Business Model in Practice
Business Model in Practice
Business Model in Practice
B u s in e s s M o d e l I n n o v a t i o n in P r a c t ic e
A systematic
approach to business m odel innovation can help capture value and reduce risks.
OVERVIEW: Business model innovation is often the key to capturing value from innovation within corporations. Develop
ing and implementing new business models in practice, however, is difficult and fraught with risk. This paper discusses a
systematic approach to developing new business models and identifies concrete steps to reduce the risks associated with
them. It draws on literature on elements of the process as well as experience developing and implementing new business
models at Goodyear.
KEYWORDS: Business model innovation, Adoption risks, Co-innovation risks, Business model canvas
Dell:
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Capture value
Create value
FIGURE 1. G oodyear's business m odel innovation process
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Research-Technology Management
C r e a t in g a L a n g u a g e o f In n o v a tio n
Developing a practice requires developing a common lan
guage. We have systematically sought to develop such a
language within Goodyear, by exploring as an organiza
tion the works that inspired our process. Our approach
has been to read the references as an organization and
to discuss their application to the work underway in new
business development.
Key references that have been helpful to our practice are:
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T h e b u s in e s s m o d e l c a n v a s m isses
t h e k e y d y n a m ic e le m e n t s o f w o r k in g
b u s in e s s m o d e ls .
R e se a rch -T e ch n o lo g y M a n a g e m e n t
Sensitivity
-30%
-20%
-10%
0%
10%
20%
Most critical
factor
30%
Least critical
factor
FIGURE 3. Tornado diagram id en tifying key factors affecting a business m odel's p ro fita b ility
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A b u s in e s s e x p e r im e n t is g e n e r a lly s h o r t
t e r m a n d lim ite d in s c a le , b u t it a n s w e rs a
q u e s tio n t h a t is c ritic a l t o t h e su ccess o f
t h e b u s in e s s .
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R e se a rch -T e ch n o lo g y M a n a g e m e n t
by a New Venture Board (NVB) composed of a few forwardlooking general managers within the company. The agenda
of an NVB meeting is organized around the top five key as
sumptions central to the success of the business. NVB reviews
involve identification of a hypothesis about a key assump
tion, assessment of actions taken to test the hypothesis, dis
cussion of the current state of knowledge about the new
venture, and decisions about what is to be done next to fur
ther that knowledge and by when.
A key decision in incubation is whether to organize the
new business within the relevant business unit (what Vijay
Govindarajan and Chris Trimble, in The Other Side of Innova
tion [2010], call the "performance engine") or as an indepen
dent entity. The work of Govindarajan and Trimble, as well as
Chesbrough's study, argues for an independent entity if the
new business challenges the business model of the core. They
believe that an independent entity has a greater ability to
escape the orthodoxies of the existing corporation and yet
borrow key assets of the corporation as necessary. Their work
shows that business models operating within established per
formance engines are frequently strangled by practices devel
oped to support the operational efficiency of the core, starved
of critical resources, or co-opted to support the core business.
A change in management in the core or a short-term crisis
can eviscerate the nascent enterprise altogether.
For these reasons, we have chosen to incubate new busi
nesses as separate divisions with their own staff and general
manager, although this may not apply as a general rule in all
situations. The businesses leverage the resources of the core
for support functions (such as legal and accounting), but
have their own sales, operations, IT, and technology staff.
They work closely with the core business to avoid unneces
sary channel conflict or customer confusion and buy re
sources (like tires and services) from the core. The businesses
report through the corporate innovation function and are
accountable to the NVB, which provides oversight and
guidance.
The ultimate decision about integration with the core, at
least for the businesses currently in incubation at Goodyear,
will be addressed when we make the decision to scale. The
options for scaling range from organic growth of the startup
to reorganization or transformation of a business unit around
the new business model.
C o n c lu s io n s
References
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In s t it u t e
Creating Innovation
Leadership Solutions
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