The holistic approach to value capture – ask four questions

IMD Professor Salvatore Cantale discussed business model innovation with the authors of ‘The Business Model Navigator’, in the context of a new subscription model at Porsche

A strong business model is the bedrock to business success. But all too often we fail to adapt, clinging to outdated models that no longer deliver the results we need.

This was the premise upon which Karolin Frankenberger and Oliver Gassmann, both Professors at the University of St. Gallen, led a research program on business model innovation, culminating in the book The Business Model Navigator.

And this was the subject of the latest I by IMD Book Club discussion, led by Salvatore Cantale, Professor of Finance at IMD: “Business Model Innovation: How to create and capture value in your industry.”

An engineering approach

While many understand why recent changes in society, ushered in by the pandemic, mean we need new business models, few can master the optimal way to pull one together. And so, the authors came up with what Gassmann called “a new kind of an engineering approach”.

“Our methods can be applied systematically, and are backed by high-rigor research. The book is the practical bit,” he said.

Indeed, Professor Cantale praised the book for being “written by people in academia with a flavor of real-life situations, intended for people in the field who have to actually come up with a new way of thinking with respect to business model innovation”.

Business model strategizing or business model innovation?

It’s all about business model innovation these days, said the authors, who have condensed their advice into four areas based on the who, what, how triangle of values. Frankenberger suggested leaders ask:

1. What do you offer to the customer? What is the additional value compared to what has been in the market before?
2. How do you position yourself in the market chain?
3. How do you make money with this business model? Is it a subscription model, say?
4. Who is your target customer? This has to be at the center of your model.

Participants heard how, traditionally, business models have focused on how to create and capture value. “This is ok but it’s not enough,” said Frankenberger. “The value proposition behind the business is key. And you need to work on two or more of our four cornerstones at the same time.”

Value proposition is nothing new if talked about in isolation, added Gassmann. “Thinking about your business model in a holistic way and overcoming the silos of your organization is the key. Business models have to be viewed not only on the strategy level but as applicable to every product and service. Everything needs to be reframed by asking our four questions. The magic happens in between.”

Aside from the novel framework, the book offers 55 Business Model Patterns in the form of cards; templates to help leaders build new business models from scratch or supercharge existing ones. Crucially, they help leaders apply the lessons in a virtual setting.

Is value the same as profit?

No, said Frankenberger: it’s much broader. “It’s about why a business generates value; I would advise you to think about value for the environment and society, too. Some of the most innovative business models are not profitable today but everyone thinks they will be in the future. For instance, if you have a huge number of users, that equals profit potential.”

The authors work with research organizations and non-profit organizations for whom value is something entirely different to profit. Gassmann suggested asking: Why do you even exist as an organization?

“For most companies, profit is an element, but that doesn’t have to be the case. Take universities: what’s their value creation model?” he said.

A different day, a different Porsche: an experiment in business model innovation

Professor Cantale described Porsche’s subscription model – the Porsche Passport Program – as an example of business model innovation. Instead of buying a car, you can subscribe to a Porsche service.

Once you have paid a non-refundable, one-time activation fee of $595, the most expensive subscription option costs $3,100 per month and allows you to drive one of 20 types of Porsche at a time. Download an app, book the car you want, receive it with a full tank of petrol, and have the other one you were using taken away at the same time.

But is this model really gaining Porsche new customers, Gassmann asked?

Well, once you enter the Porsche family, it’s difficult to move away, said Cantale: “It’s a bit like Hotel California; it’s difficult to leave once you check in.”

“There is a lot of complexity to having all the different models in stock and this needs to be really well thought out,” said Frankenberger.

“Porsche’s Passport model is a source for future competitiveness,” concluded Cantale.

The program has now changed its name from Porsche Passport to Drive. First launched in 2017 in Atlanta, it has been extended to Phoenix, San Diego, and Los Angeles in response to the buzz it generated.

In your business model innovation, “taking every wheel and working on all four cornerstones and improving them will help a lot,” said Gassman.

“Use the patterns we offer as Lego bricks. We offer 55 but just take a few of them, and explore the animated versions we offer on our site. You might just work on an improved service offering; think big but move in move small steps.”