IS4940 week 2

Innovation & Technology Entrepreneurship

Learning Objectives

• Business Model Canvas

• Design Thinking
• Case Discussion
Business Model
 Business Model
4

• A business model describes the rationale of how an organization

creates, delivers and captures value
Business Model Canvas
9 Building Blocks
 Business Model Canvas
6

• Business Model Canvas is a

strategic management and lean
startup template for developing
new or documenting existing
business models
• It is a visual chart with elements
describing a firm's or product's
value proposition, infrastructure, https://youtu.be/QoAOzMTLP5s
customers, and finances
Canvas - 9 Building Blocks
7
 Customer Segments
8

• Defines the different groups of people or

organizations an enterprise aims to reach and
serve
• Customer groups represent separate segments if:
• Their needs require and justify a distinct offer
• They are reached through different distribution
channels
• They require different types of relationships
• They have substantially different profitability
• They are willing to pay for different aspects of the
offer
Types of Customer Segments
9

• Mass market
• Business models focused on mass markets don’t distinguish between
different Customer Segments
• Niche market
• Business models targeting niche markets cater to specific, specialized
Customer Segments
• Segmented
• Some business models distinguish between market segments with
slightly different needs and problems
• Diversified
• An organization with a diversified customer business model serves two
unrelated Customer Segments with very different needs and problems.
For example, in 2006, Amazon’s “cloud computing” services started
catering to a totally different customer segment (web companies)
 Value Propositions
10

• The Value Propositions Building Block describes

the bundle of products and services that create
value for a specific Customer Segment
• What value do we deliver to the customers?
• Which one of our customer’s problems are we
helping to solve?
• Which customer needs are we satisfying?
• What bundles of products and services are we
offering to each Customer Segment?
• Values may be quantitative (e.g. price, speed of
service) or qualitative (e.g. design, customer
experience).
 Channels
11

• The Channels Building Block describes how a

company communicates with and reaches its
Customer Segments to deliver a Value
Proposition
• Through which Channels do our Customer
Segments want to be reached?
• How are we reaching them now?
• How are our Channels integrated?
• Which one work best?
• Which ones are most cost-efficient?
• How are we integrating them with customer
routines?
 Customer Relationships
12

• The Customer Relationships Building Block

describes the types of relationships a
company establishes with specific
Customer Segments
• What type of relationship does each of our
Customer Segments expect us to establish and
maintain with them?
• Which ones have we established?
• How costly are they?
• How are they integrated with the rest of our
business model?
 Revenue Streams
13

• The Revenue Streams Building Block

represents the cash a company
generates from each Customer
Segment (costs must be subtracted
from revenues to create earnings)
• For what value are our customers really
willing to pay?
• For what do they currently pay?
• How are they currently paying?
• How would they prefer to pay?
• How much does each Revenue Stream
contribute to overall revenue?
 Key Resources
14

• The Key Resources Building Block describes

the most important assets required to
make a business model work
• What Key Resources do our Value Propositions
require?
• Our Distribution Channels require?
• Customer Relationships require?
• Revenue Streams require?
 Key Resources Categories
15

• Physical
• This category includes physical assets such as manufacturing facilities,
buildings, vehicles, machines, systems, point-of-sales systems, and
distribution networks
• Intellectual
• Intellectual resources such as brands, proprietary knowledge, patents and
copyrights, partnerships, and customer databases are increasingly important
components of a strong business model
• Human
• Every enterprise requires human resources, but people are particularly
prominent in certain business models
• Financial
• Some business models call for financial resources and/or financial guarantees,
such as cash, lines of credit, or a stock option pool for hiring key employees
 Key Activities
16

• The Key Activities Building Block describes the

most important things a company must do to
make its business model work
• What Key Activities do our Value Propositions
require?
• Our Distribution Channels require? Customer
• Customer Relationships require?
• Revenue Streams require?
 Key Partnerships
17

• The Key Partnerships Building Block describes

the network of suppliers and partners that
make the business model work
• Who are Key Partners?
• Who are our key suppliers?
• Which key Resources are we acquiring from
partners?
• Which Key Activities do partners perform?
 Cost Structure
18

• The Cost Structure describes all costs

incurred to operate a business model

• What are the most important costs

inherent in our business model?
• Which Key Resources are most expensive?
• Which Key Activities are most expensive?
 Cost Structure Characteristics
19

• Fixed costs
• Costs that remain the same despite the volume of goods or services
produced
• Variable costs
• Costs that vary proportionally with the volume of goods or services produced
• Economies of scale
• Cost advantages that a business enjoys as its output expands
• Economies of scope
• Cost advantages that a business enjoys due to a larger scope of operation
Tutorial: Draw a business model
canvas for a Study Tour Agency
(Example: Expedia) 20
Tutorial: Lean & Business Model
Canvas 21
Sample answer
22
Design Thinking

23
Which one do you dislike most? Why?
24

Source: http://oopsaward.jimdo.com/nominees-2009/
 Design vs. Art
25

Art – no external constraints Design – can’t ignore constraints

Artist selects the constraints, A D
ignoring those that he/she feels are
inappropriate and embracing those
that help tell a story, make
meaning or create a particular
aesthetic
 Design Thinking Process
26

• Design thinking process is best thought of as a system of

overlapping spaces rather than a sequence of orderly steps

Source: http://createdu.org/design-thinking/what-is-design-thinking/
 1. Empathy
27

to understand
1. The way people do things and why?
2. Physical and emotional needs
3. How they think about the world?
4. What is meaningful to them?

https://www.youtube.com/watch?v=QwF9a56WFWA
2. Define
28

Defines challenges you are taking on based on what

you have learned about your user and the context

Focus is to craft meaningful and actionable problem

statement
3. Ideate
29

Idea generation

“going wide” in terms of concepts

and outcomes
How to Ideate?
30

Harness the collective perspectives and strengths of your teams

Create volume and variety in your innovation options

Techniques include:
• Building (prototyping)
• Role Playing
• Sketching

Important: defer judgment (separate idea generation from evaluation)

4. Prototype
31

Anything that a user can interact with – a wall of post-it notes, a

gadget you put together, a role-playing activity, or even a
storyboard

In early stages, you should create low-resolution prototypes that

are quick and cheap to make (think minutes and cents) but can
elicit useful feedback from users and colleagues

In later stages both your prototype and question may get a little
more refined
 5. Test
32

To refine prototypes and solutions

Testing informs the next iterations of prototypes. Sometimes this means going
back to the drawing board

To learn more about your user

Testing is another opportunity to build empathy through observation and
engagement—it often yields unexpected insights

To refine your point-of-view

Sometimes testing reveals that not only did you not get the solution right, but
also that you failed to frame the problem correctly
How to Test?
33

Show but don’t tell

Let the testers experience and don’t explain everything (yet). Watch how
they use (and misuse!); listen to what they say about it, and the questions
they have

Ask users to compare

Bringing multiple prototypes to the field to test gives users a basis for
comparison, and comparisons often reveal latent needs
 iPhone Design

• https://www.youtube.com/watch?v=riUGTDNiv6Q
Platform Ecosystem and
Product Creation
 A firm in charge of a business platform is a
firm in charge of a microeconomy.

The platform can invest in key assets such as the delivery system,
information systems, etc.
A firm in charge of a business platform is a
firm in charge of a microeconomy.

The platform can control the openness,

the duration of IP rights, and thus the spillovers
Apple Store

Innovation, Openness, and Platform Control (Management Science, 2018)

• Open digital infrastructures to third-party developers

• What is the optimal commission rate?

• IP duration of third-party developers

• Long or short?
 How does TikTok enable creation?
39

• Creation Tools

• Algorithms
Case Discussion
Shein vs. Zara:
Digital Transformation in the Fast-Fashion Industry
Case Study: Shein vs. Zara
• Real-Time Retail
• System Integration
• Data Integration

• Factory

• Key Opinion Leader

https://www.youtube.com/watch?v=9XCKnN6o19
k

41
Discussing Questions
• How does Zara create and capture value? How did Zara achieve its business success by
changing the business model of fashion industry?

• What are SHEIN’s business model and core competence? What is SHEIN’s value innovation?
How is SHEIN different from incumbent fast-fashion players (such as Zara)?

• What is the role of digitization in SHEIN’s business model? How can one build an ecosystem
and become a digital player like SHEIN?

• What should SHEIN do in the future? Which option in the case is your priority if you are on
the board?
Value Chain in the Fashion
Industry

Purchase
Design Mfg Dist Sell Discount
Raw Mat

4 to 6 month
 Variance of Demand and Prediction
with a longer production cycle
Perfect forecasts

Possibility of excess stoc Possibility of unmet deman

k d

IF actual demand Expected demand IF actual demand

lies below order With a longer production cycl exceeds order Q
Q e
Variance of Demand and Prediction

Perfect forecasts

Possibility of excess stoc Possibility of unmet deman

k d
Small
batches

IF actual demand Expected demand IF actual demand

lies below order With a shorter production cycl exceeds order Q
Q e
SHEIN’s Business Model

KOL( Key opinion leaders) Digitization of supply chain

• SHEIN’s customers are also the key • As a digital player, SHEIN can track
opinion leaders and product promoters. every single click on the website or app,
• SHEIN grew along with its consumers capturing consumers’ behavioral
patterns, preferred colors, price
sensitivity, and fabric preferences,
among other data for additional
analysis.
Zara vs. Shein
Zara SHEIN
Minimum batch
500 100 (or fewer)
size
Production cycle 3 weeks 1 week
New SKUs per year Around 12,000 150,000 (in 2020)
Eliminate-Reduce-Raise-Create (ERRC)

Eliminate Raise
- Physical stores - Variety of products
- Convenience
- Fun of purchasing

Reduce Create
- Price - Social media marketing
- Services (need to wait - Community feeling
a week for product - Algorithm-based
delivery ; no trial) recommendation
Thank You

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