Our client, XYZ, has designed a radically innovative smartphone yet its current business model is ill suited for its commercialisation. A firm's Business Model (BM) is the articulation of the processes through which resources are leveraged to create and deliver value to stakeholders allowing the firm to generate a profit (Chesbrough,i2010). XYZ must therefore undergo a fundamental overhaul of its BM to successfully bring to market its new smartphone.
The smartphone industry is characterised by high competition especially amongst manufacturers with Samsung (30%) and Apple (13%) dominating the market (Gartner). It recently experienced a disruptive shift with the success of Google's Open Source Operating Software (OS), Android, which many manufacturers now use rather than their own proprietary OS. Thus XYZ must not only compete with manufacturing titans but also find innovative solutions to develop software able to compete with Android and iOS.
Open Innovation (OI) theory, introduced by Henry Chesbrough (2003), has gained significant attention from firms seeking to use external agents to increase the efficiency of their R&D. This report will outline how XYZ can use OI tools to design an innovative BM allowing it to bring to market a product ecosystem set around its phone.
A first part will outline the implications of BM Innovation. It will argue that XYZ must promote coupled processes with partners and leverage Outside-in dynamics to increase its market potential. Secondly, it will focus on the app creation process showing that XYZ must release parts of its Intellectual Property (IP) either through licensing or Open Source depending on the necessity of proprietary OS relative to value capture if it wishes to develop creative apps. As shown by Android’s domination of the market and RIM’s demise, a mass paradigm shift from closed to open Innovation processes is inevitable in the mobile phone industry.
I. Open Business Model – Leveraging outside competencies
The first step for XYZ is to undergo Business Model Innovation (BMI) to foster its new technology and commercialise it. OI theory poses a rationale for value capture incorporating both elements internal to the firm and external agents. As argued by Henry Chesbrough (2003), a firm can no longer hope to control the best factors of production as some outside elements are bound to outperform those inside the firm be it on cost, quality or specific technology.
1. The Challenge of BM experimentation
A business model reflects a firm’s hypothesis of customers’ want and how resources should be organised to meet those needs, get paid for doing so and thus generate a profit (AmitiandiZott,i2012). Our client’s new product is radical in nature meaning it has the potential to significantly alter the standards of the market by setting a new performance trajectory (Christensen,i2000). Assuming the radical technology has market potential XYZ must “develop a business model matching the nature...