L12: Business Development Options

1. L12: Business Development Options

2. Outline to Future Business • Business Models • Predictive Models • Building a Responsive Organisations • Future Patterns of Innovation L12: Business Development Options

3. 1. Business Models EC10 Innovation & Commercialisation

4. Working Definition • "a business model is the method of doing business by which a company can sustain itself -- that is, generate revenue. • The business model spells-out how a company makes money by specifying where it is positioned in the value chain." • http://digitalenterprise.org/models/models.html L12: Business Development Options

5. Business Models • " Somewhere out there is a bullet with your company's name on it. Somewhere out there is a competitor, unborn and unknown, that will render your business model obsolete. Bill Gates knows that. When he says that Microsoft is always two years away from failure, he's not just blowing smoke at Janet Reno. He knows that competition today is not between products, it's between business models. He knows that irrelevancy is a bigger risk than inefficiency. And what's true for Microsoft is true for just about every other company” Gary Hamel and Jeff Sampler in Fortune Magazine December 7, 1998. L12: Business Development Options

6. Business model invention, development, and adaptation, is a core competence for entrepreneurial business. In a global knowledge-based economy where competition is internet-time paced, a facility and understanding of emerging business models can become a great asset, and the lack thereof, a serious liability. • Business modelling is about understanding how existing relationships, structures, and processes define the “game” as it is played in a particular industry or market, how it is changing, and what new possibilities are emerging. • The process of business modelling is the process of understanding how existing market structures, technologies, and business processes are played in a particular industry or market, how these elements are changing, and what new possibilities are emerging. • A Business Model maps the linkages between the evolution of the market, new technologies, the development of organisational strategy, the management of R&D and innovation, and the roles they play in the creation of new breakthrough businesses. L12: Business Development Options

7. Business Model Issues • What drives the value chain? e.g. evolution of markets, customer needs and expectations? • What are the key elements of a business model innovation system, and how do they interact with one another? • How are strategy, operations, engineering, and R&D and innovation linked into a system that enables (or prevents) new business models being brought to market? • How should current management practices and current innovation practices be changed? L12: Business Development Options

8. What changes are needed in the business processes of strategy formation, operations design, and R&D management to make it possible for new business models to emerge effectively? • What are the repeatable processes and methods? • Does a combination of enabling technologies with new business models create breakthroughs? • What are the key structural factors and relationships that lead to success? • Is it possible to identify one or more companies that has succeeded and/or failed to innovate adequately along these dimensions, and has seen its business suffer as a result?) L12: Business Development Options

9. The Eclectic Virgin Business Model • His goal was never to be the biggest. Branson likes being a disruptor - taking on industries that charge too much (music) or hold consumers hostage (cellular) or treat them badly and bore them to tears (airlines). His goal was never to be the most profitable. Although two of his companies - Virgin Express and the clothing and cosmetics company Victory - are publicly traded, he generally prefers to stay private. (Branson took Virgin Atlantic public in 1986, then private two years later after its market fell by half.) He has little interest most of the time, in delivering nice, steady earnings stream. As a public company, “you can’t suddenly have profits of $400 million one year and minus $300 million the next." he says. But that's exactly what I to do: invest profits from one venture in the next, which, by the way greatly reduces his tax bill. His offshore trusts allow him to avoid paying capital gains tax on asset sales as long as he reinvests the proceeds. L12: Business Development Options

10. So Virgin Group operates like an eclectic venture-capital firm. Branson has mostly majority stakes in its 224 companies, each of which has its own CEO and board of directors. Each board includes at least one member from Branson's seven-man advisory council, a team of bankers, strategists, and accountants who are more or less in constant touch. Each company also has its own set of outside investors and/or joint-venture partners (Singapore Airlines owns about half of Virgin Atlantic; Sprint owns about half of the U.S. cellular business). Some of these companies will go public eventually, in part because his other investors may demand it. That could spell trouble down the road, given Branson's penchant for doing things his way. But he is enough of an opportunist to covet the cash some IPOs would bring. • Fortune Magazine “The Man who has Everything”, 6 October 2003 L12: Business Development Options

11. Efficient Management The Resource Audit • How productive are resources used? • How flexible are our resources? • How balanced are our resources? • What is the nature of our political situation? • How successful is our strategic "fit"? • What is the nature and extent of our "strategic standing"? • What is the extent of any "resource slack" in the organisation? • Which are our strengths, weaknesses and distinctive competencies? • Where and how can we add value to our organisation system? L12: Business Development Options

12. Resource Classification • Four Types of Resources (Porter) • Inbound logistics are the activities concerned with receiving, storing, and distributing the inputs to the organising system. • Operations convert inputs into the final product/services of the organisation. • Outbound logistics are concerned with the collection, storage and distribution of these products/services to the customer. • Sales activities attract customer purchase situation and built core values. • These are linked into business support systems • Purchasing is the process adopted whereby each primary activity obtains its own resources and includes outsourcing and supply chain management; • ICt (Information Communications Technology) is concerned with "know how" and efficiency improvements of the way in which each business activity performs its functions and the improvement of each activity's own system outputs; • human resource management recruits, trains, develops and rewards people working in primary and support activities; • management systems, including finance, plan and control activities throughout the organisation. • Additional (marketing systems include: • Marketing Information systems that gather intelligence • Customer Contact Management to acquire new customers and maintain loyalty • Fulfilment to include outsourcing, channel management and returns L12: Business Development Options

13. 2. Predictive Models

14. “Models describe rather than predict”Storey, 1994 L12: Business Development Options

15. Level1: A Clear enough Future • Decision-makers face Level 1 uncertainty when the range of possible outcomes is narrow enough that this uncertainty does not matter for the decision at hand. This does not imply that the future is perfectly predictable, but rather that the future is predictable enough to identify a dominant strategy choice that is best across the range of potential outcomes. As you might guess, decision-makers in well-established markets that are not prone to external shocks or internal upheaval are the most likely to face Level 1 uncertainty. Courtney, H, 2003, Decision-Driven Scenarios, Strategy & Leadership, Vol 31 L12: Business Development Options

16. Level 2: Alternate Futures • Decision-makers face Level 2 uncertainty when they can define a limited set of possible future outcomes, one of which will occur, and when the best strategy to follow depends on which outcome ultimately occurs. • Organizations that face Level 2 uncertainty can define a mutually exclusive, collectively exhaustive (MECE) set of possible outcomes. • One, and only one, of these outcomes will actually occur. L12: Business Development Options

17. Level 3: Range of Futures • Level 3 uncertainty is like Level 2 uncertainty: one can identify the range of possible future outcomes, but no obvious point forecast emerges. • In both cases, this range is wide enough to matter for the decision at hand, but there is a very important difference: strategists facing Level 3 uncertainty can only bound the range of future outcomes - they cannot identify a limited MECE set of outcomes, one of which will occur. • E.g. might be able to conclude that the five-year market penetration rate of a new consumer electronics product will fall somewhere between 5 percent and 40 percent, but they will not be able to conclude that the rate will be either 5 percent, 20 percent, 30 percent, or 40 percent. Any other rate between 5 percent and 40 percent is also a possibility in this case. L12: Business Development Options

18. Level 4: True Ambiguity • Future outcomes for Level 4 uncertainties are both unknown and unknowable. Analysis cannot even identify the range of possible future outcomes with certainty, or the most likely scenarios within that range. • Level 4 situations are rare, and they tend to degrade over time to lower levels of uncertainty. They are most likely to occur in markets during and immediately after major technological, economic or social discontinuities, as well as in markets that are just beginning to form. For example, a manager attempting to formulate United Airlines' security strategy on 12 September 2001 faced Level 4 uncertainty. In the immediate aftermath of the horrific terrorist attacks that occurred on 11 September, even the most prescient security experts could not confidently bound the range of future terrorist activity. Courtney, H, 2003, Decision-Driven Scenarios, Strategy & Leadership, Vol 31 L12: Business Development Options

19. 3. Responsive Knowledge-Based Organisations

20. “If, in the wake of globalisation, financial and manufacturing techniques become ever more capable of imitation, then their competitive advantage is correspondingly diminished . . . in this sort of world, the ability to learn faster than the competition may be the only sustainable advantage.” • Pettigrew, A. and Whipp, R. (1991), Managing Change for Competitive Success, Oxford, Blackwell  L12: Business Development Options

21. Knowledge & Creativity • The creation of the knowledge driven economy is not some far distant dream. It is all around us. The creativity driving it affects every stage of the manufacturing process. Product design. Innovation. Marketing and after sales service. (Mandelson, P, 1998:31). L12: Business Development Options

22. The increasing importance of the knowledge driven economy is an international trend which affects economies at all levels of development. The World Bank (1998) World Development Report • "For countries in the vanguard of the world economy, the balance between knowledge and resources has shifted so far towards the former that knowledge has become perhaps the most important factor determining the standard of living...... Today's most technologically advanced economies are truly knowledge-based." L12: Business Development Options

23. Knowledge Driven Economy • “A knowledge driven economy is one in which the generation and the exploitation of knowledge has come to play the predominant part in the creation of wealth. It is not simply about pushing back the frontiers of knowledge; it is also about the more effective use and exploitation of all types of knowledge in all manner of economic activity. (DTI, 1998) http://www.dti.gov.uk/comp/competitive/an_reprt.htm L12: Business Development Options

24. Knowledge Management Drivers • Information and Communications Technology (ICT) • Increased speed of scientific and technological advance. • acceleration in the growth of the stock of codified scientific and technological knowledge • Global competition • Reduced communications • Trade & capital liberalisation • Reduced transactions costs • Changing demand • Rising income • Environmental Pressures DTI, 1998 L12: Business Development Options

25. Impact on Technology Ventures • Capabilities • Ability to adapt and to embrace change encompassing the exploitation of science and technology, enterprise and innovation, capital markets, people and skills • collaboration, • both within firms in the way they organise themselves and their employees, and between firms in the way they interact in networks and in clusters • competition • increased competitive pressures from more open markets and the growth in foreign direct investment are interacting with the forces driving innovation and increased consumer choice. L12: Business Development Options

26. DTI Policy Perspectives • “We need to improve our capacity to create and exploit scientific knowledge and technology successfully. • Securing this improvement, together with the need for greater dynamism in the knowledge driven economy, requires improved enterprise and innovation. • Finance for enterprise depends in turn on well functioning capital markets. • Firms also need access to skilled workers and the successful organisations will be those who make the best use of their people and skills.” L12: Business Development Options

27. 4. Future Patterns of Innovation

28. Blockbusters • "blockbuster new products are harder and harder to come by, and big companies can do much better if they focus on making lots of small things better. Even in relatively zippy businesses like pharmaceuticals, genuinely new products are fewer and further between. Economist (2004) L12: Business Development Options

29. Knowledge Creation • “useful knowledge cannot be really said to be created unless it is part of a broader process of knowledge diffusion/distribution. Knowledge creation and diffusion should thus be understood as part of the same process” (OECD, 1997). L12: Business Development Options

30. Future Patterns • Real Time Responsiveness • User-Friendliness • Aging Boomers/Generation X • Mass Customisation • Lifestyle • Unbundled Service • Value Differentiation • High Service • Techno-edge • Quality Perfection Tucker 2004 L12: Business Development Options