My friend is a motivational and leadership speaker. She gets paid to share her message with audiences of all sizes. Her message is one of transformation and focus. Clear out the clutter of our physical and emotional baggage, and we can become the people we are destined to be.
Yet, as we caught up over a cup of coffee, my friend expressed a concern. She had been asked to speak at a local event with no reimbursement. They would pay her admission fee to the event, but they were not going to pay her normal speaking fee. Travel costs were essentially nil since it was a local conference. The audience was attractive based on her target market.
What should she do? And what does this story have to do with innovation?
What is Your Business Model?
When we make decisions in business and innovation, we always need to return to our business strategy and business model. The strategy encompasses the overall guiding mission, vision, and values for the company as a whole. We implement our strategy through projects, processes, and products satisfying a given business model.
Business models are comprised of a framework of the customer value proposition, market segments, market growth models, and key resource capabilities. Especially in innovation, our activities must be guided and directed through the lens of a business model. New product development (NPD) requires an honest assessment of value captured by consumers and a strategic alignment of the product family or category with the capabilities of the organization.
Decision-Making with Business Models
Understanding the business model framework allows us to make appropriate value decisions for the business. In NPD and innovation, we incorporate the business model framework into the structured NPD Process, or staged and gated system. Decisions are made as more information comes available and are balanced with the scale of the investment.
Most structured NPD processes have a series of stages of work laid out to capture idea development through concept formulation and detailed product design. Each stage of work is approved at a gate review.
Gate reviews are typically handled by mid-level managers examining the project plan for an individual new product project. Elements of approval will include to what degree the new product meshes with the innovation and business strategies. Does the new product deliver a unique and sustainable value proposition from the customer’s viewpoint? Will the new product be sold into select, target markets? Does the new product deliver revenue and growth? Will the new product take advantage of the firm’s core competencies and leverage resource capabilities?
Trade-Offs in the Business Model
No new product, project, or business opportunity is perfect. It is rare that we can
wholeheartedly answer “yes” to all of the questions in the gate review that probe the product’s fit with the business model. Normally, we face a set of trade-off decisions among the components of the business model framework.
For example, a new product project may meet the requirements of a unique customer value proposition, but profits look thin. Or maybe a new service is extremely attractive to the target market, but the firm has a small capabilities gap. In these cases, business model decisions become far more complicated.
Some firms, in using scorecard metrics in portfolio management, can make solid decisions with no looking back. Certainly, scoring methods are a help in deciding which new product projects to fund and which to bypass. Yet, normally a large amount of the “score” is subjectively determined.
Gut feel, intuition, and experience all supplement the data in making an innovation decision. Assuming that the market will continue to grow, the revenue model may be attractive enough to overlook competition in the product category. Or, acquiring competitors through mergers, joint ventures, or hiring may close a skills gap enough to yield a short-term, attractive bet with a new business model.
Judgement in Business Models
Trade-off decisions in the new product business models will really get down to the judgement of the project team. Of course, we’ll all miss a few opportunities and we will all fail sometimes. What is important is to measure the decision against the business model criteria and rationally conclude whether or not to proceed. As indicated, these decision-making criteria are typically built into the structured NPD process.
My friend? Ultimately, she decided that maintaining her revenue scheme was most important to her business model. It would dilute her personal value (the customer value proposition) to accept free speaking engagements. Really the target market wasn’t “free” – they wanted to learn something of unique value that they could employ in their own business situations right away. After all, she said, you get what you pay for.
To learn more about business models in new product development, please see Chapter 2 in “NPDP Certification Exam Prep”, available from Amazon. You can also learn valuable innovation skills by joining us for an NPDP workshop. Workshops address both theory and best practices in innovation, and have allowed hundreds of individuals and companies to become more successful with product development. NPDP workshops are held monthly through guided webinars or at your own pace in a cost-effective self-study format. We now also offer project management training through our partner, Leap University. Use code GNPS2015 to save $50 on your registration.
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