Business Model Alchemist

I’m now at over 100 blogposts, which means that many hours went into this blog about business model design and innovation. While I started this blog more as an experiment and as a thinking & knowledge base for myself more and more readers and visitors joined the journey.

Now I even feel the pressure of writing something useful for “my public”. However, since I have to earn a living (and want to spend time with my family: 2 kids!) I allow myself a maximum of 1-3 hours per post – even if it is at the expense of quality.

To get things more focused and offer you real value I would be interested in your feedback about this blog. I already receive a lot of emails regarding the business model concept and some compliments for the blog, but I still get very little feedback helping me improve my blog.

Let me ask you some questions:

• Which parts of my blog do you most enjoy or hate?
• Are the templates I make available useful?
• Do you like the webcasts?
• Do you enjoy the less conceptual postings – e.g. news style?
• What would you want to see more on my blog?
• Can you apply the things I write about in your daily work?
• Did you ever use the search function on my blog?
• Anything else on your mind (related to this blog

Please take a short break to respond to some of the above questions. It would help me improve this blog and increase the value of the time I spend writing (-> Return on Time Investment – RoTI)

Today I did a webcast with Etienne Eichenberger, co-founder of WISE (and formerly at the World Economic Forum WEF), to talk about his fascinating start-up.

WISE stands for “Wealthy Individuals and Social Entrepreneurs” and has a really interesting business model. As the name indicates the organization connects wealthy individuals that want to “invest” in a social cause with social entrepreneurs that manage interesting projects. What I find fascinating about WISE is that it is a commercial organization with a social goal, which seems to leverage the best of the private and the development sector (e.g. due dilligence, key performance indicators, etc.).

Personally I am fascinated by Etienne’s organization because it combines the sector I have worked in (health & development) and the sector I am working in now (wealth management). His company seems to satisfy the rising demand for venture philantropy, which is rapidly becoming an indispensable part of the offer of private banks and wealth managers.

I wish Etienne and his team good luck with his venture. I am convinced he will make a difference in the health & development sector and at the same time satisfy the social needs of wealthy individuals. Quite impressive!

Yesterday I was interviewed by Richard Hunter and Bob Akerley of Gartner in the context of a project on “communicating the business value of IT”. They were interested in how Chief Information Officers (CIOs) can effectively communicate the nature of a business model because their research led them to the conclusion that:

Executives who do not understand the strengths and weaknesses of their business model have poor appreciation for the value of information technology. Because they don’t understand the business model, they don’t understand how technology (or almost anything else) can be used to improve it.

Quite an interesting departure on a topic that Their first question was whether a business model should be perceived and documented in terms of processes because many CIOs think in terms of processes—inputs, outputs, and transformations.

My opinion:

• NO
• To me there is a clear distinction between a business model and a business process model. The latter is mainly a consequence of the former. A business models is about business logic (what do we do, with whom, how do we make money), while a process model is about business execution (how do I implement something best). As such it should be built on the basis of the business model
• Both models aim at different goals. Business process models are a very good tool to improve efficiency, while business models are a very good tool to improve efficacy and competitive positioning.
• In the 90s business process re-engineering BPR and TQM were a big topic. Today innovation is the big topic. The last IBM Global CEO Study, for example, highlights the importance of business model innovation as a strategic differentiator. Sometimes I call this business mode re-engineering BMR.
• The CIO’s can contribute to both BPR and BMR. However, to communicate with senior executives about technology-based business model innovation business processes are the wrong language.

Richard and Bob also asked me how a CIO and his team can understand and document the business model of a company? Of course I’m biased and recommend using our simple business model template with 9 building blocks to describe the business. Then the question of how to best gather the relevant information about the business model remains. To me there are basically two approaches (of which I prefer the second):

1. The interview approach: A team of the CIO’s office tries to describe the business model by interviewing the relevant people (e.g. for distribution channel design, value proposition, revenue streams, etc.)
2. The workshop approach: The CIO gets the relevant people together in one or several workshops to describe the company’s business model or aspects of it. For example: he assembles a group that can elaborate the company’s different value propositions (e.g. with a group method like the strategy canvas – by using our template – from Kim & Mauborgne’s book blue ocean strategy).

Once the business model has been sketched out it’s much easier for a CIO to analyze and describe how IT contributes to a company’s business. The visualized business model will allow him to outline which applications and what IT infrastructure the business model builds on. At this point he as a perfect tool in his hands to communicate with CxOs about the business value of IT because he has made it explicit.

Finally, the visual model will allow a CIO and his department to analyze how they can improve the business model through IT. Experimentally we do this at arvetica and in our research by describing for each business model building block which application portfolio and which IT infrastructure services make a contribution. But that’s enough material for another blogpost.

I’m a little bit obsessed with the question of who could become the next Skype of private banking since I started doing research in this area. I’m wondering if the private banking and wealth management sector could be just as vulnerable to disruption as any other “ordinary” industry (e.g. Skype in the Telecom market, EasyJet in air transport, …).

As a reminder a short quote summarising the concept of disruptive innovations which was introduced by Harvard Professor Clayton Christensen:

A “Disruptive Innovation” is a successfully exploited product, service or business model that significantly transforms the demands and needs of a mainstream market and disrupts its former key players.

There are some arguments speaking in favor of a possible disruption of private banking and wealth management incumbents, such as UBS, Credit Suisse, Pictet, HSBC and there are arguments speaking against it. Two reasons why disruption could happen:

1. The sector is very lucrative with high margins and growth rates – this naturally attracts potential insurgents. I remember Niklas Zennström from Skype telling me in an interview: “We deliberately chose to disrupt the Telecom sector with our technology because it looked very attractive”.
2. The big actors in this sector admit competition, but they don’t seem overly concerned by it. Why should they? Their returns are still stellar and the market is growing. However, this has led to a certain sluggishness that makes them vulnerable to potential insurgents coming from outside of their radar screen.

Two arguments speaking against a potential disruption:

1. Brand names reflecting stability and security are still of enormous importance in private banking and wealth management. This constitutes an important barrier to entry for new and upcoming actors (more in some regions like Europe than in others like Asia).
2. Over time switching costs increase in this sector. Once a private banking relationship has been established for over 2 years the probability of a client defecting decreases substantially. This can be explained by the personal relationships and the knowledge in terms of wealth management that a bank builds over time for each of their clients.

Obviously, we can’t know how private banking and wealth management will look tomorrow, since we don’t know the future. However, we can launch a search for potential insurgents or at least promising new players. To search, find and analyze these potential insurgents we can start by asking ourselves a number of questions based on the characteristics of disruptive innovations and study if they could apply to private banking:

• Disruptive innovators begin their success by meeting the unfulfilled needs of an emerging or niche market.
  Private Banking: What are the unfulfilled needs and niche markets?
• Disruptive innovations are characterized by innovative performance attributes that are not initially appreciated by mainstream markets, though they are highly rated by niche market customers (e.g. Skype). Mainstream market customers as well as competitors value different performance attribute sets and therefore view the innovation as substandard.
  Private Banking: Which innovations (products & services, business models, technology, processes) are perceived as substandard?
• Niche market adoption of disruptive innovations enable investment in the product, service or business model to increase its performance. They can then create or enter new niche markets and expand customer numbers.
  Private Banking: Which disruptive innovations have already conquered a niche market and are expanding customer numbers?
• As awareness of the product, service or business model increases, they change the mainstream market’s perception of what it values.
  Private Banking: Is any disruptive innovation already changing the incumbents’ market?

In conclusion, even if private banking and wealth management proves resistant to disruption each player has to ask himself how the playing field might look tomorrow. In that light questioning the state of private banking and wealth management is definetly not a waste of energy…

Today I was invited to do a lecture/workshop at the Swiss Federal Institute of Technology Lausanne (EPFL) in Jeffrey Huang’s class on the Interactive City where they discuss the future of banking architecture. Jef is at the forefront of design thinking and has taught and worked at Harvard, Stanford’s d.school and at Fuji Xerox Palo Alto Research Lab. He also operates his own consulting firm Convergeo. He is currently building up the design lab at EPFL.

I used the opportunity for a webcast with Jef because his thoughts on design thinking and business are really interesting. I must apologize that I bullied him into this, but it was well worth it. Thanks Jef (and sorry for pushing)!

The lecture/workshop I did in Jef’s class was on “visualizing private banking strategy and business models”… I’ll make the slides available in my next blogpost.

The International Herald Tribune features an interesting article about Blyk, a Finnish telco that is planning to offer free advertising-supported mobile phone communications. Now that is business model innovation! Beyond being pro/con ad-supported business models there is no doubt that Blyk has done something very innovative… Find a sketch of their business model below:

This weekend, during an Evian Group meeting at the IMD business school, I seized the opportunity to do a short video interview with Kamal Quadir. Kamal is founder of CellBazaar and one of the most interesting entrepreneurs I know. The start-up he created at MIT Media Lab provides an electronic marketplace that can be accessed by mobile phone and Bangladesh is the first market they’re tackling.

Listen to the videocast about CellBazaar’s business model and learn from Kamal how to succeed in doing business in a developing country / emerging market:

The three things I would like to highlight from the chat Kamal and I had this weekend are:

1. if your business model is innovative enough there are lucrative business opportunities in developing countries.
2. if you are perseverant and disruptive you can succeed in an honest way without paying bribes and withoug having to rely on personal connections.
3. successful business initiatives like CellBazaar bring increased efficiency and thus “development” to developing countries. This is much more powerful than the charitable (giving) aid approach, which I have stopped to believe in.

Kamal, I wish you good luck with your undertakings because your work is really relevant!

By the way, Kamal and I are both members of the Open World Initiative (OWI), which is part of the Evian Group and which you might want to check out if you’re interested in the fate of the global community and you believe in a liberal society governed by a multilateral rule-based system.

Last Thursday I used the case study I recently designed together with Prof Yves Pigneur in a class at the University of Zurich, Switzerland. It was a premiere. The case is about Ticketcorner, the leading Swiss ticketing organization which is expanding on the European market and is already figuring in the top 3.

It was great fun to teach, the case seemed to work out and the students did very well. Unfortunately the multimedia material consisting of several interviews with the exec team and some pictures of the Ticketcorner wasn’t yet entirely ready.

The case works very nicely to illustrate the business model concept. You can download the Ticketcorner case study as well as the slides that I used in class.

I started with a class discussion on the main issues, which I ended with an interview with Philipp Gihr, COO of Ticketcorner. Then I got the students to do a role play where one person was the CEO and the other one a CNBC interviewer. After that I showed the interview I did with George Egloff, Ticketcorner’s CEO. In a next step students moved into a break-out sesssion where they sketched different chunks of Ticketcorner’s business model on a big sheet of paper, which they subsequently presented to the whole class. At the end they were supposed to reflect on business model innovation – but since it was already overtime I let them do that at home…

Of course you can use the case study for your own purpose as long as you respect the creative commons license and reference the authors for their contribution.

(The case was prepared with the funding of the Swiss Virtual Campus (CasIS project) and is published under a creative commons attribution 2.5 license)

Update: Business Model Innovation Book. We are currently writing a groundbreaking book on business model innovation (publication: June 2009). You can get special privileges and participate in the innovative business model of our book project on our book chunk platform

Today I read a blogpost by Steve Portigal on design and business and discovered a great new tool to upload, store and share powerpoint presentations on the web.

I immediately used it to share a deck of slides I designed to outline the business model concept. The slides briefly outline my understanding of what a business model actually is and how the concept can be used as a business model design template to quickly design and describe the business logic of a company. The template can also be applied together with the business model innovation cycle which I described in an earlier post.

The slides come under a creative commons license and I actively encourage their re-use – as long as the author (alex osterwalder) is mentioned and the license is respected. I’m also interested in your feedback if you’ve applied the template or plan to apply it (email me at my new company: osterwalder(-at-)gmail.com).

Warning: this is not about business today….

This evening I watched “Hotel Rwanda” and I was deeply touched and terribly ashamed – by myself. Where was I in 1994, what did I do? I was 20 years old and the images passed by… terrible, yes, but I didn’t go to the street…

2 years ago I started getting interested in Rwanda. I read General Romeo Dallaire’s book “Shake Hands with the Devil“, which explained the conflict in Rwanda from the UN field perspective. Dallaire was the commanding UN officer. He did all he could – he tried everything. It was terrible. He couldn’t stop the atrocities. And with that I don’t just mean what happened in Rwanda itself (more than 800′000 people killed in about 100 days – wiki / Human Rights Watch), but what happened in the UN security council – in Washington, Paris, London, Moscow and Beijing… We, the Western countries, failed because we had a genocide in our hands. I, as a person, failed because I didn’t try to influence my and other Western governements with the little means that I have… Terrible things only happen because we don’t inhibit them!

No, this is not about business design today… because business design only matters in a world where we can live free of fear. And sometimes it seems so strange to me that we can seriously talk of a “global village” or a “flat world” while Darfur and other places are covered by dark clouds… And to those that think it doesn’t matter: think twice and then make your point on my blog!