CORPORATE ENTREPRENEURSHIP AND BUSINESS MODEL INNOVATION

MGT731_07_Technology_scu1.pptx

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Week 7: Technology as enabler and driver for new business models

MGT731 Corporate Entrepreneurship and Business Model Innovation

Course Coordinator: Dr Robert Ogulin

Course Facilitator: Prof Uwe Schulz PhD

The Enabling and Disrupting Role of Technology for Existing and New Business Models

Technology drives innovation, …….

…but needs to go hand in hand with

Business Model innovation!

Maxims for Exploiting Technological Innovation

Technology enables explosive (exponential) growth

Business models, not technology itself, delivers disruptive innovation

Disruptive technologies are no islands - they connect/integrate

Business models using disruptive technologies are not always dominant in their industries

Technology enabled business model innovation allows us to avoid the “No profit zone” (Slywotzky)

Using Information Technology for Creating Innovative Business Models

Value web:

Collection of independent firms using highly synchronized IT to coordinate value chains to produce product or service collectively

More customer driven, less linear operation than traditional value chain

Include use of:

Network economics

Virtual company model

Business ecosystems

Explain that a value web extends beyond the boundaries of an individual firm and represents the coordination of value chains across multiple independent firms. A value web is flexible and adapts to changes in supply and demand and changing market conditions.

Using Information Systems to Achieve Competitive Advantage

Virtual companies use networks to ally with other companies to create and distribute products without being limited by traditional organizational boundaries or physical locations

manages production, shipment of garments for major fashion companies, outsourcing all work to over 7,500 suppliers

manages a vast array of capabilities that span technologies, partnerships, physical assets, and platforms

develops technologies that allow companies, their partners, and assets (IoT) to collaborate virtually and more efficiently

Explain to students that companies like this are ‘virtual’ because they do not actually own any factories, machines, or other similar infrastructure. Instead, they offer a series of services, aided by information systems and uninhibited by geographical boundaries.

Using Information Systems to Achieve Competitive Advantage

Four generic strategies for dealing with competitive forces, enabled by using IT

Low-cost leadership

Product differentiation

Focus on market niche

Strengthen customer and supplier intimacy

Using Information Systems to Achieve Competitive Advantage

1. Low-cost leadership

Produce products and services at a lower price than competitors while enhancing quality and level of service

Examples: Wal-Mart using ERP systems, analytics, automated warehouses, etc.

2. Product differentiation

Enable new products or services, greatly change customer convenience and experience

Examples: Google, Nike, Apple create applications and platforms for maps and search, for customizing shoes, for music and video

Using Information Systems to Achieve Competitive Advantage

3. Focus on market niche

Use information systems to enable a focused strategy on a single market niche; specialize

Example: Hilton Hotels using analytics to micro-segment their customers

4. Strengthen customer and supplier intimacy

Use information systems to develop strong ties and loyalty with customers and suppliers; increase switching costs

Example: Netflix, Amazon

You could ask students to provide other examples from their own experience of companies that exemplify strong focus on market niche as well as excellent customer and supplier intimacy.

Food for Thought

Autonomous mobile robots

By 2021, one in 10 warehouse workers in established economies will be replaced by autonomous mobile robots (AMRs).

Stalled artificial intelligence (AI) initiatives

By 2021, three out of five factory-level AI initiatives in large global companies will stall due to inadequate skill sets.

Proof-of-concept blockchain initiatives

Through 2020, 90% of supply chain blockchain initiatives will be proof-of-concept initiatives.

Virtual customer assistants

By 2021, 20% of all customer service interactions will be handled by virtual customer assistants and chatbots.

Source: Hitachi Consulting, 2017, https://insights.hitachiconsulting.com/post/102eo1n/future-of-supply-chain-operations-in-2018 accessed on 28/11/2019

Step-changes in Digitalization will Increasingly Create Opportunity for Business Model Innovation

Matzler, K., Friedrich von den Eichen, S., Anschober, M. and Kohler, T. (2018), "The crusade of digital disruption", Journal of Business Strategy, Vol. 39 No. 6, pp. 13-20.

Corporation can take strategic steps to achieve digital transformation, and define new products, services, and indeed new business models

Example: Nike+ running shoes equipped with sensors collect data and synch with the web.

Example: Domino’s Voice commands and single-touch technology made pizza ordering very easy and convenient. All operations were digitalized.

Here is How Value is Created and Captured with a New Business Model:

Matzler, K., Friedrich von den Eichen, S., Anschober, M. and Kohler, T. (2018), "The crusade of digital disruption", Journal of Business Strategy, Vol. 39 No. 6, pp. 13-20.

Step 1: Physical product or process. The first stage of the value-added logic is the physical product or the process. In the case of Nest, these are the thermostats. Analogue thermostats are simple, the desired temperature is set via a setting wheel. The benefit to the customer is the temperature control.

Step 2: Sensors and actuators. Physical objects are equipped with sensors and actuators in a second step. The case of the Nest thermostat represents “Smart Appliances”. The thermostats are capable of learning. Sensor-controlled, programmable and Wi-Fi supported, they adjust the room temperature to the outside temperatures and the consumer habits (for example, whether you are at home).

Step 3: Connectivity. If the physical objects are equipped with IP-capable sensors, they can communicate with other objects or exchange data. Nest continuously collects data via the thermostat, which can be evaluated and used.

Step 4: Analytics. The collection, storage and evaluation of sensor data can now be used to gain valuable information that can be transformed into value-added services. Nest, for example, can leverage data about consumption habits for consumption forecasts or optimize energy consumption.

Step 5: Digital services. Digital services can now be created on the basis of analytics. This can significantly save unnecessary heating costs. If the cloud data are now also linked to other industries, many new business opportunities arise. Providers of wearables know when the customer is awake and how the temperature should be adjusted accordingly, or whether the TV should be switched off because the customer has fallen asleep.

Step 6: New value creation and value capture. Finally, a new business model emerges with a new customer benefit and novel revenue logic. The entire process of temperature control is digitalized. Nest earns money by offering beautifully designed thermostats, which are much more expensive than comparable devices. Money can also be earned from energy suppliers sharing the savings.

Value Creation

How does your digitalized product or process provide value to customers?

What type of useful data can you generate with sensors?

How can these data be collected in real time and linked to other data? Which patterns and insights can you generate from the combined data?

How can the data create new customer value?

How can this value created be monetized?

Clearly, the value for future business models is leveraging information and data, and creating capabilities around technology

Matzler, K., Friedrich von den Eichen, S., Anschober, M. and Kohler, T. (2018), "The crusade of digital disruption", Journal of Business Strategy, Vol. 39 No. 6, pp. 13-20.

Readiness of Industry

The gap between readiness and impact is substantial in most areas with capability and talent management as well as cybersecurity displaying the largest gap of all.

“Change is so fast and at such a scale that it is already too late for some”

McKinsey (2018) Disruptive forces in the industrial sectors. Global executive survey; accessed on 9/12/2019 at

https://www.mckinsey.com/~/media/McKinsey/Industries/Automotive%20and%20Assembly/Our%20Insights/How%20industrial%20companies%20can%20respond%20to%20disruptive%20forces/Disruptive-forces-in-the-industrial-sectors.ashx

Competitive Landscape

One in five still sees incumbents as a threat and a third are concerned about start-ups. However, almost half identify the technology and software giants as gaining importance

McKinsey (2018) Disruptive forces in the industrial sectors. Global executive survey; accessed on 9/12/2019 at

Action

Example: a leading European industrial company decided to build an IoT/digital business, which required a thorough transformation. Within less than a year, it was able to successfully tie connected services into its core product offering.

The company was able to achieve this by following a clearly defined four-stage process: (1) define the product offer, (2) develop the use case, (3) create the first minimum viable product, and (4) build these minimum viable products into digital businesses.

In each stage, it focused on customers’ needs and initial customer reactions to guide its transformation.

McKinsey (2018) Disruptive forces in the industrial sectors. Global executive survey; accessed on 9/12/2019 at

New Business Models will Gain Importance

McKinsey (2018) How industrial companies can respond to disruptive forces; accessed on 28/11/2019 at

https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/how-industrial-companies-can-respond-to-disruptive-forces

Companies need to shift from a focus on clever technology and instead think about business models from the outset. Pay per use is one of the most prominent ones we see emerging.

Selected Emerging Technologies

Analytics and Artificial Intelligence (AI)

Internet of things (IoT)

Blockchain

Cloud-Computing

Analytics and Artificial Intelligence (AI)

Already part of our lives - it’s everywhere.

Opportunities for AI Across Industries

Artificial intelligence (AI) can be used to solve problems across the board. AI can help businesses increase sales, detect fraud, improve customer experience, automate work processes and provide predictive analysis.

Industries like health care, automotive, financial services and logistics have a lot to gain from AI implementations. Artificial intelligence can help health care service providers with better tools for early diagnostics. The autonomous cars are a direct result of improvements in AI.

Financial services can benefit from AI-based process automation and fraud detection. Logistics companies can use AI for better inventory and delivery management. The retail business can map consumer behavior using AI. Utilities can use smart meters and smart grids to decrease power consumption.

Examples of Business Applications for Artificial Intelligence (AI)

Reduced Energy Use And Costs

We have used AI to cut energy use and reduce energy costs for drilling, crude and natural gas transportation, storage and petroleum refining operations. Until recently the industry has been looking at historical data points. The AI application we run can now learn and predict future energy load at levels as granular as a single blending activity. This opens up an entire range of opportunities to reduce waste, reduce peak demand and cut costs. - Jane Ren, Atomiton , Inc.

Proposal Review

We found an exciting use of AI for our application that saves incredible time and improves quality for customers. When a facility manager receives a proposal from a contractor, machine learning analyzes the scope, the pricing, and the contractor's historical performance, to determine if the proposal is the right cost and will be done at the right quality level. It's a huge win for our clients. - Tom Buiocchi, ServiceChannel

Becoming More Customer-Centric

We’re using AI to better analyze customer responses to surveys and activities over time. This enables us to understand not only the feedback they provide but whether or not there are specific qualities and attributes that correlate to their response rate and likelihood to engage. This information will allow our customers to alter their own client survey strategies. - AlanPrice, visioncritical.com

Source: Forbes Technology Council, 2018, 15 Business Applications For Artificial Intelligence And Machine Learning, accessed on 9/12/2019 : https://www.forbes.com/sites/forbestechcouncil/2018/09/27/15-business-applications-for-artificial-intelligence-and-machine-learning/#49f47bfe579f

2. The Internet of Things (IoT):

Connecting everything for more efficiency and responsiveness

Technology Continues to Drive Business Model Innovation at a Breath-taking Speed

Deloitte Consulting (2017) The internet of Things – A technical primer; https://www2.deloitte.com/content/dam/insights/us/articles/4420_IoT-primer/DI_IoT-Primer.pdf accessed 9/12/2019

IoT use by Industry (selection)

Deloitte Consulting (2017) The internet of Things – A technical primer; https://www2.deloitte.com/content/dam/insights/us/articles/4420_IoT-primer/DI_IoT-Primer.pdf accessed 9/12/2019

Enablers of IoT

E&Y, Future of IoT, 2019, https://www.ey.com/Publication/vwLUAssets/EY_-_Future_of_IoT/$FILE/EY-future-of-lot.pdf accessed 28/11/2019

Digital Twin

E&Y, Future of IoT, 2019, https://www.ey.com/Publication/vwLUAssets/EY_-_Future_of_IoT/$FILE/EY-future-of-lot.pdf accessed 28/11/2019

Generic IoT and Augmented Reality (AR) Infrastructure

E&Y, Future of IoT, 2019, https://www.ey.com/Publication/vwLUAssets/EY_-_Future_of_IoT/$FILE/EY-future-of-lot.pdf accessed 28/11/2019

IoT Value Chain

E&Y, Future of IoT, 2019, https://www.ey.com/Publication/vwLUAssets/EY_-_Future_of_IoT/$FILE/EY-future-of-lot.pdf accessed 28/11/2019

Traditional IoT value chain boundaries are blurring. Players are moving beyond their core expertise to offer services across the value chains. It is possible through a growing partner ecosystem and targeted acquisitions.

Key Insights

E&Y, Future of IoT, 2019, https://www.ey.com/Publication/vwLUAssets/EY_-_Future_of_IoT/$FILE/EY-future-of-lot.pdf accessed 28/11/2019

IoT is enabling new ways to monitor, manage and control devices. It is enabling real-time monitoring of the product performance leading to better insights and faster development of new products.

IoT, combined with powerful analytics, is also automating and improving the decision-making in businesses.

Presently, most of the IoT data is being used for anomaly detection and control, whereas in future, the data may be used for predictive analysis and optimizations, which may generate opportunities for new and innovative business models.

IoT deployments also raise questions around data security and privacy and the wider adoption of IoT requires policies and frameworks to handle these concerns.

The penetration of future technology trends is shaping how the key sectors are evolving today.

Smart Manufacturing The 4th Industrial Revolution Presents a Set of Threats and Opportunities for Manufacturing Companies.

E&Y, Future of IoT, 2019, https://www.ey.com/Publication/vwLUAssets/EY_-_Future_of_IoT/$FILE/EY-future-of-lot.pdf accessed 28/11/2019

Example: Agriculture Internet of Things (IoT) collects and analyses data to deliver actionable insights and improve decision accuracy.

E&Y, Future of IoT, 2019, https://www.ey.com/Publication/vwLUAssets/EY_-_Future_of_IoT/$FILE/EY-future-of-lot.pdf accessed 28/11/2019

Cars will become Computers on Wheels

Example: Digital Ecosystem for the Automobile Industry

Digital/McKinsey Insights (2018) https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/McKinsey%20Digital/Our%20Insights/Digital%20McKinsey%20Insights%20Number%203/Digital-McKinsey-Insights-Issue-3-revised.ashx; accessed 6/12/2019

To keep your bearings in this new world, focus on what matters most—core value propositions, competitive

advantages, human and organizational needs, and the data and technologies to tie them together.

To be successful, an ecosystem must have a compelling value proposition that is attractive, open, and relevant to multiple businesses.

3. Blockchain:

The Simplification of Financial Flows

Why Block Chain?

“Blockchain not only makes new markets possible, it can redirect existing value flows by reducing the control that centralized systems have over data.”

Source: Gartner: Get to know Blockchain, 2019,https://emtemp.gcom.cloud/ngw/globalassets/en/insights/executive-guidance/documents/insights/executive-guidance-get-to-know-blockchain-ebook.pdf accessed 8/11/2019

Watch the video: https://www.gartner.com/en/publications/the-real-business-of-blockchain

How Blockchain Works

Blockchain Adoption, and Related Business Models, is an Evolutionary Path

The Blockchain Value Proposition

Blockchain allows any individual or commercial entity in the world to safely transact with any other without an intermediary.

Gartner predicts blockchain could generate as much as $3.1 trillion in new business value by 2030.

Blockchain will move the world economy away from the slow, expensive, analogue methods used since the 19th century to mediate financial transactions.

Blockchain identity solutions make a range of activities less susceptible to fraud, including insurance claims, credit access and voting.

Blockchain Makes New Markets Possible and Can Migrate Value Flows by Reducing the Control that Centralized Systems Have over Data – But Not All Elements Available yet In New Business Models.

Listen and Discuss Similar Applications

Coca Cola’s bottlers are implementing blockchain technology to manage their cross-party transactions.

https://cointelegraph.com/news/coca-cola-using-blockchain-for-21-billion-per-year-network

4. Cloud-Computing:

Making technology accessible for everyone

Cloud Computing (from Purchasing Licences to Subscriptions)

Cloud computing is a pay-per-use consumption and delivery model that enables real-time delivery of configurable computing resources (for example, networks, servers, storage, applications, services).

Typically, these are highly scalable resources delivered over the Internet to multiple companies, which pay only for what they use.

Berman, S., Kesterson ‐Townes, L., Marshall, A. and Srivathsa , R. (2012), "How cloud computing enables process and business model innovation", Strategy & Leadership, Vol. 40 No. 4, pp. 27-35.

Example: Cloud Computing

Berman, S., Kesterson ‐Townes, L., Marshall, A. and Srivathsa , R. (2012), "How cloud computing enables process and business model innovation", Strategy & Leadership, Vol. 40 No. 4, pp. 27-35.

35 percent plan to rely on cloud services for business model

innovation within the next three years.

Cloud Computing Enables Business

Berman, S., Kesterson ‐Townes, L., Marshall, A. and Srivathsa , R. (2012), "How cloud computing enables process and business model innovation", Strategy & Leadership, Vol. 40 No. 4, pp. 27-35.

Research illuminates six key cloud attributes or business enablers being used to power business model innovation.

‘‘Organizations can use the Cloud to Build a New Industry Value Chain or Disintermediate an Existing One, Radically Changing Industry Economics. ’’

Berman, S., Kesterson ‐Townes, L., Marshall, A. and Srivathsa , R. (2012), "How cloud computing enables process and business model innovation", Strategy & Leadership, Vol. 40 No. 4, pp. 27-35.

Companies can use cloud technology to create a new need and potentially own a new market, thus attracting new customer segments and generating entirely new revenue streams.

Innovator Case Study: 3M Visual Attention Service

Berman, S., Kesterson ‐Townes, L., Marshall, A. and Srivathsa , R. (2012), "How cloud computing enables process and business model innovation", Strategy & Leadership, Vol. 40 No. 4, pp. 27-35.

The 3M Visual Attention Service is an online scanning tool that scientifically analyzes design effectiveness based on how the average human eye responds. VAS marries vision science with technology to help designers, marketers and other communicators test the visual impact of their content and increase the probability that viewers will notice the most important elements of a design.

Challenge

Since the global design community is made up of copious small design organizations, 3M needed to make the new capability accessible from anywhere, affordable to many and available as needed during a design project. By delivering VAS using cloud technology, 3M is able to offer the service on a continuous basis without requiring customers to install special software to use it. Hosting the solution via cloud services also helps the company ensure the latest version is always available for customers.

Cloud-enabled business model

3M’s cloud-enabled business model allows it to offer a new solution, known as VAS, to a new audience – the creative design community. The cloud-based offering allows 3M to transform its role in the product development value chain by closely integrating with a global network of designers. The affordable, flexible, cloud-based, pay-as-you-go model allows the company to deliver VAS in a fast, user-friendly manner that fits into a designer’s existing design process.

Business results

By hosting VAS via cloud services, 3M achieved:

A highly scalable environment – important during peak design times.

A low up-front investment and a flexible pay-as-you-go pricing model to help significantly reduce hosting costs and optimize profits.

The ability to attract new customers with an innovative solution while facilitating tighter integration within the product design ecosystem.

Summary

Technology enables Business Model Innovation

The emergence of new technology creates risks and opportunities for established corporations

New technologies such as blockchain, IoT, cloud computing and analytics can fundamentally change the economic viability, profit- and cost structures of corporations

New technologies dramatically increase transparency, accountability and trust – and thus enables business ecosystems