Innovation Management
and New Product Development
Seventh Edition
Part 3
New product development
Chapter 11
Business models
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© 2021 Pearson Education Limited. All Rights Reserved.
Overview
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What is a business model?
Parts of a business model
What a business models tells us
The 16 types of business models
Revenue models
Considerations in designing a business model
Licensing
Key points
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Table 11.1
A range of new services that also create
new business models
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Figure 11.1
An overview of the eBay business
model
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What is a business model?
How will this business make money?
To answer this question it is necessary to address a
series of additional questions such as:
• Who is the target customer?
• What customer problem or challenge does the business
solve?
• What value does it deliver?
• How does it reach, acquire and keep customers?
• How does it define and differentiate its offering?
• How does it generate revenue?
• What is the cost structure?
• What is the profit margin?
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Table 11.2
Parts of the business model
Sources: Chesbrough and Rosenbloom, 2002; Shafer et al., 2005; Watson, 2005.
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The business model should contain:
• A graphical representation.
• A list of activities, on the part of both the business owner
and potential customers.
• A likely sequence for those activities.
• A set of indicators or metrics for measuring the linkage
between the activities.
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Figure 11.2
A business process showing how a firm
uses its resources to create value
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Table 11.3
The 16 detailed business model
archetypes
Sources: Trott (2011) and Weill and Vitale (2001), © 2005 from MIT Sloan Management Review/Massachusetts Institute of Technology, all rights reserved, distributed by Tribune
Content Agency.
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Table 11.4
Online revenue models
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Figure 11.3
Business model framework
Source: Adapted from Osterwalder (2004).
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Parts of the business model
There are four key aspects to any business
model:
1. Offer.
2. Customer.
3. Infrastructure.
4. Finance.
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The business model dilemma of
technology shifts
Source: Chesbrough (2010), Business Model Innovation: Opportunities and Barriers, Elsevier.
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Considerations in designing a business
model
• Switching costs.
• Scalability.
• Recurring revenues.
• Cashflow.
• Getting others to do the work.
• Protecting the business from competitors.
• Changing the cost structure.
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Licensing
License agreements usually include considerations such as:
• Definition of the brand being licensed.
• Definition of the sales to which the royalty percentage is to be
applied.
• A restriction of the use of the brand to specific products,
channels and territories.
• A specific time period, say 3 years.
• Brand use and authorisation procedures.
• Commitments by licensee to brand marketing.
• Other legal rights and obligations such as necessary records
and returns and access to audit each other’s accounts.
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Table 11.6
Typical royalty rate in technology
sectors
Royalty rate Royalty rate
Industry
Aerospace
Chemical
Computer
Electronics
Healthcare
Pharmaceuticals
Software
4%
4.3%
4.6%
5.1%
6.4%
6%
9.6%
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Negotiating a licensing deal
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Terms for the agreement.
Rights granted.
Scope of rights.
License restrictions.
Territory.
Consideration (monetary value).
Payments.
Reports and auditing of accounts.
Representations/warranties.
Infringement.
Confidentiality.
Arbitration.
Termination.
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Key points
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Business models help to show a business makes money;
It’s a diagrammatic aid to a business plan;
16 types of business models;
Revenue models;
Many online business models simply get the consumer to
do more of the work;
• Technology-intensive firms use a Licensing business
model.
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Smile case study
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Table 11.7
Project analysis
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Figure 11.4
Competitor map: prevention and therapy
of periodontal disease
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