key question is about core competencies and the value creation that can be

achieved along the process. The added value logic must be tailored to the positioning, the

product and service logic and the revenue logic.

THE PROFIT FORMULA

The profit formula builds the core of the business model, consisting of the revenue and cost

model, and defines how the company earns its money.

E.g. Basically two different type of revenue streams:

• Transaction revenues resulting from one-time customer payments

• Recurring revenues resulting from ongoing payments (to either deliver a value proposition

to customers or provide post-purchase customer support)

3 - Co-creation and DART model

What is Co creation?

Co-creation is a process of developing a new product or service in teamwork with suppliers,

customers, stakeholders, experts, and employees. The goal of collaborative co-creation is to

promote the culture of sharing ideas, instead of keeping it to yourself, in order to improve

productivity.

Easily accessibility of knowledge and information has transformed the operations and

functionality of the company and made them innovative. Now, they encourage customers to

share their feedback and reviews.

Many companies are still hesitating to open up toward co-creation with other people who

aren’t part of the company. It’s a normal thing not allowing and trusting everyone. However,

it’s the new product, design, profit, and benefits that matter in the end.

It doesn’t mean co-creation can’t fail and prove to be a failure. In fact, co-creation doesn’t

guarantee anything that the new product/idea would succeed in the market. But it would

allow you to inspire ideas, have a fresh perspective, and brainstorm with like-minded people.

It would guide you to move in the right direction.

The D.A.R.T. model of value co creation

4 - Types of Innovation

Categories of innovations

Disruptive innovation

This term is used today to denote, precisely, those innovations (technological, business,

methodological, etc.) capable of changing the status quo of an established market or

business model.

Unlike other types of innovation, which modernize existing industries, disruptive innovation

concerns the creation of a market that is often completely new, and brings about the end of

others that may have been dominant for years.

An example is that of automobiles in the early 20th century, when Henry Ford, with the

creation of his Model T, a completely standardized car that was affordable for the middle

class at the time, revolutionized mobility. He contributed more than most to putting carriages

and horses out of business.

Other characteristics of disruption innovation are the estrangement of disruptive firms from

the market they are in fact going to disrupt, and then the radical nature of the change

imprinted, which goes beyond product innovation, and is also about the emergence of new

business models.

Discontinuous Innovation

Most of the time innovation takes place within a set of rules which are clearly understood.

Occasionally something happens which dislocates this framework and changes the “rules of

the games”. These changes have the capacity to redefine the space and boundary, then

open up new opportunities, but also challenge existing players to reframe what they are

doing in the light of new conditions

Some triggers:

New Market Emergers:Market evolve through a process of gradual expansion but at certain

times completely new markets emerge which cannot be analyzed or predicted in

advance or explored through using conventional market research (originators of

new product may not see potential in new markets)

New Technology Emergers: Step change takes place in product or process technology (may

result from convergence and maturing of several streams or as a result of a single

breakthrough) . A new technology as a different basis for delivering value

New Political Emergers: Political conditions which shape the economic and social rules may

shift dramatically

Running out of road: Firms in mature industries may need to escape the constraints of

diminishing space for product and process innovation and the increasing competition of

industry structures by either exist or by radical re-orientation of their business

Sea change in market sentiment: Public opinion or behavior shifts slowly and then tips over

into a new model

Unthinkable Events: Unimagined and therefore not prepared for events which change the

world and set up new rules of the game

And many others…..

One of the biggest innovation challenges is dealing with discontinuous

innovation. When technologies shift, new markets emerge, the regulatory rules of the game

move or someone introduces a new business model, many successful organizations

suddenly become vulnerable. A key part of the problem is that dealing with discontinuity

requires a very different set of capabilities for organizing and managing innovation:

searching in unlikely places, building links to strange partners, allocating resources to high

risk ventures, exploring new ways of looking at the business – all of these challenge

the conventional approach to the innovation challenge.

Firms need to indulge in search behavior – seeking out new possibilities which combine their

knowledge about markets and technologies in new ways.

Being ready for discontinuous innovation requires a specific set of organizational skills, not

least the ability to search for sign of the potential whirlwind that may sweep through an

industry or, as with the internet, across entire business sectors right around the world

Other objective of innovation:

Social innovation is new ideas that work in meeting social goals. Innovative activities and

services that are motivated by the goal of meeting a social need and that are predominantly

developed and diffused through organizations whose primary purposes are social.

Frugal innovation seeks to minimize the use of material and financial resources, and is

characterized by low price, compact design, limited use of raw materials or reuse of

existing components, ease of use, and cutting edge technology to achieve lower costs

5 - VARIM and NICE model

How can firms evaluate whether the BMI process implemented is a winner of loser?

VARIM is drawn from strategic management theories about those characteristics of the

expected profitability of a capability

• Value: assess the extent to which the BM offers benefits that customers find valuable

• Adaptability: the ability to keep on offering benefits that customers find valuable also in the

face of change

• Rareness: to ascertain that the offered benefits are scarce enough for customers to keep

buying from the firm

• Inimitability: the degree to which customer benefits are difficult to imitate, substitute or

leapfrog

• Monetization: the firm’s goal is to make money!

NICE

6 - Theory of change

First, we explained the theoretical background of ToC.

What is Social impact assessment and why is it important for Social enterprise (SE)?

A social enterprise is any business venture created for a social purpose–

mitigating/reducing a social problem or a market failure--and to generate social value while

operating with the financial discipline, innovation and determination of a pr