Business Model Innovation Paths to Success: Three Ways to Innovate Your Business Model

1. Business Model InnovationPaths to Success: Three Ways to Innovate Your Business Model March 2009 Richard Gleed, Associate Partner, IBM Global Business Services richard.henry.gleed@uk.ibm.com

2. 2 Agenda Changing Business Environment Summary Findings from Business Model Innovation Study Business Model Innovation Framework and Best Practices Getting Started

3. 3 Will UK companies meet the criteria of �The Enterprise of the Future�? Based on the 1,130 CEO interviews, IBM�s Global CEO Survey highlights five key traits of the �Enterprise of the Future� The 61 interviews carried out in the UK� provide an opportunity to contrast the views of UK respondents with global views Statistical significance tests have been conducted on most data points as feasible. In all analysis the results are at around 95% statistical significance (for differences between Global and UK findings) Statistical significance tests have been conducted on most data points as feasible. In all analysis the results are at around 95% statistical significance (for differences between Global and UK findings)

4. 4 The Enterprise of the Future is Hungry for Change In two years the gap between the ability to manage change and the challenge ahead has tripled The number of companies reporting limited or no success has surged 60% Outperforming organizations are significantly better than their peers at successfully navigating change Chart 3: The Enterprise of the Future is Hungry for Change Since 2006 change gap tripled. More CEOs than ever before � 8 in 10 anticipate significant change next 3 years. Up from 6 in 10 in 2006. At this rate, soon universal. Number of companies succeeding actually rose modestly (from 57 to 61%). But number of companies reporting limited or no success surged 60% (from 12 -19%) Capacity of an organization to absorb change being sorely tested. And yet�some are succeeding. CEOs that report their organizations have successfully managed change in past outperform their peers on several financial measures. From these strong players can see outlines of future. Capacity to manage change becomes a core capability. Companies that successfully manage change are in fact hungry for it �. to push their competitive advantage. These outperforming companies as you�ll see make some of the boldest moves, in business models and global business designs, which in turn accumulate & contribute to more change. Additional point on change: 6 years ago CEOs primarily focused on a few areas as drivers of change. Since then have steadily widened that focus, more things driving change. Top 3 -- Market Factors, Talent, and Technology.Chart 3: The Enterprise of the Future is Hungry for Change Since 2006 change gap tripled. More CEOs than ever before � 8 in 10 anticipate significant change next 3 years. Up from 6 in 10 in 2006. At this rate, soon universal. Number of companies succeeding actually rose modestly (from 57 to 61%). But number of companies reporting limited or no success surged 60% (from 12 -19%) Capacity of an organization to absorb change being sorely tested. And yet�some are succeeding. CEOs that report their organizations have successfully managed change in past outperform their peers on several financial measures. From these strong players can see outlines of future. Capacity to manage change becomes a core capability. Companies that successfully manage change are in fact hungry for it �. to push their competitive advantage. These outperforming companies as you�ll see make some of the boldest moves, in business models and global business designs, which in turn accumulate & contribute to more change. Additional point on change: 6 years ago CEOs primarily focused on a few areas as drivers of change. Since then have steadily widened that focus, more things driving change. Top 3 -- Market Factors, Talent, and Technology.

5. 5 The Enterprise of the Future is Disruptive by Nature More than 2 in 5 pursue business models that are more externally collaborative More than 1 in 5 pursue an even more disruptive path: redefining their markets, moving into or creating wholly new industries More outperformers (28%) choose the most difficult transformation - disrupting industries - and more (49%) choose collaborative business models Chart 6: The Enterprise of the Future is Disruptive by Nature Like Global Integration, overall characterization � bold move. Actions here underpin the global integration path companies are taking. 2006 study proved business model transformation is the most sustainable form of innovation. What we�ve learned now is virtually everyone is trying out some form of business model innovation. And 2/3rds are strongly focused on it. Looking specifically at different types of business model innovation: More than 40% are pursuing an external collaboration business model. 49% of outperformers. More than 20% are choosing to redefine or create wholly new industries markets. Latter the most difficult � and disruptive. More outperformers choose this path (28%) Overall: Business Model Transformation � how companies sustain innovation & success � also the driver of future (and growing) change Note that UK results show UK as more extreme version of established economy Chart 6: The Enterprise of the Future is Disruptive by Nature Like Global Integration, overall characterization � bold move. Actions here underpin the global integration path companies are taking. 2006 study proved business model transformation is the most sustainable form of innovation. What we�ve learned now is virtually everyone is trying out some form of business model innovation. And 2/3rds are strongly focused on it. Looking specifically at different types of business model innovation: More than 40% are pursuing an external collaboration business model. 49% of outperformers. More than 20% are choosing to redefine or create wholly new industries markets. Latter the most difficult � and disruptive. More outperformers choose this path (28%) Overall: Business Model Transformation � how companies sustain innovation & success � also the driver of future (and growing) change Note that UK results show UK as more extreme version of established economy

6. 6 Agenda Changing Business Environment Summary Findings from Business Model Innovation Study Business Model Innovation Framework and Best Practices Getting Started

7. 7 Top-line findings from Business Model Innovation study

8. 8 Business Model Innovation improves margins Business Model Innovation seems to pay off!Business Model Innovation seems to pay off!

9. 9 There are three distinct paths for Business Model Innovation 55

10. 10 Within each path, organizations adopt a set of levers to innovate their business model

11. 11 Two key findings of the Business Model Innovation research on 35 best practice cases

12. 12 Agenda Changing Business Environment Summary Findings from Business Model Innovation Study Business Model Innovation Framework and Best Practices Getting Started

13. 13 Industry Model Innovation � Industry TransformationNew models are transforming traditional industry value chains Dell Direct Model Efficient path to the customer (no intermediaries, organization around groups of customers with similar needs) Single point of accountability (Dell directly) Build-to-Order (custom configuration and ordering, lower inventory, better pricing and latest tech) Low cost leadership (standards-based technologies developed collaboratively with industry partners, constant cost reduction) Standards-based technology (unlike proprietary technologies, standards give customers flexibility and choice) Dell Direct Model Efficient path to the customer (no intermediaries, organization around groups of customers with similar needs) Single point of accountability (Dell directly) Build-to-Order (custom configuration and ordering, lower inventory, better pricing and latest tech) Low cost leadership (standards-based technologies developed collaboratively with industry partners, constant cost reduction) Standards-based technology (unlike proprietary technologies, standards give customers flexibility and choice)

14. 14 Industry Model Innovation � Horizontal movesCompanies leverage assets through horizontal moves

15. 15 Revenue Model Innovation � Pricing/Revenue Models Driving shifts in underlying pricing and revenue models

16. 16 Revenue Model Innovation � Value PropositionInnovating the value proposition through reconfiguration

17. 17 Enterprise Model Innovation � integration / specializationInnovating along the integration / specialization continuum

18. 18 Enterprise Model Innovation � Collaboration & PartneringCompanies are redefining the �extended enterprise�

19. 19 Agenda Changing Business Environment Summary Findings from Business Model Innovation Study Business Model Innovation Framework and Best Practices Getting Started

20. 20 Understand the constraints

21. 21 What kind of innovation best addresses these constraints?

22. 22 Introduction to Component Business Modeling (CBM)

23. 23

24. 24 Summary The drastically changing industry landscape is driving the emergence of new business models Our Business Model Innovation Research shows that: Business Model Innovation improves margins Different paths of business model innovation can lead to success � the right strategy and execution are key Enterprise model innovation through collaborative innovation is the most prominent model Companies should get started by understanding their current position, the industry and competition, and by defining and selecting future opportunities

25. Business Model InnovationPaths to Success: Three Ways to Innovate Your Business Model March 2009 Richard Gleed, Associate Partner, IBM Global Business Services richard.henry.gleed@uk.ibm.com