The introduction to the Edengene business model bible. This is the first in our weekly serial that will cover pricing models, product and service models, distribution models, market models and emerging technology models. For more information and to follow the series, read our blog: http://bit.ly/mUdDNA

1. Business Model BibleCreating Value through Innovation The art and science of innovation

2. Part 1:Introducing Business Model Innovation The art and science of innovation

3. Business Model Innovation: challenging the assumptions a company holds about the way it creates value. The Edengene Definition

5. However, there are a limited number of structured ways that youcan alter the way you play in the value chain, partner with your stakeholder network, align your product portfolio against customer need and therefore the way that your business makes money

6. Edengene’s “Business Model Bible” lays out more than 50 ways of creating value or making money, illustrated by thought provoking global examples across a wide range of different industries

9. Automatic meat slicer

10. Time keeping systems

11. Punched card equipment

12. Browning automatic rifles

13. MI carbine

14. The Manhattan Project (atomic bombs)

15. IBM mainframes

16. IBM PCs

17. Chip sets

18. Services

19. Consulting

20. Innovation

21. R&D(Source: IBM Annual Report )

23. Every level of business model innovation can make a radical change to the way a company is perceived and how it performs

24. Each organisation must judge for itself the degree of innovation appropriate to the underlying business model based on internal and external factors, incorporating industry circumstance, existing business capability and the commitment of the business’s leadership

25. What is appropriate to one company will not be necessarily appropriate to another company, even at the same time in the maturity cycle, in the same peer industry

26. Innovating along the business model spectrum – from the simplest to the most complex of innovations – can bring significant rewardPricing model changes, leaving the product or service the same Simple Fundamentally change the rules in a given marketplace Complex

28. The more an industry matures, the more opportunities there will be for disruptive market-based business model innovation

29. Conversely, in young, fast-growth industries, there are often unique opportunities to connect to customers with smart pricing and product or service-based business model innovation

30. Where are the business’s strengths (and weaknesses)? What capabilities can be leveraged?

31. What resources are required (and available)? What boundaries and options are available – build, buy or partner?

32. IBM employed all three of these approaches in its shift from manufacturing to services

33. This is about a change in mindset at board level – increased flexibility – and then throughout the company. The CEO’s role undoubtedly becomes more important

34. What is the business’s leadership and employee base’s appetite for change?

35. The more disruptive the business model innovation, the more commitment required to deliver. Whilst obvious, this is critical

38. From cost-plus pricing, which calculates the cost of the product then includes an additional margin to generate profit, to value-based pricing which factors in how much a customer values the service and therefore how much they are willing to pay as well as the adjacent market forces of competitors’ positioning, pricing depends on understanding the customer

39. Under pressure from entrepreneurial innovators and unable to protect core revenue models, industries are beginning to experiment with pricing strategies.

40. Loss-leading, skimming and discounting are all traditional pricing tactics. Innovative pricing models go further, not only reflecting the demand for popular products, but beginning to embed risk-reward mechanisms by creating more transparent contracts between supplier and customer

42. Building from this success, the company expanded into multiple markets to maximise business model and product revenue streams

43. Vodafone did this by challenging industry conventions that driving up annual revenue per user (ARPU) was the only way to create value and that the way to do this was via monthly subscription

44. The company revolutionised the industry when it introduced its “pay-as-you-go” pricing option bringing wholly new customers into the market for mobile phones

45. Increased payment flexibility allowed the company also to further increase profitabilityPay per performance Demand driven pricing Pay as you go

47. Product and service model innovation uses customers as the starting point to understand what it is they want today and might want tomorrow, and then looking at the current portfolio of products/services and exploring how best to capitalise on opportunities

48. Generating profits from existing (and future) product or service platforms can involve re-targeting existing products/services, or bundling in a complementary product or service wrap with an existing product, re-segmenting a customer group and then repositioning a range of existing/variant products

49. Tesco’s Product Pyramid is a classic example of an “unmet” customer need where the grocer saw an opportunity to sell 8 pork sausages priced at anything from 49p (for “Value” lines) to £2.29 (for “Finest” traditionally made) – providing each segment of their customer base with a relevant product

51. Since then, Apple has leveraged its hardware design and software capabilities and unique user interfaces to diversify into music distribution and, more recently, mobile communications.

52. The company subsequently built the iTunes platform as a distribution channel for music downloads that would drive sales of its iPod MP3/4 player, where it makes the majority of its profit

53. Apple has made a further leap with the launch of the iPhone, which combines the company’s trademark style-conscious design and user interfaces and has moved to open source coding to allow 3rd party companies to create applications that will run on the iPhoneAssumption challenged Credible cutting edgetechnology must be complex and aimed at the ‘digirati’ Results Achieved phenomenal success with the introduction of the iPod and portfolio of accessories First to market Blockbuster profit Profit multiplier

55. Distribution-based business model innovation is far more than the opportunity to increase the number of channels to market

56. Distribution innovation provides the framework to create value chain disambiguation and reorganise distribution to make money in new ways and make distribution a fundamental part of the customer experience

57. Zopa, the online peer-to-peer money exchange use the “marketplace” model to cut out traditional brokers and mount a challenge on established banking practice. Zopa matches borrowing to lending and its early success has enabled the company to prosper and expand into new territories.

58. Sony has also revolutionised its business model through distribution using its PlayStation 3 as a pre-installed platform for the new Blu-ray high definition DVD player creating a vast “installed base” to help it win the high definition format war

60. Nestlé pioneered the portioned coffee market. Together with manufacturing partners including Alessi and Miele, the company created stylish coffee machines sold as part of the company’s “Trilogy” system.

61. The product included the machine, exactly portioned Grand Cru coffees, and customized, convenient service, sold directto individual consumer for in-home use, small businesses and on-trade customers

62. Buyers of the Nespresso espresso coffee machine became “Club Members” buying Nespresso capsules on an ongoing basis, by phone, fax or post or direct over the Internet

63. The business has had a compound growth rate of 30% over the last 5 years and now has sales of over half a billion – with high profits from capsule salesAssumption challenged Fast movingconsumer goods are sold via grocery channel Results Nestlé Nespresso surpassed one billion CHF revenue at the end of 2006 with year on year growth of 42% Marketplace Installed base Direct to the consumer

65. This category of innovation is typically disruptive, entirely rethinking the way the way a company does business, requiring significantly less or more change to leadership and people, organisational structures, and business processes

66. When Prudential created Egg as a standalone business, many analysts and commentators were sceptical about an insurer being able to challenge the existing order in banking – not only was this highly disruptive example of business model extremely successful, it irrevocably changed the face of banking

68. The company stripped out many of the accepted service elements, such as predictable pricing and seat allocation, multi channel access for booking and provision of food and drink for free to remove cost, creating a budget service for the functional traveller, thus enabling a much larger group of consumers (and businesses) to fly, and fly more often

69. Ryanair also shook up the operational model of the industry, improving turnaround times to optimise aircraft utilisation

70. While Michael O’Leary concentrates on a cost leadership model, he does this with a keen eye on sustainable top-line growth, for example, boosting revenues by the hard pre-flight and onboard sale of add-onsAssumption challenged Airlines must providea complete flying experience Results Revenue growth2005-6 = 28% Profit growth2005-6 = 12% Intimidation Second to market Cost leadership

72. Bartering and Brokerage models are examples of business models that have been renewed via technology and are now commonly facilitated by eMarketplaces, which have broadened their applicability to a wide array of goods and services

73. Web-enabled business models are developing as rapidly as the internet itself with new variations being established every year. The majority of the first generation e-commerce business models were driven by advertising, extending the traditional media broadcast model

74. Revenues were generally derived not from the content and services themselves, but from the advertising messages that were blended in via banners. Many of these companies operated on a build-first, monetize-later strategy with uncertain revenue models which struggled to ever achieve profitability

76. Originally conceived as the “premier provider of professional networking tools for hiring managers, job seekers and professional service providers”, LinkedIn offered a free referral-based service

77. Recruiting has emerged as one of the most popular applications of LinkedIn’s online networking tools

78. Most recently LinkedIn launched another new paid-for service, LinkedIn Surveys, that enables market researchers and investors to solicit market intelligence from LinkedIn’s network of over 30 million professionals worldwide, leveraging the membership base and LinkedIn’s deep profile information on all its members

79. LinkedIn is currently growing at a rate of half a million new members a week Assumption challenged The core product or service is where the money is made Results More than 30 million members from around the world, representing more than 170 industries, 150 countries, and including executives from all Fortune 500 companies Mashup/ e-models Peer-to-Peer Freemium