“The challenge for any new business model for emerging markets is to reach to the masses, and micro packaging is the way to achieve this as it requires very low cost to deliver but presents great profits due to the mass movement of products,” Professor Charles Baden-Fuller told an audience at the DIFC based- Capital Club Dubai.
Professor Baden-Fuller’s visit is part of an ongoing programme which sees world-renowned, London-based, professors fly to the UAE each month to teach students of the Cass Business School Dubai Executive MBA course, ranked the tenth best in the World by the Financial Times.
“Established companies need to innovate new business models to capture the opportunities offered by today’s growth markets such as the Africa subcontinent and new industries such as bio-technology and the web,” Professor Baden-Fuller, said.
“In addition, companies need new business models for the home business: for they allow the firm to ride the waves of the turbulent environment and avoid the risks associated with being left behind by competitors. The essence of a new business model is more than just a new product or new service; it is also a new value delivery system and a new way of capturing value.”
Taking the example of selling in the African sub-continent, Professor Baden-Fuller explained that innovations in value delivery include packaging consumer products in micro-sizes so consumers with low incomes can afford to buy and when they buy accurately match purchase to use. Innovations in value capture mechanisms, such as using mobile phones to pay for purchases, allow companies to collect the revenues from the sales of these very low unit-value products efficiently and effectively, without destroying profit margins.
“The challenge of designing new business models is also present for established firms in mature markets. Whenever we feel that the customer is not paying the full price for the offering we give, then there is money left on the table. And whenever there is strong competition, we need to explore the possibility of new business models. The challenge is to explore new ways to capture that value that triggers renewed growth. A central feature of new business models is a new method of capturing that value,” he said.
Sharing his findings about new business models that have captured markets across the world, he explained that the separation of ‘users’ and ‘customers’ is the key to their success.
“RyanAir and Google are the two of the most inspiring new business models to capture people’s imagination the world over. For Google, internet surfers are the users, but advertisers are their customers. Similarly, RyanAir used to get paid by certain airports for adding them to the network, meaning that at times passengers were not considered to be customers, but users,” he added.
Speaking of the challenges faced by established companies, he said that too many companies indulge in innovation of product or services and then worry about how to capture that value. “This is wrong; innovation in value capture has to go hand in hand with product and service innovation.”
“Once very successful companies like Kodak and Polaroid, failed because just creating value was not enough,” he explained. “In recent years they failed to match product innovation with renewed innovation in value capture mechanisms. They just would not change along both axes.”
“With new companies, it is not just innovation in terms of offerings, but innovation in value delivery and value capture that matters. To be really successful, new businesses need to innovate across multiple dimensions; one is not enough,” he added.
During the talk, Professor Baden-Fuller explored how companies could minimize the risks from introducing new business models. He emphasised the need for top-management to be involved in the experiments, and the importance of designing the place where the innovation takes place. “Don’t jeopardise the existing business while experimenting with the new business model. Start a new business model in a new unit, or in a new location; ideally use a market which is close to your existing one, but not the same,” he said