Making Business Model Innovation More of a (Data) Science

1. Making Business Model Innovation More of a (Data) Science

Jerry Overton
Data Scientist, Distinguished Engineer
bit.ly/CSC-Strata

2. Innovation: new stuff with enduring value.

Blog: bit.ly/CSC-Strata

3. Treating innovation as an art is not working.

Blog: bit.ly/CSC-Strata

4. We need a new innovation engine and better fuel.

Blog: bit.ly/CSC-Strata

5. The solution: computer simulation.

Blog: bit.ly/CSC-Strata

6. Innovation is actually a scientific problem

7. We have to change the way we think of risk.

Blog: bit.ly/CSC-Strata

8. Step 1: Replace retrospective models.

Blog: bit.ly/CSC-Strata

9. Step 2: Build prescriptive models.

Rv(Co) = Rv (Cs (Vp (Kp (Co) ) ) )
Operational Efficiency:
Vp(Kp) + Rnd
Market Potential:
Rv(Cs) + Rnd
What if I found a faster way
to scoop the ice?
What if customer lines get long?
Partner Efficiency:
Kp(Co) + Rnd
Buyer Behavior:
Cs(Vp) + Rnd
What if my supplier runs low
on lemons?
What if it gets really hot?
Blog: bit.ly/CSC-Strata

10. Step 3: Believe in simple.

Simple
Models
Complex Models
Blog: bit.ly/CSC-Strata

11. Let’s use a scientific approach to innovate at Blockbuster (Circa 1998)

12. I built a simple prescriptive model.

Equation
Blockbuster
Netflix
Market Potential
Large revenue gain after a
critical mass of customers
Small revenue gain on each
customer
Partner Efficiency
Efficiency after partner
experience
Efficiency at platform
deployment
Operational Efficiency
Minimum resource threshold
required to become
operational
Minimum resource threshold
required to become
operational
Buyer Behavior
Mostly new release rentals
Mostly niche rentals
Competition
Profit determines growth and future fitness
Blog: bit.ly/CSC-Strata

13. Should we bother with video-by-mail?

Blog: bit.ly/CSC-Strata

14. 1999: Blockbuster is big.

Simulations anticipate Blockbusters
initial market leadership.
Blog: bit.ly/CSC-Strata

15. 1999: Netflix is small.

Netflix at market entry is not a
threat to Blockbuster at scale.
Blog: bit.ly/CSC-Strata

16. 2000: Netflix is not an obvious threat.

Any signs of threat to Blockbuster
is a very unlikely outlier.
Blog: bit.ly/CSC-Strata

17. But there is risk ahead.

Blog: bit.ly/CSC-Strata

18. 2002: Blockbuster’s margins fall.

Blockbuster experiences the drop in
profit predicted by simulation for
2003.
Blog: bit.ly/CSC-Strata

19. 2003: Netflix threat grows.

Netflix posts its
first profit.
Blog: bit.ly/CSC-Strata

20. 2004: The threat becomes obvious.

Blockbuster launches competing
service to Netflix.
Blog: bit.ly/CSC-Strata

21. Video-by-mail threat will be fatal.

Blog: bit.ly/CSC-Strata

22. 2005: Blockbuster begins reducing stores.

Blockbuster reported a 29% loss
Blog: bit.ly/CSC-Strata

23. 2010: Blockbuster is bankrupt.

Blockbuster files for
bankruptcy.
Blog: bit.ly/CSC-Strata

24. We’ve found a meaningful innovation.

Netflix offers to sell
Blog: bit.ly/CSC-Strata

25. That’s business model innovation as a (data) science.

Blog: bit.ly/CSC-Strata

26. The innovation machine is hungry!

Twitter: @jerryaoverton
Email: [email protected]
LinkedIn: linkedin.com/in/jerryaoverton
Blog: bit.ly/CSC-Strata
Blog: bit.ly/CSC-Strata