Emmanuel Faber, Co-Chief Operating Officer, DANONE on the profit that you accept NOT to do

An interesting presentation from HEC Social Business Conference, by Emmanuel Faber, Co-Chief Operating Officer, DANONE, on “How to manage business objectives and social objectives?” - a question that Emmanuel rephrases into "How can you achieve business objectives without also perusing social goals?"

"The goal of a company is to serve society through the people that it serves in its interaction with those people. Whether they are consumers, customers, employees, shareholders, suppliers, they are people and these people are the ones who ultimately judge whether the company is efficient or not efficient, each of them having their own stakes."

"The real value of the company is not what derives from the valuation of its profits, or the actualization of its profits on the long term, what really makes a company valuable is the profit that it accepts not to do. What really makes a company a solid company is the profit you accept not to do, the profit that you accept to share with the stakeholders of the company."

"There is a possibility that in the next 2-3 years the stock market valuation will have to take into account more than just how the profit evolve whether they go up or down, what is the PEG to growth ratio etc. I think that there is a likelihood that the market will be requiring a better understanding of what fundamentally these companies are about. Are they based on sound business models that make sense from the community in which it engages."

How to motivate employees to take social issues into account

Value Proposition Versioning

Value Proposition Versioning basically means offering different versions of a value proposition for the customer to choose from. The objective is to charge each customer just as much as he or she is willing to pay for. A common example is books that are sold in hardback copies priced higher initially to customers who are impatient to get the book, while later released as paperback to lower-value customers that can more easily wait.

Versioning works for all kinds of goods and services, and it has become almost a standard in web based products and services even though the marginal costs to distribute a high-end version often is identical to the low-end version. The Freemium Business Model is basically a way of versioning where the free version is provided to create the lowest possible barrier of adoption with the objective to gain a large customer base, build loyalty and trust, and convert some of the customers to fee-based premium versions.

Pricing the different versions

Value is subjective and people attach different values to different value propositions so the challenge is to properly segment users and features such that customers who are able and willing to pay high prices do so. If the low-end versions are too attractive, it may attract some customers who would otherwise pay a premium price for a high-end version. To avoid this cannibalization the relative price difference or the relative value provided can be altered.

Identifying dimensions that are valued differently

The basis for versioning is to identify dimensions that are highly valued by some customers but of little importance to others. The goal is then to develop value propositions to sell to different market segments at different prices. Below is a list to be used to identify potential dimensions from which different versions of a value proposition can be developed. To identify what dimensions that are relevant, each of the different business model components and the potential markets need to be analyzed.

Dimensions to build different versions of a value proposition from

• Annoyance
• Capabilities
• Comprehensiveness
• Convenience
• Delay
• Delivery time
• Experience
• Exclusivity
• Features
• Flexibility
• Functions
• Performance
• Quality
• Rights
• Service
• Speed of operation
• Support
• User interface

How many versions?

This is a highly context dependent question that comes down to what makes good business sense. Too few versions and the customer have limited choice to pay what he or she is willing to pay for. Too many versions and the customer might be confused and the costs for maintaining and offering different value propositions might be too high.

A common approach in everything from drinks at McDonalds to million dollar consultancy projects, is to have at least three versions; one low-end version to advertise and get attention, one very high-end version and one "standard" offer. The rationale for having the very high-end version is to enhance customers’ perceptions of lower-priced products and make the standard version look more attractive in comparison to the very high-end version. One very interesting approach to versioning is The Trent Reznor case study that resulted in $1.6 Million in a week for music offered in many different versions, with one of them being free.

Further reading

What is a value proposition

The Freemium Business Model

Making $1.6 Million in a week for music given away for free

Further external reading

Information Rules: A Strategic Guide to the Network Economy by Carl Shapiro and Hal R. Varian (Chapter 3 about versioning for information goods)

40 Principles for Business Model Innovation

The 40 principles for innovation, based on TRIZ adjusted for business problems, is the result of an analysis of close to three million successful inventive solutions from areas such as science, arts, politics, engineering and business. The principles, presented with some general business examples in the book Hands on Systematic Innovation(2004) by Darrell Mann, are good to use in brainstorming sessions on how to innovate business models and value propositions. All principles are of course not applicable to all situations, and there is some overlap between some of the principles. I use the different principles, together with the different business model components to generate 320 unique areas in The Business Model Innovation Matrix.



If this is too much for you, a short and simplified version with 4 inventive principles, presented in the book Blue Ocean Strategy(2005) by W Chan Kim and Renée Mauborgne, is presented in the end.



Principle 1. Segmentation

• Divide a system or object into independent parts
• Make a system or object easy to disassemble
• Increase the degree of fragmentation or segmentation

Principle 2. Taking out

• Separate an interfering part of property from a system or object, or single out the only necessary part (or property)

Principle 3. Local Quality

• Change the structure of an object or system from uniform to non-uniform, change an external environment (or external influence) from uniform to non-uniform.
• Make each part of an object or system function in conditions most suitable for its operation.
• Make each part of an object or system fulfill a different and useful function

Principle 4. Asymmetry

• Change the form of system or object from symmetrical to asymmetrical
• If a system or object is asymmetrical, change its degree of asymmetry

Principle 5. Merging

• Bring closer together or merge identical or similar systems or objects, assemble identical or similar parts to perform parallel operations
• Make operations contiguous or parallel; bring them together in time

Principle 6. Universality

• Make an object or structure perform multiple functions; eliminate the need for other parts

Principle 7. Nested Doll

• Place one system or object inside another; place each, in turn, inside the other parts
• Make one thing pass through another

Principle 8. Counter-Balance

• To compensate for the tendency of a system or object to deviate from a desired path merge it with others that provide a re-stabilizing effect
• To compensate for the deviation tendency of a system or object, make it interact with global/macro-scale phenomena

Principle 9. Prior Counter-Action

• If it will be necessary to perform an action with both harmful and useful effects, this action could be replaced with anti-actions to control harmful effects in advance
• Create beforehand stresses in a system or object that will oppose known undesirable working stresses later on

Principle 10. Prior Action

• Perform the required change of a system or object (either fully or partially) before it is needed
• Pre-arrange elements such that they can come into action from the most convenient place and without losing time for their delivery

Principle 11. Prior Cushioning

• Prepare emergency means beforehand to compensate for the possible problems that might occur later

Principle 12. Remove Tension

• Where harmful tensions may exist, create conditions to compensate, reduce or eliminate them

Principle 13. The Other Way Around

• Invent the action(s) used to solve a problem
• Make movable parts (or the external environment) fixed, and fixed parts movable
• Turn the system, object or process upside down

Principle 14. Curvature

• Turn flat or straight things into curved ones
• Go from linear to rotary motion

Principle 15. Dynamization

• Allow or design the characteristics of a system, object, external environment, or process to change to be optimal or to find an optimal operating condition
• Divide a system or object into parts capable of movement relative to each other
• If a system, object or process is rigid or inflexible, make it movable or adaptive

Principle 16. Slightly Less/Slightly More

• If 100 percent of an objective is hard to achieve using a given solution method then, by using slighly less or slightly more of the same method, the problem may be considerable easier to solve

Principle 17. Another Dimension

• If a system or object uses only one or two dimensions; make use of the unused dimensions
• Use a multi-storey arrangement instead of a single-storey arrangement
• Tilt or re-orient the system or object, lay it on its side
• Use another side of a given system or object

Principle 18. Resonance

• Find and use the resonant frequency of a system or object

Principle 19. Periodic Action

• Instead of continuous action, use periodic or changing actions
• If an action is already periodic, change the periodic magnitude or frequency
• Use pauses between actions to perform a different action

Principle 20. Continuity of Useful Action

• Make parts of a system or object work at optimal conditions continuously
• Eliminate all idle or intermittent actions or work

Principle 21. Hurrying

• Conduct a process, or certain stages (e.g. destructible, harmful or hazardous operations) at high speed

Principle 22. Turn Lemons into Lemonade

• Use harmful factors to achieve a positive effect
• Eliminate the primary harmful action by adding it to another harmful action to resolve a problem
• Amplify a harmful factor to such a degree that it is no longer harmful

Principle 23. Feedback

• Introduce feedback to improve a process or action
• If feedback is already used, change its magnitude or influence

Principle 24. Intermediary

• Use an intermediary carrier article or intermediary process
• Merge one system or object temporarily with another which can be easily removed

Principle 25. Self-service

• Make a system or object serve itself by performing auxiliary helpful functions
• Use waste or lost resources, energy, or substances

Principle 26. Copying

• Instead of an unavailable, expensive, or vulnerable object, use simpler and inexpensive copies
• Replace a system, object, or process with optical or virtual copies
• If copies are already used, move to an out of the ordinary illumination and viewing perspective

Principle 27. Cheap Disposable

• Replace an expensive system or object with a multiple of inexpensive alternatives, comprising certain less-important qualities

Principle 28. Another Sense

• Replace or supplement one sensory means with another (visible, touch, acoustic, taste or smell)

Principle 29. Fluidity

• Make solid things into fluid things

Principle 30. Thin and Flexible

• Use thin and flexible structures instead of large, three-dimensional ones
• Isolate a system or object from a potentially harmful environment using thin and flexible structures

Principle 31. Holes

• Add holes to a system or object
• If a system or object already has holes, use them to introduce a useful substance or function

Principle 32. Color Changes

• Change the colour of an object or its external environment
• Change the transparency of a system, object or an external environment

Principle 33. Homogeneity

• Make systems or object interact with others of a similar form or with similar properties

Principle 34. Discarding and Recovering

• Make portions of a system or object that have fulfilled their functions go away or modify them directly during an operation
• Conversely, restore consumable parts of a system or object directly in operation

Principle 35. Parameter Changes

• Change an object's physical state
• Change the concentration or consistency
• Change the degree of flexibility
• Change emotional and other parameters

Principle 36. Paradigm Shift

• Use phenomena occurring during disruptive shifts in an economy

Principle 37. Relative Change

• Use the relative difference that exist in an object or system to do something useful
• Make different parts of a system act differently in response to changes

Principle 38. Enriched Atmosphere

• Replace a normal atmosphere with an enriched one
• Expose a highly enriched atmosphere with one containing potentially unstable elements

Principle 39. Calm Atmosphere

• Replace a normal environment with an inert one
• Add neutral parts or elements to a system or object

Principle 40. Composite Structures

• Change from uniform to composite structures, be aware of and utilize combinations of different skills and capabilities

A short version on inventive principles

A short version with 4 inventive principles is presented in the book Blue Ocean Strategy (2005) called the four actions framework:

• Eliminate - which of the factors that the industry takes for granted should be eliminated
• Reduce - which factors should be reduced well below the industry's standard?
• Create - Which factors should be created that the industry has never offered?
• Raise - Which factors should be raised well above the industry's standard?

Further reading:

The Business Model Innovation Matrix

What is a value proposition?

The Value Proposition Hierarchy Explorer



Further external reading:

Hands on Systematic Innovation: For Business and Management

by Darrell Mann

Blue Ocean Strategy

by W.Chan Kim and Renée Mauborgne

Books on TRIZ at Amazon

What is a value proposition?

A value proposition is often defined as "what the customer gets for what the customer pays" or "a bundle of products and services that are of value to the customer". My definition on the term value proposition in relation to business models is different; A value proposition is how value is bundled and offered to potential value recipients. The term 'Value' is not limited to products and services, the term 'Value recipient' is not limited to customers and the "Value proposition" is not always tied to the source of revenues. Value propositions are the core of business models; what is the value provided? why is the value provided?

Value is not limited to products and services

Providing something new, something unique, something more convenient or accessible, customized, with higher performance or to a lower price are all common value propositions towards traditional customers. But value can also be to enable risk- or cost reduction for a supplier, provide access to databases or research tools for early-stage university research, provide user data to "upstream" application developers, out-license manufacturing or quality assurance processes to other companies, cross-license technology & IP, bring passangers to remote airports, provide jobs and enviornmental responsibility for a region, pay tax to a government, or take active involvement in a community. When realizing that existing assets and capabilities can have a value for someone else, new interesting business models often emerge.

Value recipients are not limited to customers

Potential value recipients can be customers, suppliers, partners, competitors, industry trade groups, professional associations, actors in other industries, universities, research institutes, non-profit organizations, local or national communities, government, society, etc. Also, internal employees are target for value propositions such as good wages, job security, an interesting place to work, recognition, stock options, free food, social events etc.

A value proposition is not tied to the source of revenues

Even though the business model spells-out how a company makes money, and the value propositions are what the company offers, not all value propositions have the purpose to generate direct revenues. Reasons can be to, increase the value of existing intellectual assets and capabilities, get access to new assets and capabilities, create momentum for a new technology, lower cost of development, reduce risks, build new markets, attract the best people, etc.

Google as an example

Google generated 99% of total revenues 2007, and 97% of total revenues in 2008 from advertising, still most of Google's value propositions are not directed towards its advertisers. Below some of Google's value recipients are listed with examples:

- users (a very large number of value propositions, often provided for free)

- network partners (revenues in return for relevant ads on their sites)

- developers (providing platforms such as GWT for free to enable development of rich content)

- business owners (data on popular search terms to better formulate value propositions)

- libraries (digitizing all or part of book collections to create full-text searchable online catalogs)

- authors and publishers (make books out of print available for purchase in digital formats)

- employees (working conditions, "own time", job security)

- google owners (growth , financial performance)

- society (free tools such as blogs and localized versions of Google in developing countries)

Searching for value propositions

When searching for valuable assets and capabilities to offer, it is important to not only focus on own business model and industry, but also the potential need of others:

• How can we strengthen own value propositions?

• How can we strengthen others' value propositions?

• How can we create joint value propositions with others?

The Value Proposition Hierarchy Explorer is a tool to clarify the space around an originally stated value proposition by broadening or narrowing the scope and identify new ones.

The Value Proposition Explorer

I have developed a tool I call the Value Proposition Explorer to clarify the space around an originally stated value proposition by broadening or narrowing the scope. The basic idea underlying the tool is to identify assets and capabilities that are really valuable and identify how value could be created by combining own and external assets and capabilities into new value propositions. The outcome of repeating this several times is a hierarchical list of value propositions, from which the company is able to select and assess business opportunities.

The tool should not be mixed with the idea of positioning a company in the right place of a value chain (One-sided business models) but a tool to break free from the value chain thinking. A value proposition can be directed not only to the company's existing customers, but other stakeholders, traditionally not considered to be customers (see Two-sided, Horizontal and Multi-layer business models). A value proposition does not have to be based on developed products and services (even though that is almost always the definition) but what one actor has to offer another actor:


An example
P&G is constantly looking for ways to leverage its assets through its external business development and connect & develop initiatives. Based on the original value proposition of Pampers diapers you now find lots of co-branded or co-commercialized products such as bibsters, wipes, swim pants, underwear and concepts going upwards in the Value Proposition Hierarchy Explorer. At the same time P&G is offering to license technologies and IPR relating to developed odor controlling bio-component film to be used in human contact products, cleaning devices, medical supplies such as bandages and hospital bedding, and even to use the technology in airline cabine space to control odors and smoke.

Finding own, others' or joint value propositions
When searching for valuable assets and capabilities, it is important to not only focus on own business model and industry, but also the potential need of others:
• How can we strengthen own value propositions?
• How can we strengthen others' value propositions?
• How can we create joint value propositions with others?

Further reading:
What is a value proposition