A Business Modelling Framework for the Front End of Innovation

IN DEGREE PROJECT DESIGN AND PRODUCT REALISATION,SECOND CYCLE, 30 CREDITS

, STOCKHOLM SWEDEN 2019

A Business Modelling Framework for the Front End of InnovationCustomising a Guiding Material for an Early Phase of the Innovation Process for a Swedish Fintech Company

MARCUS ALMQVIST

CHARLOTTA LUNDBERG

KTH ROYAL INSTITUTE OF TECHNOLOGYSCHOOL OF INDUSTRIAL ENGINEERING AND MANAGEMENT

Ett ramverk för affärsmodellering i ett tidigt skede av innovationsprocessen

Ett skräddarsytt material för en tidig innovationsfas i ett svenskt Fintech-bolag

Marcus Almqvist Charlotta Lundberg

Examensarbete TRITA-ITM-EX 2019:387 KTH Industriell teknik och management

Integrerad Produktutveckling SE-100 44 STOCKHOLM

A Business Modelling Framework for the Front End of Innovation

Customising a Guiding Material for an Early Phase of the Innovation Process for a Swedish Fintech Company

Marcus Almqvist Charlotta Lundberg

Master of Science Thesis TRITA-ITM-EX 2019:387 KTH Industrial Engineering and Management

Integrated Product Design SE-100 44 STOCKHOLM

Examensarbete TRITA-ITM-EX 2019:387

Ett ramverk för affärsmodellering i ett tidigt skede av innovationsprocessen

Charlotta Lundberg

Marcus Almqvist Godkänt

2019-juni-07

Examinator

Sofia Ritzén

Handledare

Sofia Ritzén

Sammanfattning Det svenska Fintech-bolaget som behandlas i denna masteruppsats har föreslagit en process genom vilken alla nya idéer ska gå igenom innan dess genomförbarhet testas i en ’Proof-of-Concept’. Denna process är på företaget kallad ‘Proof-of-Concept-processen’. Idag finns det inget material som hjälper och guidar idéägaren genom en av de mer omfattande faserna av processen. Syftet med denna masteruppsats är att utveckla ett material för denna fas. Materialet baseras på en litteraturstudie och kvalitativa intervjuer. De ämnen som ingår i litteraturstudien är: ‘Innovation’, ‘Uncertainty’, ‘Front End of Innovation’ och ‘Business Modelling’. Kvalitativa semi-strukturerade intervjuer utfördes separat med tre av ledningens fyra medlemmar. Kontinuerlig diskussion fördes med företagshandledaren för att facilitera ramverkets utveckling. Resultatet består av två delar, (1) resultaten från intervjuerna med ledningsgruppen som syftar till att ligga till grund för kravspecifikationen på vilka komponenter materialet ska innehålla och (2) ett ramverk för hur affärsmodellering kan ske i detta stadie av innovationsprocessen. Resultatet är ett material med företagets grafiska profil för att det ska kunna bli behandlat som ett internt dokument. En version av materialet som inte har företagets grafiska språk presenteras. Ramverket presenteras tillsammans med en djupare analys av de separata byggstenar som tillsammans utgör dess struktur, samt förslag på tekniker som syftar till att hjälpa användaren av materialet att utveckla sin idé inför nästa utvärderingsmöte och möjliggöra en demokratisering av innovationsprocessen. Ramverkets struktur är ett resultat av inspiration från existerande ramverk samt intervjuerna vilket bidrar till dess anpassning till företagets specifika innovationsprocess. Vi anser att resultatet är ett ramverk för affärsmodellering som beskriver rekommendationer för hur man hanterar de tidiga faserna av innovationsprocessen. Ramverket och dess teoretiska bakgrund är baserat på ett brett utbud av litteratur och författare. Avslutningsvis hävdar vi att ramverket kan betraktas som en bro mellan två relativt unga forskningsområden ’Front End of Innovation’ och ’Business Modelling’ med sitt primära tillämpningsområde på det behandlade företaget. Nyckelord: Innovation, Uncertainty, Front End of Innovation, Business Modelling

Master of Science Thesis TRITA-ITM-EX 2019:387

A Business Modelling Framework for the Front End of Innovation

Charlotta Lundberg

Marcus Almqvist Approved

2019-June-07 Examiner

Sofia Ritzén Supervisor

Sofia Ritzén

Abstract The Swedish Fintech company that is subject to this thesis has proposed a process through which all new ideas should go through before entering the development funnel, called the ‘Proof-of-Concept-process’. Today, there exists no material that helps and guides the idea owner through one of the more extensive phases of that process. The purpose of this thesis is to develop a material for this phase.

The material is developed through a literature review and qualitative interviews. The topics included in the literature review are: ‘Innovation’, ‘Uncertainty’, ‘Front End of Innovation’ and ‘Business Modelling’. Semi-structured qualitative interviews were performed separately with three out of four members of the top management team. Continuous discussions with the industrial supervisor facilitated the development of the framework. The result consists of two parts, (1) the results from the interviews with the management team which aims to lay the foundation for the requirement specification on which components the framework should contain, and (2) a framework for how business modelling can be done at this phase of the innovation process. The result is a material that uses the graphical branding of the company so that it can be treated as an internal document. An unbranded version of the result is presented in this thesis. The framework is presented together with a deeper analysis of the separate building blocks that form its structure, together with suggestions on techniques that aims to help the user of the material. We argue that the result is a business modelling framework that considers recommendations for how to handle the FEI, and that regards theory on business modelling as well as interviews with managers at the subject company to establish what techniques such a framework should include. Further, the result is based on a wide variety of literature and authors. Concluding, we argue that the result can be considered a bridge between two relatively young research areas ‘Front end of Innovation’ and ‘Business Modelling’ with its primary application at one specific company.

Keywords: Innovation, Uncertainty, Front End of Innovation, Business Modelling

PREFACE This section aims to provide the reader with an understanding of the setting in which the thesis is written and serves as a section in which the authors are able to express their thankfulness to those who have contributed to the result.

This thesis is the result of an MSc degree project in Integrated Product Design - Innovation Management & Product Development at the Royal Institute of Technology, performed during the spring of 2019. We would like to aim special thanks to our industrial supervisor at the subject company and to our academic supervisor at the Royal Institute of Technology, Sofia Ritzén, who both have dedicated significant parts of their time and effort to this thesis.

Lastly, we would like to thank the top management at the subject company for welcoming us to perform our master thesis at their company and surrendering their time for the sake of the result.

__________________________________ ___________________________________ Charlotta Lundberg Marcus Almqvist Stockholm, June 2019 Stockholm, June 2019

NOMENCLATURE

Fintech Financial Technology

B2B Business-to-Business

SaaS Software as a Service

CEO Chief Executive Officer

SMEs Small-to-Medium Enterprises

POC Proof-of-Concept

HoSI Head of Strategic Initiatives

BMC Business Model Canvas

Lean BMC Lean Business Model Canvas

NPD New Product Development

FEI Front End of Innovation

FFE Fuzzy Front End

NCD New Concept Development

NPPD New Product and Process Development

TPFEM Triple Phase Front End Model

RBV Resource-Based View

VPC Value Proposition Canvas

TLBMC Triple Layer Business Model Canvas

PPM Project Portfolio Management

RDM Risk Diagnosing Methodology

CTO Chief Technology Officer

MRR Monthly Recurring Revenue

CMO Chief Marketing Officer

R&D Research & Development

MVP Minimum Viable Product

TABLE OF CONTENTS 1 INTRODUCTION .......................................................................................................... 1

1.1 Background ..................................................................................................................... 1 1.2 Problem Description ....................................................................................................... 3 1.3 Purpose .......................................................................................................................... 4 1.4 Limitations ...................................................................................................................... 4

2 FRAME OF REFERENCE ................................................................................................ 5 2.1 Defining Innovation ........................................................................................................ 5 2.2 Uncertainty ..................................................................................................................... 6 2.3 Front End of Innovation .................................................................................................. 7 2.4 Business Modelling Frameworks ................................................................................... 11 2.5 Concluding Remarks ...................................................................................................... 17

3 METHOD ................................................................................................................... 19 3.1 Action Research ............................................................................................................ 19 3.2 Problem Definition ........................................................................................................ 19 3.3 Frame-of-Reference ...................................................................................................... 19 3.4 Interviews ..................................................................................................................... 20 3.5 Developing a Business Modelling Framework ................................................................ 21 3.6 Supporting Techniques .................................................................................................. 21

4 INTERVIEW RESULTS ................................................................................................. 23 4.1 Head of Sales ................................................................................................................ 23 4.2 Chief Technology Officer (CTO) ...................................................................................... 23 4.3 Chief Marketing Officer (CMO) ...................................................................................... 24

5 THE FRAMEWORK ..................................................................................................... 27 5.1 Structure and Use ......................................................................................................... 27 5.2 Problem ........................................................................................................................ 28 5.3 Solution ........................................................................................................................ 29 5.4 Customer Segment ........................................................................................................ 30 5.5 Value Proposition ......................................................................................................... 32 5.6 Unfair Advantage .......................................................................................................... 33 5.7 Channels ....................................................................................................................... 35 5.8 Resource Analysis ......................................................................................................... 36 5.9 Financial Analysis .......................................................................................................... 37 5.10 Key Metrics ................................................................................................................... 39 5.11 Risk Analysis ................................................................................................................. 41

5.12 Implementation plan .................................................................................................... 42

6 DISCUSSION .............................................................................................................. 43 6.1 Methods Used ............................................................................................................... 43 6.2 Result ........................................................................................................................... 44

7 CONCLUSION ............................................................................................................ 49

8 RECOMMENDATIONS & FUTURE WORK .................................................................... 51 8.1 Recommendations ........................................................................................................ 51 8.2 Future Work .................................................................................................................. 52

9 REFERENCES ............................................................................................................. 53

APPENDIX A: THE FEI CANVAS

APPENDIX B: THE FRAMEWORK

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1 INTRODUCTION This chapter introduces the setting in which this thesis was written, the identified issue, the main purpose of the thesis and the limitations to the both the process for developing the result as well as to the result itself.

1.1 Background The company that is subject to this thesis is a global Swedish Fintech company. It is primarily based in Stockholm and was established in 2010. The financial service industry has, similarly to many other industries, seen the emergence of new technologies disrupting their existing businesses and processes. Businesses that have emerged from such technological disruption have together improved efficiency, enhanced customer experiences and established new ways of creating value for customers. This has formed what is by leading firms called the ‘FinTech Revolution’ (Gomber et al., 2018). Thus, what has been the primary concern of the traditional banking sector is not a lack of new technology, but instead internal resistance to change (Sandberg & Aarikka-Stenroos, 2014). The customers of the subject company are banks and lenders all over the world to whom the company offers a Business-to-Business (B2B) Software as a Service (SaaS). The maturity of the existing processes varies depending on the department. There are approximately 30 employees at the Stockholm office, where the marketing, sales, and data team are over-represented. The organisational structure is flat with a top management team with representatives from the marketing, sales, and data team, including the Chief Executive Officer (CEO). The Head of Strategic Initiatives (HoSI) represents the strategy team together with interns, and work closely with all the teams all over the organisation in order to collect necessary data for their development projects. The company is rapidly growing thanks to their service-based business and is reaching a level of maturity in which established processes for the activities related to innovation and to the early stages of new product and process development are becoming desirable. The company has no explicit or articulated innovation strategy. Based on observations, the company practises a technology-driven innovation strategy, as most projects and ideas that enter the company’s funnel for new projects share the characteristic of being new applications of existing technology.

It can be seen as detrimental for small-to-medium enterprises (SMEs) to spend time on implementing a standardised process for innovation as most core activities at such stages involve finding and developing a market fit. However, regardless of the size, age and maturity of a company, studies show that some resources should be allocated towards adjacent and radical innovation to achieve long term competitive advantage (Nagji & Tuff, 2012). Burgelman (1983) explained that organisations can create processes for generating entrepreneurial activity on a continuous basis. Christensen & Overdorf (2000) highlighted that a company who establishes processes and strategies in their early years and before massive scaling will more likely be organisationally successful during growth as the established processes are seen as the natural way to work by the employees. During the subject company’s growth, a consensus about long term commitment to establishing organisational processes has formed. Consequently, efforts towards creating a process to standardise the early stages of innovation have been made. The result of those efforts has been a proposal for an innovation process for project planning and development which has not yet been fully implemented, called the ‘Proof-Of-Concept (POC)-process’.

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The intent of implementing such a process was to standardise and state the deliverables and requirements that the management team has on new innovation to facilitate the research work during new project developments. The process has been developed by the strategy team, the Chief Technology Officer (CTO) from the top management team and one of the product owners. The reason behind the half-hearted implementation of the process is most likely due to a lack of commitment and understanding of direct value for the other departments. The process has a linear structure with iterative elements during the ‘Formulating’-phase, with decision points where blessing/halt decisions are recurring events, see Figure 1. The process starts with an idea entering the ‘Idea’-phase. Ideas that regard activities in specific functions and that require little resources to perform are discussed with the respective manager. Finding new applications for existing technology is the main responsibility of the strategy team. The ideas spring from internal interaction and communication, as well as through interaction with external actors such as potential strategic partners who have recognised the potential that the company’s technology possesses for their business. The idea owner gets permission from the closest manager to structure and articulate thoughts around the hypothesis. The second phase is called ‘Exploration’ and is used to develop a Lean Business Model Canvas (Maurya, 2012), with mandated time from the closest supervisor during a period that is up to two weeks. The third phase is a decision point called management reviewal where the idea is pitched. The management gives their blessing or halt for the initiative based on the provided material and the current project portfolio. Their goal is to have all canvases internally stored to have an idea bank of halted initiatives if the future proves to be a better suiting period for realisation of certain ideas.

Figure 1. Unbranded version of the company’s POC-process.

If the idea receives a blessing from management, a more thorough review of the initiative with commercial, technical and stakeholder analysis is to be presented to management, which is called a ‘Strategic & Product Analysis’. This is a more extensive and holistic overview for management to make a decision on for further sanction/follow-up/homework. However, the deliverable is not yet supposed to be a fully developed business plan. Two weeks will be dedicated to this phase of the process. Thereafter, another decision point called the ‘Management Presentation’ takes place. Here, a decision will be made based on the generated material since the last decision point. A promising ‘Formulating’-phase will result in the need for a project plan, which should be developed during a period of two weeks. Prior to the start

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of this collaboration, the management has expressed that the material related to this phase should outline a go-to approach, stakeholder involvement, required buy-in, possible design requirements and required company commitment. Further, it should include a brief analysis of next steps (i.e. explaining the capacity to commercialise the initiative in a timely manner after a successful POC.

The deliverable from the phase latter to the ‘Formulating’-phase is a project plan. The management reviews the project plan before the POC is performed, and it should contain clear descriptions on how to practically solve problems with budget and scope. The dedicated time for the ‘POC’-phase is estimated to be one to four months and the results should be presented to the management with analysis and an updated project plan, including budget and resources needed. If the project still suits the company’s portfolio, the project will get its final blessing and enter the development phase. To optimise the management meetings and the meetings for decisions points, the management should receive the material at least two working days prior to the review and are obliged to read it in advance.

1.2 Problem Description The effort of developing a standardised process for innovation was partly initiated to enable ideas from all employees, not only from the strategy team. The strategy team is overloaded with work as they are currently tasked with doing all innovative work related to the activities in the POC-process. This includes investigating potential new markets, new offers for existing customers, deciding on project scopes etc. The only exception is for activities that are presented to management as requiring additional resources in an ad hoc manner. Management would like to offer all employees the same chance to put forward their ideas. The POC-process intends to allow any employee of the firm to ideate and progress new ideas through the process with the help of their individual knowledge and capacity. However, implementing the POC-process would initially results in unfair prerequisites because the strategy team are more used to developing new ideas. Their presented material can thus contain more of the elements that the management team looks at when evaluating ideas, in comparison with other idea owners within the company. This is because the members of the strategy team are more familiar with what the management team require to be presented and asks for. These unfair prerequisites result in differences in the material presented for decision-makers at the company depending on who has been in charge of the research work. This is problematic for the individual’s motivation. Not being able to contribute with your ideas, skills and knowledge to the company can come at the cost of motivation for going through the hassle of presenting your ideas. For the company, there is consequently a risk of missing out on ideas that could have proved to be the best choice of ideas to pursuit for the company’s success. There is of course a chance that the ideas will surface eventually through alternative sources of expression, but not having a POC-process that democratises the way ideas are developed could mean losing out on opportunities that are favoured by timing or trends. Currently, there exists no material that helps any idea owner in progressing the project through the ‘Formulating’-phase and for presenting the results that should meet the idea evaluation criteria. There is a need for a material that can provide more information about the project than a Lean Canvas in the phase ‘Exploration’ but that is not as extensive as the deliverable Project Plan of the phase ‘Project Plan’.

The evaluation criteria that management uses to assess projects at the decision points are not formally articulated to the idea owner. This causes a gap between the information that is desired to base a decision upon and what the idea owner presents at decision points. The management

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team struggle with what techniques to suggest to idea owners when progressing innovation projects through the POC-process.

1.3 Purpose The purpose is to create a material that is tailored to the ‘Formulating’-phase of the company’s proposed innovation process with regards to the wishes of top management and best practices. Further, the purpose is to articulate what factors affect top management’s decision making. This should be done in order to know what areas to investigate when developing a new product or service. The material should guide the organisation’s members in progressing any ideas through the ‘Formulating’-phase to prepare them for presenting to management and hopefully proceed to the next phase of developing a project plan. Helpful techniques for developing and presenting an idea should also be presented in this material so that as many employees as possible have the opportunity to meet the management’s requirements. It should also aid in communicating which are the most uncertain hypotheses related to a project. The result should use the graphical branding of the company and be treated as an internal document. However, an unbranded version of the result will be presented in the thesis.

1.4 Limitations The result of this thesis should only act during the ‘Formulating’-phase and not include developing a full project plan. Suggestions for improvement of the other phases (e.g. idea generation methods) or changes to the structure of the proposed process for innovation should neither be included in this work per request from the company. Further, the HoSI has dedicated significant resources in terms of time and knowledge for this initiative, but made it clear that there would be limitations to the amount of time that could be demanded from management and other employees.

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2 FRAME OF REFERENCE The frame-of-reference describes literature on innovation as a result, innovation as a process and innovation in practice and their relevance to the problem at hand. These areas were chosen as they all are in the domain of the problem description and the purpose of the research initiative.

2.1 Defining Innovation Different types of innovations are generally tricky to define within a company since there might be many different perspectives on what innovation is. This holds true even within departments. This might be an effect of the wide variety of definitions on innovation in literature. Therefore, defining innovation serves an important part in determining a common language throughout the thesis and within the company. Nagji & Tuff (2012) presented an innovation ambition matrix, which acts as a framework to label and distinguish between different types of innovation, see Figure 2. The framework makes use of two dimensions to describe the innovation as a phenomenon. These two dimensions can both be found in definitions by other authors but has not been used to describe innovation together. The market dimension ‘Where to Play' indicates that innovation is allowed to not only occur through technology development or new products, but also through changes in position with regards to the external environment. The dimension of ‘Where to Play’ is an important indicator to the nature of an innovation within the subject company. Meanwhile, the dimension ‘How to Win’ still implies that the level of novelty to product- and technology development contributes as an important element in the labelling of innovation. The difference between core-, adjacent- and transformational innovation is thus always with regards to the firm and does not exclude innovations that are new to the firm, but not necessarily new to the market in the definition of adjacent- and transformational innovation.

To maintain consistency throughout the thesis, when discussing different types of innovation for the result, core-, adjacent- and transformational innovation will be used, following Nagji & Tuff (2012).

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Figure 2. The Innovation Ambition Matrix (Nagji & Tuff, 2012).

Veryzer (1998) distinguished several characteristic definitions from different authors with different wording but similar meaning. In general, the largest difference between incremental and radical innovations seem to regard the degree of risk related to an innovation and the amount of uncertainty that needs to be dealt with, especially technological uncertainty (ibid.). O’Connor & Rice (2013) explained that to sustain a long-term competitive advantage mature firms must engage in the development of radical innovations in order to build and dominate fundamentally new markets. They defined radical innovations as “those that senior management believe exhibit the potential to produce one or more of the following: (1) an entirely new set of performance features, (2) improvements in known performance features of five times or greater, or (3) a significant (30% or greater) reduction in cost” (p. 2, 2013). This excludes innovations that are new to the firm but not new to the market, in contrast to the differences between innovations explained by Nagji & Tuff (2012).

2.2 Uncertainty As mentioned, many of the definitions on innovations consider different levels of uncertainty as the factor that separate core- from transformational innovation, like O’Connor & Rice (2013). In their study, nearly all companies who participated agreed that innovation projects are related to high levels of uncertainty. Kihlander & Ritzén (2012) supported this by explaining that the early parts of a development process, which are characterised by a high degree of uncertainty, is primarily about managing uncertainty. Veryzer (1998) argued that one can reduce uncertainties related to market acceptance and value creation by adoption of a formal process for new product development that favours radical innovation, and that a high degree of uncertainty requires iterative processes. O’Connor & Rice (2013) proposed a framework that organisations can use to manage uncertainty in transformational innovation projects that are distinguished by their degree of uncertainty, see Figure 3. The framework is based on a study of 12 radical innovation projects where the uncertainties that the studied projects encountered were categorised. Further, the framework involves the latency (whether the uncertainties were anticipated or unanticipated)

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and the criticality (is this uncertainty routinely encountered or is it a ‘showstopper’?) of each project. The framework is described as highly dynamic as the uncertainties of a project are subject to rapid changes as a consequence of learning.

Figure 3. Framework for managing uncertainty (O’Connor & Rice, 2013).

It was further argued that the uncertainties surrounding radical innovation span over all four categories of uncertainty and that their criticality changes over time. The primary use of this framework is described as strategic in order to select project managers for major innovations that have demonstrated that they can manage the most critical categories of uncertainties. Together with the framework, O’Connor & Rice (2013) developed a set of questions related to each uncertainty category. Implementing risk management that aims to reduce risks related to uncertainty throughout the innovation processes has proved to reduce complexity of developing new business models in a case study performed on a Danish company by Taran et al. (2013). Cooper (2008) suggested in his ‘New Generation Stage-Gate process’ to divide risk into three paths dependent on the level of risk a project holds. The higher the risk, the more stages and gates are suggested to increase the control of the project and thereby a project can be killed at any time, before too much money has been wasted (ibid.). This could be perceived as contradicting to other literature, but Cooper (2008) argued that a more formal process for higher risk projects should not restrict the work in between the gates, only increase the overview for the gatekeepers. However, there is generally little research done on the incorporation of risk management within business model innovation (Taran et al., 2013).

2.3 Front End of Innovation Evidence of the importance of innovation to any company’s long-term success has frequently been presented in the past decades (Burgelman, 1983; Gutiérrez & Magnusson, 2014; Schilling, 2017; Tushman & O’Reilly, 1996; Amabile, 1997). Any firm that aims to compete on innovation needs to master all phases of the NPD process (Khurana & Rosenthal, 1998). Veryzer (1998) argued that having a formal NPD process that favours radical innovation reduces uncertainties related to market acceptance and value creation. In contrast, arguments have been made that the formalisation of NPD processes might be detrimental to the success of radical innovations and should typically be implemented after the Front End of Innovation (FEI) (Griffin et al., 2014). How companies should structure their NPD processes has been a

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frequently discussed topic. Models such as ‘Stage-Gate’ (Cooper, 2008), have been developed and frequently adopted in practice. However, there is no solution that fits all organisations. This makes it difficult to establish a standardised process for uncertainty reduction in early stages of NPD that suits all types of organisations. The three phases of the innovation process are the Fuzzy Front End (FFE), the NPD process and Commercialization, see Figure 4 (Koen et al., 2002). The FFE is often known as the FEI and is the definition of the early stages of innovation that will be used throughout this thesis (Martinsuo & Poskela, 2011).

Figure 4. The three parts of the innovation process (Koen et al., 2002).

There are three models that are most frequently referred to in the FEI literature (Pereira, 2017). These are (1) the ‘Stage-Gate’ process (Cooper, 1988; 2008), (2) the ‘Triple Phase Front End Model’ (Khuran & Rosenthal, 1997), and (3) the ‘New Concept Development’ (NCD) (Koen et al., 2001). FEI is defined by Koen et al. (p. 46, 2001) as “those activities that come before the formal and well-structured New Product and Process Development (NPPD) or Stage-Gate process”. However, the FEI is part of the NPPD and the distinction between them can be seen as a continuum. The differences between the two lies in the level of structure as the front end tend to be more chaotic and unstructured compared to the more structured and formal NPPD (Koen et al., 2001; 2002). Further, Koen et al. (2001) explained that the activities that come before, or in the early stages of an NPD process, form the FEI. Eling & Herstatt (2017) explained that the FEI refers to the very first phase of NPD, starting with opportunity discovery and ending with a go-decision for developing a new product. The go-decision marks when significant resources are committed so that development can start. This is similar to the last blessing/halt decision of the POC-process. The importance of the FEI’s success to NPD was described 30 years ago by Cooper & Kleinschmidt (1987) and that it serves as the foundation for generating successful NPD has been recognised by others since (Cooper, 2008; Martinsuo & Poskela, 2011; Kock et al., 2015). The activities included in the FEI are opportunity identification, problem identification, opportunity/problem analysis, and matching; market and technology analysis; idea generation, evaluation, and screening; concept development, evaluation, and testing; requirement definition; and project planning and risk analysis (Khurana & Rosenthal, 1998; Reid & de Brentani, 2004). With regards to these perspectives, we argue that the existing process at the subject company form the FEI as it includes the very first steps and activities for any new innovation projects. Therefore, the following literature will primarily regard the FEI.

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Stage-Gate The proposed innovation process at the subject company shares some characteristics of a Stage-Gate process. It has individual work that lead up to decision points where decisions on the future of the project is determined. The Stage-Gate process is a widely used process to achieve more formality in a company (Kahn et al., 2006) and has been applied in many industries over the years. Formal processes are defined by Christensen & Overdorf (p. 2, 2000) as “explicitly defined and documented”, whereas informal projects are defined as “routines or ways of working that evolve over time”. The project work takes place during the different stages of the process. At each gate, so called gatekeepers are decision-makers evaluating the current status of the project and should be a cross-functional team covering competences of marketing, technical operations, sales, and finance (Cooper, 2008). Cooper’s (2008) Stage-Gate process is frequently criticised for the risk of limiting the creativity related to innovation by formalising the processes too much (Amabile, 1997; Kahn et al., 2006). The level of formality is one of the most investigated and discussed areas when it comes to FEI and no real consensus has been reached regarding which activities to formalise and when to do so (Eling & Herstatt, 2017). Loch (2000) argued that more radical NPD projects are favoured by less structured and formalised processes than incremental projects. In the practical and internal setting of a company, there is usually no clear distinction between different types of innovations. This could prove to be a challenge when deciding what type of a process should be applied for different types of innovation and the suitable level of formality. Incremental NPD projects have shown to be favoured by more formal, linear, NPD processes such as the Stage-Gate. Radical projects have shown to be more successful when supported by an iterative, non-linear process (Griffin et al., 2014). Christensen et al. (2008) argued that the traditional Stage-Gate model focuses too much on the financial aspects of a project. The Stage-Gate process is also claimed to lack clarity in how the ideation process works and is therefore suggested to be implemented after the FEI (Koen et al., 2001).

Cooper (2008) made an effort to respond to the critique he has received through the years and created an updated version of the traditional Stage-Gate process, the so-called ‘Next Generation Stage-Gate’. The purpose of the new process was to enable management of projects of different types and sizes and include new principles, such as lean and more iterative mindsets (ibid.).

Triple Phase Front End Model Khuran & Rosenthal (1998) introduced a model for describing where different activities in the front end occurs. The model is called the Triple Phase Front End Model (TPFEM) and is visualised in Figure 5. The foundation elements involve product & portfolio strategy and product development organisation. The phases are named the pre-phase zero (PP0) including opportunity identification, market and technology analysis, the phase zero (P0) including product concept and definition and lastly phase one (P1) including feasibility analysis and project planning. This model is of linear nature, much like the first versions of the Stage-Gate model and the proposed process at the subject company, meaning the activities that are included have a specified order in which they ought to occur.

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Figure 5. The TPFEM Model (Khuran & Rosenthal, 1998).

New Concept Development Model The New Concept Development (NCD) model by Koen et al. (2001) attempts to clarify the activities related to the FEI, and to create a common language among companies, see Figure 6. The NCD provides structure to an early stage of the NPD and consists of five elements with influencing factors, such as competitors and customers, and is driven by an engine, which represents the leadership, culture and business strategy of the organisation (Koen et al., 2002). The NCD differs remarkably from the TPFEM as it allows and advocates for front end activities to occur iteratively throughout the five elements (Koen et al., 2001). It was argued that too much structure of a workflow as a process could misguide the idea owner and thereby force poor results, instead of encouraging iterations of all steps of the FEI (ibid.). The subject company’s current proposed innovation process does structure the workflow as a linear process but encourages iterations in the step ‘Strategy & Product Analysis’. Koen et al. (2001) continued to explain that some of the elements in the FEI could require support from more formal methods. Further, no conclusions on which parts of the currently proposed process at the subject company that should be formalised can be made based on the suggestions by Koen et al., (2001) as the level of understanding at this point might be limiting the possibility to explore that (ibid.).

The NCD offers a deeply theoretical understanding of the iterative nature of the FEI. It does however offer very little in terms of practical advice in terms of how to create a specialised process for the FEI. Eling & Herstatt (2017) has especially formulated that the organisation for opportunity identification and analysis are areas that has to be further researched.

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Figure 6. The New Concept development model for the FEI (Koen et al., 2001).

FEI Deliverables Koen et al., (2001) explained that a typical outcome of the FEI is a business plan, formal project proposal or similar which is similar to the desired outcome of the entire previously proposed innovation process at the company. Much like Koen et al., (2001) presented a negative aspect of formalisation of processes, Cooper (2008) alarmed that too detailed process templates can lead to overkill deliverables where irrelevant information is provided. This could, in turn, lead to management or gate-keepers not reading all material. Cooper (2008) suggested page restrictions and field limitations to decrease the risk of unnecessary information overload. Eling & Herstatt (2017) called for further research on which tasks should be completed, which knowledge should have been created and how well developed the deliverables should be at the end of FEI. This gap in the literature implies that there are no general guidelines or best practices on the area available for the subject company to directly apply to solve their problems. Instead processes for, and management of, the FEI need to differ depending on the product, market, organisation, and context. Their findings also include that the FEI needs to be managed through applying a holistic approach that effectively links business strategy, product strategy, and product-specific decisions.

2.4 Business Modelling Frameworks Innovation has historically been tightly coupled with technological advancements. In order for a technological innovation to create value it needs to be matched with business model innovation (Teece, 2010). For any firm aiming to create value, there needs to exist an ability to create new business models (ibid.). Business modelling is a relatively young phenomena which has largely been neglected by both social- and business sciences (ibid.) up until the 1990s and still today lacks an agreed upon definition (Gordijn et al., 2005; Fielt, 2013; Da Silva & Trkman, 2014). There is a very basic definition that is generally agreed upon: “A description of how a firm does business” (Richardson, p. 136, 2008). Most definitions involve the creation and capturing of value. Fielt (2013) explained that what is meant by ‘value’ differs between those

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attempting to define business modelling and that this is the main issue regarding its ambiguity. Osterwalder & Pigneur (p. 14, 2010) defined business modelling as “describing the rationale of how an organization creates, delivers, and captures value”. Further, Chesbrough (2006) explained that a business model performs two important functions: value creation and value capture. Similarly, in a study of literature reviews on business model definitions Fielt (p. 96, 2013) proposed the definition of a business model as “the value logic of an organization in terms of how it creates and captures customer value and can be concisely represented by an interrelated set of elements that address the customer, value proposition, organizational architecture and economics dimensions”. The definition of ‘value’ depends on who uses the word and changes dependent on the situation. It is further explained that most authors that attempts to define business modelling refers to ‘value’ as ‘customer value’, but that it mainly has its theoretical foundation in the field of strategic management where capturing value is based on a firm's positioning, transaction costs, and a resource-based view (RBV) (Fielt, 2013).

Fielt (2013) explained that business modelling can be used for many different purposes due to the differences in definitions on value and business modelling. It has been described as a superior way of analysing a company’s business in comparison to both the position theory in Porter’s (1979) framework of five forces and Wernerfeldt’s (1984) RBV of the firm (McGrath, 2010). DaSilva & Trkman (2014) argued that the RBV cannot explain business modelling fully as resources themselves do not deliver any value to customers, but that a unique combination of resources can together create value. They defined the core of the business model as “a combination of resources which through transactions generate value for the company and its customers” (p. 382, 2014). The multi-purpose of business modelling can be another reason as to the ambiguity in the definitions on business modelling, as it has been used for a wide range of applications where technology have had a varying importance, where the business objectives have been profit or non-profit or for developing start-ups or mapping established businesses (Fielt, 2013). DaSilva & Trkman (2014) were critical to the inflation in the use of the terminology business modelling and argued that it has become a buzzword that is widely used without a foundation in theory. This further strengthens the notion of the issue being that there is a lack of a clear and common definition of business modelling. Business modelling frameworks have been used to clarify a current business model of a company, to illustrate financial incentives for a new project or to describe a whole new business plan (Osterwalder & Pigneur, 2010). It has been argued that specific business modelling frameworks can be used with the purpose of summarising a business plan as those are usually too extensive and less communicative (ibid.). The application of business modelling frameworks appears to be one possible practical approach to some of the activities explained in the NCD framework (McGrath, 2010; Osterwalder & Pigneur, 2010; Maurya, 2012). Techniques for practicing and enabling innovation as a process and to enable the emergence of innovation as a result are not as widely discussed as the theoretical aspects of the FEI (Eling & Herstatt, 2017). The techniques which are suggested as related to the FEI process are mainly techniques for customer research and involvement of customers, idea management techniques, process methods or techniques for executing parts of the FEI process. We argue that the major theoretical concept that includes practical activities and elements of the FEI can be found in existing business modelling frameworks, and thus relating them to the early stages of innovation. Existing theory on business modelling frameworks needs to be examined to discover whether any one of them can be directly applied to the domain of the FEI, in which we aim to provide guidance for the subject company. We argue that there are some frameworks on business modelling that are more aimed towards the activities related to the FEI and therefore could have a contribution to the results.

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Discovery-Driven Approach McGrath & MacMillan (1995; 2000) suggested a discovery-driven approach to business modelling and creating a competitive advantage to ensure that the firm’s competitive advantage and profitability is sustainable. This approach emphasises as much learning as possible with as little resources as possible by articulation and testing of assumptions. The approach starts with an idea that a decision maker believes represents opportunity. That belief must then be validated in order to convince others that the result will be worth the efforts. The steps of the discovery-driven approach are formulated as questions that should be answered, starting with “What would make a particular strategic move worthwhile?” (p. 258, 2010). After doing so, the requirements for creating a reverse income statement should be articulated. Next, the question “How much revenue would be required to throw off enough profit to make and initiative worthwhile?” (p. 258, 2010) should be answered. The market potential should then be evaluated and key metrics that describes the potential success of the business model should be articulated, together with the most critical assumptions.

The Business Model Framework Richardson (2008) summarised the concept of business modelling in his own framework. His study of the components of business modelling resulted in a framework that is centred around the concept of value. He explained that there are three major components to business modelling in general, namely ‘the value proposition’, ‘the value creation and delivery system’ and ‘value capture’, each with their subcomponents, see Figure 7.

Figure 7. The Business Model Framework (Richardson, 2008).

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Business Model Canvas Along the same approach to business modelling as McGrath (2010), Osterwalder & Pigneur (2010) created a Business Model Canvas (BMC) which formulated the components of a business model. It is the most well-known and widely used framework for business modelling (Fielt, 2013). It visualises many of the important aspects of business modelling that McGrath (2010) explained. The canvas is divided into nine building blocks, each with questions to be answered, see Figure 8, and is based upon earlier work by one of the authors (Osterwalder, 2004). Its primary function is to serve as a common language to describe, visualise, evaluate and change business models (Osterwalder & Pigneur, 2010).

Looking at business modelling through the lens of Khuran & Rosenthal’s (1997) TPFEM, it is apparent that the BMC can have a practical use during all stages of the TPFEM and covers the related activities opportunity identification, market and technology analysis, product concept, feasibility analysis etc. Further, the BMC allows for a more iterative approach to front-end activities than the TPFEM explained, resembling the more recent model of the two representations of the FEI explained by Koen et al. (2001). The BMC has been criticised for being more suitable for improving core innovations for the existing business and less for developing transformational innovations (Maurya, 2012).

Figure 8. BMC by Alexander Osterwalder & Yves Pigneur (2010).

Osterwalder & Pigneur (2010) did not propose a clear order of how to fill in the blocks or a step-by-step approach to using their business model canvas, but instead identifies typical origins of innovation drivers. They name these ‘Epicentres’ and are divided into resource-, offer-, customer-, and finance-driven innovations and originates from either the problem, value proposition, customer segment, or the financial part of the canvas. It is also highlighted that the innovation could be of multiple-epicentres character, originating from several parts of the canvas.

Another approach to the order in which business modelling should be done is that it is dependent on the firm’s innovation strategy. Yannou et al. (2015) explained that Boston Consulting Group identified that there are three types of innovation strategies: The ‘Technology Driver’, the ‘Need Seeker’ and the ‘Market Reader’. The ‘Technology Driver’-firm’s strategy should have the approach of being resource led, meaning that one should start from identifying which are the

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firm’s key resources and partners, or offer led, meaning that the company’s value proposition should guide the approach. The ‘Need Seeker’-firm’s innovation strategy should have a customer insight led approach to business modelling, meaning that the value proposition, revenue model, customer relations and channels should be derived from the needs and characteristics of the specific customer segment. Lastly, the ‘Market Reader’ should have either a finance led approach to business modelling, meaning deriving the customers and value proposition from established revenue streams and costs structures, or a multiple-centred led start, meaning creating a value proposition from key partners and resources and a customer segmentation and finding a suitable cost structure and revenue model.

Lean Startup & Lean BMC Inspired by Blank’s customer development practices for start-ups that he developed for teaching, and on Toyota’s lean manufacturing (Ward et al., 1995; Morgan & Liker, 2006), Ries (2011) introduced the Lean Startup approach to business modelling which aims to reduce waste in the new business development process and includes the concepts ‘failing fast’ and ‘continuous learning’, which aligns well with the discovery-driven approach. The method builds upon three key principles: (1) Hypotheses should be sketched and identified in a BMC instead of wasting time on building elaborate business plans that will fail anyways; (2) develop your customer by getting out of the building, and (3) agile development through an iterative build-measure-learn principle. The approach is advocated to be successful in all types of industries, no matter the size of the company. Further, it is closely related to dealing with risk and reducing uncertainty (Loch et al., 2008).

The similarities between transformational products and services, and start-ups lie in the type of context they are created in, which is extreme uncertainty (Ries, 2011). Maurya (2012) presented a different version of the BMC by Osterwalder & Pigneur (2010), which is argued to be more suited for the Lean Startup, called the Lean BMC, see Figure 9.

Figure 9. Lean BMC and the order of filling out the blocks of it (Maurya, 2012).

Maurya (2012) advocated for a specific order in which the blocks of the canvas should be given focus respectively, see Figure 9 above. The reasoning behind is that all start-ups should use the lean principles which recommend customer centric business development (Ries, 2011).

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The Lean BMC is thus argued to be suitable for both start-ups and established companies looking to reinvent their business models. Even though it is argued by both Maurya (2012) and Ries (2011) that the Lean BMC can be used by established companies, their books do not provide guidance to a large extent in terms of development of new business plans within established firms. The essentials of both approaches are still of value to this thesis and to the subject company but requires adjustment to suit the company needs.

FEI Canvas Koen (2017) presented a canvas that was specifically developed for the FEI with the purpose of acting as a brainstorming tool for new projects, see Appendix A. The FEI Canvas was developed to take consideration to all critical components of a large organisation. A division is made between the blocks with regards to what part of the environment it aims to describe, the external- or internal environment. This is something that is characterising of good business model design (Teece, 2010). The internal aspects of the FEI Canvas include the building blocks ‘Key Resources’ and ‘Key Processes’ (‘Key Activities’ in the BMC) from Osterwalder & Pigneur (2010), while the external aspects of it has similarities to the Lean BMC. Further, an aspect of risk and assumptions is added in order to emphasise which parts of the business model are the most crucial and least validated. The addition of risks and assumptions is what makes this canvas unique with regards to its predecessors. This could be an indication of the importance of highlighting including those building blocks in a business modelling framework for the FEI.

Value Proposition Canvas Osterwalder et al. (2014) presented an additional canvas, called the ‘Value Proposition Canvas’ (VPC), in order to describe the customer segment and value proposition in a more structured and detailed way, see Figure 10. It focuses on the jobs, pains, and gains for the customer and how these can be done, relieved, and created. The purpose of the two maps is to fit the value proposition to the customer segment, and when the customers feel excitement for the proposed value, the fit is successful. If there are different customer segments for the same project, one VPC should be created for each customer segment (Osterwalder et al., 2014). The same approach should be applied when several stakeholders are involved, both internal and external, which is a typical situation in a B2B company (ibid.). The VPC was originally developed as a complement to the BMC.

Figure 10. The VPC, connecting the customer segment and value proposition (Osterwalder et al., 2014).

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Triple Layer Business Model Canvas For organisations to work consequently with sustainability and to take value other than economic perspectives in consideration in their business model, Joyce et al. (2016) have created an extended version of the BMC called the Triple Layer Business Model Canvas (TLBMC), see Figure 11. Their version adds an environmental canvas to the business model which highlights a lifecycle perspective and a social canvas which takes stakeholders’ perspectives in consideration. The tool creates an opportunity for an organisation to both work with vertical coherence, which regards the coherence between the three layers, and horizontal coherence, which regards the coherence of each individual canvas (ibid.). Even though the TLBMC is ideally applied on whole organisations, it can favourably be applied in individual projects as well. This puts the idea owner is a situation where social and environmental aspects are naturally considered in early phases of a project.

Figure 11. The economic-, environmental- and social canvas of the Triple Layer Business Model Canvas (Joyce et al., 2016).

2.5 Concluding Remarks We recognise that there are several knowledge gaps within the FEI literature, many already identified by Eling & Herstatt (2017). If one does not view business modelling as an important practical part of new project development and fail to connect literature on the FEI to business modelling, there are few practical techniques suggested for the activities included in the FEI. Therefore, the subject company cannot derive a complete process from strictly peer-reviewed articles that provides guidance throughout the ‘Formulating’-phase of the POC-process. Because, as mentioned, there is no one-solution-fits-all, a tailored solution to the problem facing the company is required, which is supported by Fielt (2013) who explained that tailoring (or specifying) the elements of a business model can make it more suitable for a specific purpose such as making it more suitable for innovation. There is a plethora of techniques on business analysis frameworks to find on the internet. These are mostly derived from practitioners such as consultancy firms (McKinsey, Boston Consulting Group etc.) and membership institutions (International Institute of Business Analysis, Project Management Institute etc.).

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Generally, there are few empirical studies that have been performed on which techniques, elements and building blocks that should be included in a business model framework to yield different innovation results (Fielt, 2013).

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3 METHOD This chapter presents the chosen research methodology for developing the result. It explains what sources of inspirations contributed to the chosen methodology, how the problem was defined, how the scientific literature that is related to the problem was chosen, how the interviews were conducted and how the framework was synthesised. Lastly, it explains the way the framework was developed to guide the less experienced idea owners.

3.1 Action Research In 1946, Kurt Lewin pioneered an approach to research, known today as ‘Action Research’ (AR), or in his own words “a comparative research on the conditions and effects of various forms of social action and research leading to social action” (p. 45, 1946). Lewin’s explanation to the process of AR, which is named the ‘Lewinian Spiral’, is “a spiral of steps, each of which is composed of a circle of planning, action, and fact-finding about the result of the action” (Susman & Evered, p. 587, 1978). In their assessment of the scientific merits of action research, Susman & Evered (1978) argued that positivist research versus action research is like prediction versus making things happen, and that “[AR] constitutes a kind of science with a different epistemology that produces a different kind of knowledge, a knowledge which is contingent on the particular situation, and which develops the capacity of members of the organization to solve their own problems”(p. 601, 1978). A more widely accepted definition of AR is the one by Rapoport (p. 499, 1970) who explained that AR “aims to contribute both to the practical concerns of people in an immediate problematic situation and to the goals of social science by joint collaboration with a mutually acceptable ethical framework”.

The purpose was to tailor a solution to the explained problem through collaboration with the subject company. Therefore, AR served as a source of inspiration to increase the applicability of the result. The result was developed and is presented in two parts: (1) through semi-structured qualitative interviews and (2) development of a tailored framework including a deeper analysis of the building blocks that are related to the frameworks on business modelling presented in the frame-of-reference.

3.2 Problem Definition Most of the interaction with the company was done through a company representative. This connection was the foundation for opportunity identification and describing the company’s problem. The research required to solve the identified problem was performed through qualitative interviews and literature research. Initially, the representative at the company introduced the issue through discussions with one of the researchers who had been employed under the forms of an internship. The problem was refined through discussions between both researchers and the company representatives during early 2019.

3.3 Frame-of-Reference A study of previous research was performed within the domain of the problem at hand. The study was performed through a computer-based literature search and through a study of physical books and e-books related to the topic. Greenhalg & Peacock’s (2005) findings show that the

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greatest yields when performing literature reviews come from finding articles that are referenced from references, known as ‘Snowballing’. This approach to finding literature has been the primary method for finding related articles to those with significant findings to the topic. Literature research was done related to the problem domain to initiate a snowball-effect. The keywords, categories and domains ‘Innovation’, ‘NPD’, ‘Front End of Innovation’, ‘Uncertainty’ and ‘Business Modelling’ were identified and used in Google Scholar and at KTH Library’s website.

3.4 Interviews Communication with top management in the subject company was required to fully understand the problem, to articulate the requirements from the company, and to ensure that management supported the developed framework. The importance of top management support for product success has been demonstrated (Cooper & Kleinschmidt, 1987; Koen et al., 2001). Cooper (2008) explained that the greatest change in behaviour at an organisation takes place at the top and that a lack of knowledge regarding what information is necessary for a project could result in too much bureaucracy by demanding too much information from the project leader. This is further, emphasised by Koen et al. (2002) who explained that one of the most effective means for success in the FEI is setting criteria that describe what an attractive project looks like for the evaluation of new ideas. Clear deliverables were defined to decrease the risk of creating a tedious and bureaucratic material related to the framework. Because of this, the top management team consisting of four members were subject to the interviews. As multiple interviewees reduces the risk of a biased perspective (O’Connor & Rice, 2013), three members of the management team, the CEO excluded, were interviewed separately with the split purpose of establishing and verifying their individual commitment to establishing a process for innovation, as well as examining what criteria they evaluate new ideas on. Each member of the management team is responsible for the individuals within a certain function, such as sales and marketing. The interviews were qualitative and followed a semi-structure approach. Important to think about when performing semi-structured interviews is to have the topic on which the discussion should regard clearly defined (Edwards & Holland, 2013). Prior to the meeting, the interviewees had been asked to prepare measurements that they evaluate new projects upon with regards to their functional responsibilities as well to the responsibilities of being part of the management team. They were asked to describe their evaluation measurements and to identify what their respective team generally finds important when being introduced to a new project entering the innovation process. To clarify the topic of discussion, the following open-ended questions were posed to the interviewees to spark a discussion:

• What are the critical areas that generally have to be investigated from a top management perspective early on in a project?

• What are the critical areas that generally have to be investigated from a [department] perspective early on in a project?

• What information does [department] generally need to create material for a new release/ product add on or similar?

• How would [department] like to receive this information?

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3.5 Developing a Business Modelling Framework The results of the studies of the problem domain were an identification of a gap between theoretical conclusions and practical application. Literature could not provide a definitive solution to the problem of the subject company. Therefore, a new business modelling framework had to be developed to solve the problem at hand, one that considered the wishes and requirements of the top management team at the company. The frame-of-reference and the interviews laid the foundation for a deeper analysis of theory related to business modelling that is presented in the result. This theory was essential to the development of the framework. Previous research on business modelling frameworks has evolved from requirement specifications on components of the business model to become building blocks and frameworks (Gordijn et al., 2005). We chose to adopt a methodology that others previously have used to develop frameworks on business modelling (ibid.). It involves formulating a requirement specification on components to the business model. The choice of building blocks to the framework was subject to inspiration from existing frameworks on business modelling and the interview results. The framework is thus supported by both literature and management requirements on the content of the building blocks. The results from the management interviews were distilled into questions that would guide the progress towards the next presentation for evaluation by the management team. The contents of the building blocks will be referred to as ‘the questions’. The go-to source for this information was believed to be literature on the FEI, but the peer-reviewed body of literature on the FEI provides few suggestions on how to build an early business case to be subject to evaluation in the FEI. Further, the body of literature that discusses the importance of idea evaluation (Khuran & Rosenthal’s, 1997; Koen et al. 2001) proved to give little suggestions on practical questions to ask and answer to evaluate idea feasibility. Best practices in this area are more commonly discussed at a later stage of the innovation process, the NPD process, such as Kahn et al., (2006) and Barczak & Kahn (2012). Guidance on the topic from peer-reviewed literature included the four categories of uncertainty (Resources, Organisational, Market and Technical) (O’Connor & Rice, 2013) and from discovery-driven planning (McGrath, 2010). In addition to those questions, practitioners’ approach (Osterwalder & Pigneur, 2010; Maurya, 2012) provided multiple questions from both the BMC and the Lean BMC where questions were related to each block of the respective canvas. Lastly, Venture Cup (2017), a Swedish organisation for inspiration, guidance and education of new business ventures, provided useful questions for assessing feasibility. The compiled questions from both the scientific literature and the management team were reviewed whereas there were some duplicates in terms of purpose. The questions that were most relevant were chosen for the building blocks of the business modelling framework.

3.6 Supporting Techniques As the goal of the framework is to be used by anyone within the organisation, techniques for answering the questions would aid the user with less experience in business modelling. This was not an area in which peer-reviewed literature provided much guidance. In some cases, the questions were self-explanatory. In other cases, techniques with a more practical application were drawn from literature related to business modelling, based on the findings from Osterwalder & Pigneur (2010), McGrath (2010), Ries (2011), Maurya (2012) and Osterwalder et al., (2014) amongst other. The findings were then categorised with regards to the structure of the framework in which the findings could aid the idea owner in answering the questions. Other practical methods with the purpose of answering the questions were derived from experienced

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practitioners within the field of business modelling such as Blank (2017). The scientifically reviewed literature on the topic business modelling provided guidelines and suggestions on what to achieve rather than how to achieve it. When an interesting technique was found, further research was performed on the specific area to fully understand the potential fit to the framework. Other sources for inspiration on techniques included, but were not limited to, ‘Project Portfolio Management’ (PPM) and ‘Risk Diagnosis Methodology’ (RDM). PPM was explored as it was argued by Killen et al. (2008) to be a successful way for management to improve the innovation outcome of the company but proved to relate to later stages of NPD. RDM was explored as it in a case study by Keizera et al. (2002) had proven to reduce both time-to-market and overall project cost but was ultimately neglected as the framework is extensive and requires a lot of resources to perform in practice. Looking at what the company expected as deliverables from the current phase, both approaches were neglected.

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4 INTERVIEW RESULTS The results from the interviews mainly considered the importance of aligning new projects with business strategy and the impact of new projects, both internally and externally. Each interview result is presented in a table with three levels of information. All the interview results were considered in the development of the business modelling framework.

4.1 Head of Sales The main contributions to the idea evaluation criteria from the Head of Sales regarded financial estimations. The main takeaways from the interview are presented in Table 1. Counting from the left, the first column includes the what the requirements on the material for the ‘Formulating’-phase should include. The second column describes the information that the specific department that the interviewee manages wishes to have from the material. Lastly, the third column contains extracted information that could be valuable for the idea developer.

Table 1. Results from interview with the Head of Sales.

Business model requirements from a management perspective:

Information that the Sales team wishes to have:

Other valuable information for the idea developer:

• A hypothesis of costs related to the initiative.

• An estimation of the time until a break-even point is reached.

• An estimation of how much revenue will be generated by this initiative in 12 months.

• An estimation of the Monthly Recurring Revenue (MRR) generated through the initiative and when this will be achieved.

• A level of certainty to the financial calculations.

• An estimation of the resources that are required to reach a set level of certainty in financial projections.

• Minimum requirements for the sales team to make the initiative a success.

• Required time commitment (time to learn the new product and selling it).

• A Lean BMC for an overview of the initiative.

• The approximate cost of one hour of work from one of the sales team.

• One way of presenting the financial estimations could be through scenario-based cases where 3 different scenarios are presented: One best case scenario, one realistic scenario and one worst-case scenario.

• Important question: How will the initiative be managed internally if approved?

4.2 Chief Technology Officer (CTO) The most important aspects of any new project to the CTO are to show the reasoning behind estimations and to always make decisions with regards to the most important metric according to overarching company strategy. Currently, the focus for the organisation is on the ‘Monthly Recurring Revenue’ (MRR). The relevant takeaways are presented in Table 2.

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Table 2. Results from interview with the CTO.


Information that the IT & Data team wishes to have:


• A hypothesis of costs related to the initiative already at first presentation.

• An estimation of the time until a break-even point is reached.

• An estimation of the Monthly Recurring Revenue (MRR) generated through the initiative and when this will be achieved.

• A level of certainty to the financial calculations.

• An estimation of the resources that are required to reach a set level of certainty in financial projections.

• An estimation of activities, resources and responsibilities after the POC.

• An estimation of the time for development.

• Background information and purpose of the project to encourage creativity in problem solving.

• Functionality flow charts, both for the new product and an overview.

• The approximate cost of one hour of work from one of the data team members.

• Important to have MRR in consideration for every decision along the project.

• The idea suggestion threshold needs to be low in order to increase the number of ideas that are presented to the management team.

• How and what should be documented from the decision gates?

• A strategic value could be as important as monetary and financially successful projects.

4.3 Chief Marketing Officer (CMO) The CMO articulated a focus on practical aspects of new ideas with regards to marketing, such as how to go about communicating the essence of a new project to marketing staff, and the importance of involving the marketing function early on in a new project. The compiled result from the interview with the CMO is presented in Table 3. Much like the previous interviews, it was articulated that it is important to approximate the time that is required from the functional team to perform the specified activities.

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Table 3. Results from interview with the CMO.


Information that the Marketing team wishes to have:


• Demonstration of a clear business alignment, as time and MRR is not always the best measures for a project.

• An assessment of the impact on the organisation and involved departments.

• A calculation of Customer Acquisition Cost (CAC) using only external costs.

• Payback time calculations.

• In cases where efforts are required from the marketing team: A filled in ‘Briefing Document’, which is developed by marketing to communicate the essence of the project.

• The briefing document should also be used to estimate the time required for marketing material related to the project.

• Unique Selling Points (USPs).

• Answers to Frequently Asked Questions (FAQ) by customers.

• Involvement of the marketing function earlier in the process as they hold data regarding competitors, research, perspective, personas etc.

• Previously, a scale of ‘small’, ‘medium’, ‘large’ has been used to evaluate the trust in, or potential of different aspects of a project.

• In cases where insight in competitors is needed, one can contact the marketing team.

• The ability to give feedback on specific aspects of a new project even though it passes a decision point.

• The approximate cost of hiring a consultant when calculating costs for marketing work.

• Important to have a get-to-the- point-attitude when presenting, use straight communication.

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5 THE FRAMEWORK This chapter explains the engineered results from the development of the framework. It includes a deeper analysis of the different business modelling frameworks presented in the frame-of-reference which contributed to the resulting framework. Chosen techniques for answering the questions of each block are presented in their related building block.

5.1 Structure and Use The foundation of the developed framework is its intended purpose to formalise and customise the subject company’s ‘Formulating’-phase of the currently proposed innovation process. The framework is a product of a synthesised result from both the interviews and literature. To meet the requirements from management on criteria for the blessing/halt decisions points, additional building blocks to the Lean BMC were required. The Lean BMC, which has been used before internally, lacks the building blocks required to create a holistic picture of a new project. Especially on how the internal activities and resources should be organised and distributed to support the initiative. Looking at the Lean BMC through the business model framework by Richardson (2008), it fails to describe the internal processes and resources required for value creation and delivery systems. Because of this, the areas ‘Resource Analysis’, ‘Risk Analysis’ and ‘Implementation Plan’ were added. Further, the area ‘Financial Analysis’ was created as a building block containing both the ‘Cost Structure’ and ‘Revenue streams’ as they are strongly interconnected in capturing the created value. Table 4 shows an overview of the chosen building blocks for the framework, relates them to the building blocks of other business model frameworks as well as shows which building blocks were requested by the top management team in the interviews. What is important to note about the chosen structure is its similarities to a business plan. With regards to the ‘Formulating’-phase, a fully developed business plan is not the intended deliverable. As there are requirements on the visual aspects of the result, it needs to fit the graphical design used in documents internally at the company. The customisation of the result included usage of the company’s typographical profile and colour schemes. As most of the company’s material and documentation is online-based, this material will be so too. This is done to match the internal documentation and to enable management to access and comment on material that has been presented to them while following project progression. Where it is applicable, the branded version of the framework will contain links to internal documentation which could aid the idea owner in answering the questions. Other considerations that were made in the production of the result included the choice of presentation format with regards to similar internal documents. An unbranded version of the framework is presented in Appendix B and is an explanatory document for the activities related to the ‘Formulating’-phase as well as techniques related to those activities. All questions and techniques for dealing with the different building blocks are presented below in their respective building block.

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Table 4. The chosen building blocks for the developed framework and their recurrence in other business model frameworks.

The chosen building blocks of the Framework

McGrath & MacMillan

(1995; 2000)

Richardson (2008)

Oster- walder & Pigneur (2010)

Maurya (2012)

Koen (2017)

Oster- Walder et al.

(2014)

Joyce, et al.

(2015)

Requested in

Interview Results

Problem

x x x

x

Solution x x

x x x

x

Customer Segment x x x x x x x x

Value Proposition

x x x

x x x

Unfair Advantage

x x

Channels

x x x x

x

Resource Analysis

x x

x

x x

Key Metrics x

x x

x

Financial Analysis x x x x x

x x

Risk Analysis x

x

x

Implementation Plan

x

x

x x

Order of Use Even though the Lean BMC has been used at the company before, the order that Maurya (2012) recommends is not proposed. The key driver behind that decision was that the choice of innovation strategy affects the approach to business modelling, rendering a forced step-by-step approach to business modelling counterproductive. This means that the framework does not limit the user to follow a specific order in which to approach the building blocks.

Indicating Uncertainties As uncertainty is depicting of the early parts of a development process it is important to manage and communicate the uncertainty of all estimations. To include this in the framework, a system which allows indications of uncertainty is implemented. If a block of the developed framework includes any elements of uncertainty, it should be indicated in the introductory slides of the material developed for the framework. Depending on the degree of uncertainty related to each block, a scale resembling that of a heat-map is applied to the different blocks. Alternatively, the whole building block could be left intentionally blank to indicate a very high degree of uncertainty.

5.2 Problem This building block is one of the four that distinguish the BMC from the Lean BMC. The problem block should explain the problem that is attempted to be solved and articulate who have, is or will experience it. Ideas for new businesses that are sprung from the ‘Need Seeker’ innovation strategy, or from customer insight, start with the identification of a problem. This is the approach that both Ries (2011) and Maurya (2012) recommends that all new businesses

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should have. This because customer centric business development reduces wasting of resources. Maurya (2012) recommended that when using his Lean BMC, one should start with formulating the problem. Further, the building blocks ‘Problem’ and ‘Customer Segment’ should be viewed as a pair. No matter where the business idea springs from, the questions in Table 5 aim to help in articulating and communicating the purpose of the initiative to others.

Table 5. Questions to define the problem at hand.

Questions Origin What are the top 1-3 problems? Venture Cup (2017),

Maurya (2012), Osterwalder & Pigneur (2010)

How is the problem solved today? How severe is the problem for those affected?

If you are looking to identify a problem to solve before having a solution for a problem, the customer’s top 1-3 problems will aid in identifying what will be important enough for the customer to pay attention to. As discussed earlier, different innovation strategies will provide projects with different prerequisites for developing a business model. Because of this, the ‘Problem’ block will not always be the first to tackle and thus, the questions related to the block could be formulated in different ways.

If the problem is not yet defined, there are several techniques that aim to help the idea owner in finding unsolved problems, such as brainstorming etc. These techniques generally fall under the domain of ideation or idea genesis and are thus not further elaborated upon in this thesis. If the firm’s innovation strategy is ‘Technology Driver’, finding problems that your existing product or service can solve becomes the purpose of this block. The question should then be asked “Which are the top 1-3 problems to solve?”. Koen (2017) explained that no matter what question is asked, it is important to take the customer’s point of view when formulating and understanding the problem.

Severity of the Problem ‘The MoSCoW method’ (IIBA, 2015) ranks the necessity of subcomponents of the solution. In the same manner the severity of the problem can be presented on a scale. This can be done to create an understanding of how severe the problem is. ‘The MoSCoW method‘ requires some adjustments to suit the problem building block and not the solution. The problem is then ranked on a scale of severity with the steps “Must be solved”, “Should be solved”, “Could be solved”, “Won’t be solved”.

5.3 Solution A common pitfall is to focus too much effort on a solution that could prove to be subject to changes in a near future. Maurya (2012) explained that the solution-block is intentionally made as a small block of the Lean BMC so that it does not allow for long explanations in order to prevent the idea owner from falling into this pitfall. The questions presented in Table 6 function as guidance for painting a sufficient picture of the solution.

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Table 6. Questions to answer for the solution.

Questions Origin What is the solution to the problem?

Venture Cup (2017), O’Connor & Rice (2013), Osterwalder & Pigneur (2010)

How is the solution presented to the customer? How have you verified that your potential customers are actually interested in the solution you offer them to solve their problems?

Are there any patents or legal constraints that limit the solution?

What should the technical specifications be?

Prototyping Based on the interviews with the members with the management team, the solution should include a prototype with regards to the capability and competence of the project owner. The minimum requirement for such a prototype is a flowchart describing a detailed flow and its context. It should convey the flow for the customer, if affected, and the flow for the company. This would provide clarity in the functionality of the idea and will help to answer and visualise both the first and second questions. Further, a flow chart helps in communicating which stakeholders are crucial to the functionality of the solution. A flowchart or prototype can serve as an effective tool for communication with customers in order to answer the third questions.

Legal Aspect Regarding any legal concerns, the internal legal documents and guidelines have to be reviewed in order to answer the fourth question. The branded version of the framework includes a link to those documents. The last question would require research to understand the underlying technology, with which the IT and data team could help with, depending on workload and estimated effort.

The MoSCoW Method To prioritise the features of the solution, ‘the MoSCoW method’ (IIBA, 2015) can be used. Much like its use to rank problem severity, it can be used to prioritise what components the solution includes with the use of a scale ranging from “Must Have”, “Should Have”, “Could Have” to “Won’t Have”.

5.4 Customer Segment To start with, the market should be defined to result in an identification of a suitable customer segment for your offering, this can be done by answering the questions in Table 7. Practitioners have during the last decade presented some suggestions on how one should go about finding out who the customer should be. Maurya (2012) emphasised the importance of making sure to separate the users and the customers of the product, as those are often not the same. If the customers will not pay for the solution, they are users, and the ones who would pay for it should be identified (ibid.).

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Table 7. Questions to define the customer segment.

Questions Origin For whom are we creating value?

Venture Cup (2017), O’Connor & Rice (2013), Osterwalder & Pigneur (2010)

Describe the solution's first customers: Who are they? How many are they? Clarify what you base your estimations on. How will the market change over time in terms of size, growth prospects and trends?

Are there any barriers to entering the chosen market?

Can the customers be matched to any of the company’s predefined personas? (Only relevant in the branded material for the subject company) Interview result (Marketing)

Mapping the market in which you find your customers and understanding them are essential prerequisites to an analysis of the profitability of any initiative that includes new customers. Failing to do so properly can result in a skewed profitability analysis and cause the initiative to fail in regard to generating profit.

Market Sizing One way of assessing the size of the customer segment is through segmentation with the questions that are presented in a technique by Blank (How To Build A Startup, 2017), see Table 8.

Table 8. Questions for market sizing (Blank, How To Build A Startup, 2017).

How big is the pie? How do I find out?

Total Available Market (TAM)

• How many people would want / need the product?

• How large is the market if everyone bought? (potential revenue and units)

• Industry Analysis (Unfair Advantage)

• Search Engines • Use Internal Database

Serviceable Available Market (SAM)

• How many need/can use the product?

• How many have the money to buy it?

• How large is the market if this segment bought? (potential revenue and units)

• Talk to potential customers • Observe potential customers

Target Market (TM)

• Who do we sell to in year 1, 2 and 3?

• How many customers is that? • How large is the target market if

they all bought?

• Talk to potential customers • Identify and talk to channel

partners and competitors • Observe potential customers

The customers within the target market should rather be early adopters than mainstream customers (Maurya, 2012). Early contact with customers has shown to be a key to successful product development (Brown & Eisenhardt, 1995). Figure 12 provides the developer with one way of visualising the results of the market sizing.

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Figure 12. Market Sizing - Size of the market is dependent on focus.

VPC - Pains, Gains & Jobs to be Done When the customer segment is defined, the characteristics of the intended customer should be mapped out. The customer profile of the VPC helps to clarify the understanding of the customer segment as it addresses the activities performed by the customer – ‘Jobs to be done’, what issues the customer is facing – ‘Pains’, and the benefits the customer wants – ‘Gains’ (Osterwalder et al., 2014). By ranking all findings and establishing an overview of the customer’s prioritisations, formulating a well substantiated value proposition is easier.

Osterwalder et al. (2014) highlighted the importance of articulating all statements as concrete and tangible as possible and to separate different customer segments as their pains, gains and jobs might differ. This is an effective approach as it is not always clear what the customer needs actually are, as the needs are not always spoken (Kano, 1984; Maurya, 2012). In a study by Kahn et al. (2006) it was shown that organisations that involve customers in their product development in some way are more sophisticated than others. However, Veryzer (1998) argued that in some cases activities such as concept testing and business assessment can be discouraging for major innovations as customers are not able to fully appreciate or comprehend discontinuous (i.e. transformational) innovations. Listening to the customers are enough to understand their spoken needs, but to understand unspoken needs, observations of the customer must be performed to exceed their expectations of a product. Further, observations of established norms, history and claims of the customer would contribute to an understanding that live up to their basic expectations of a product. Understanding the customers is often related to a successful product offer, which implies that rigorous research and work have to be performed within this segment of the business model.

Personas The company has predefined personas of their existing customers which are encouraged to be utilised when developing products for current customers. They could also work as an aid when developing new personas for the specific project. However, it is important to be aware of the risks of using personas as incorrect stereotypes easily are created which could harm the end result. In the branded material for the framework there is a link to the developed personas for the company.

5.5 Value Proposition The building block ‘Value Proposition’ explains what the firm will deliver to its customers, and what they are willing to pay for it (Richardson, 2008). Many companies fail to deliver a value which matches their customers’ needs, which stresses the importance of a thorough approach to proposing value.

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Maurya (2012) highlights that the value should be unique to create a competitive advantage, that it should be composed for effective communication and that it should clarify and answer the questions what, who and why. See the questions for this building block in Table 9.

Table 9. Questions to define the value proposition.

Questions Origin What economic, social and environmental value is delivered to the customer and how?

Venture Cup (2017), O’Connor & Rice (2013), Osterwalder & Pigneur (2010), Interview results (Management)

For what value is our customers really willing to pay, and for what are they currently paying for?

What are the top 1-3 unique selling points (USPs)? Interview result (Sales, Marketing)

Three Value Dimensions The offer itself is a combination of economic value, social value and environmental value. Applying the TLBMC to all new project requires extensive research work, which is not ideal in the ‘Formulating’-phase of the POC-process. To take advantage of the benefits of introducing social and environmental perspectives in the early phases of a project, without being too extensive, the value proposition is divided into these three perspectives.

VPC - Pain Relievers, Gain Creators The value map of the VPC aid in describing what value is created for the defined customer segment in a concrete and tangible way. The value map is divided into three areas where the offer is defined and listed – ‘Products and Services’, how those are easing the customer’s pains – ‘Pain Relievers’, and how the products and services create customer gains – ‘Gain Creators‘ (Osterwalder et al., 2014). The main value created for the customer can in this way be summarised and concretised. As mentioned earlier, a fit between the value proposition and the customer segment is the main goal of the value proposition, and the value is not prudent enough if there is no fit. Another reason could be that the defined customer might not be the right for the intended solution.

5.6 Unfair Advantage The unfair advantage maps what your company has that your competitors do not. The questions that should be answered to define what the unfair advantage is for the new business initiative are presented in Table 10. Maurya (2012) explained that questions regarding the unfair advantage do not necessarily have to be answered when you first start your project.

Table 10. Questions for defining the Unfair Advantage, and their origin.

Questions Origin Are there any competing products/services? If yes, describe why the customer should buy your product over our competitors?

Venture Cup (2017) What makes the product hard to replicate by others, and how will we maintain a competitive advantage? (Design, patent, service, availability, price, suppliers, customer relations etc.)

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Porter’s Five Forces Some common pitfalls when it comes to analysing the industry are to define it either too narrowly or too broadly, making lists instead of analyses, not prioritising the most important forces, confusing price sensitivity with buyer economics, and not taking trends in consideration (Porter, 2008). Porter (1979) suggested a framework of five industry forces that can be analysed for establishing a competitive advantage. The five forces that are used to define the environment in which a business operates are presented in Figure 13.

Figure 13. Porter’s framework of five forces for industry analysis (Porter, 1979).

The positive remarks on its practical use primarily suggests that it emphasised the external environment when determining industry attractiveness than what previously had been suggested. The criticism that has been aimed towards the model mainly highlights its tendency to over-stress macro analysis of an industry rather than looking at a micro-perspective, i.e. specific market segments or products. Further, it fails to link directly to action, e.g. if there is little ability to influence one of the forces, how can that be dealt with? However, there is still valuable information to extract from such analysis. It is suggested that this five forces-framework can be used as tool to analyse the environment in which the new business should operate in with the intent to answer both questions in Table 10.

Blue Ocean Strategy While Porter (1979; 2008) focuses on managing competitors, the ‘Blue Ocean Strategy’ can be used to create and analyse a situation where competition is non-present (Kim & Mauborgne, 2004; 2005). This is typical for innovations with a transformational nature as demand is rather created than observed (Kim & Mauborgne, 2004). However, it could be used to tweak existing offers of core nature to develop adjacent or transformational offerings, which has been proved to be a successful strategy (ibid.). The intention is to create an offer that has its own market space where no competitors are active, which the authors call a ‘Blue Ocean’. The blue oceans are more likely to provide higher profit and increased growth and can be achieved easier if the organisational focus is shifted from supply to demand, and from competitors to alternatives (Kim & Mauborgne, 2005). The success of this strategy is dependent on the alignment between

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utilities, costs and price and covers both operational and functional activities, not necessarily spending big budgets on R&D (Kim & Mauborgne, 2004; 2005). Speed is often mistaken to be the primarily success factor, but it is actually about linking the innovation to the value and often to a lower cost, in contrast to differentiation strategy which usually has a higher price (Randall, 2015). The ‘Blue Ocean Strategy’ also differs from conventional strategy in that it is combining differentiation and cost (Kim & Mauborgne, 2004), where the beneficial price is strategic and aim to eliminate substitutes and alternatives to potentially new customers, not outperform competitors (Randall, 2015). The Blue Ocean strategy is supported with a ‘Strategy Canvas’ and the ‘Four Actions Framework’. The strategy canvas is a framework to map the existing and known market in order to see what qualities competitors within the red ocean currently have (Kim & Mauborgne, 2005). The ‘Four Actions Framework’ helps to map what actions should be done in order to improve the business model and advance into the blue ocean. This framework is focused on what to ‘Eliminate’, ‘Reduce’, ‘Increase’ and ‘Create’ (ERIC) to differ from the existing market and offer a new value (ibid.). It can also be used to remain within the blue ocean as potential competitors will enter the new market by time, and to create several blue oceans over time (Kim & Mauborgne, 2004). Overall, the criteria for a successful blue ocean offer are stated to be focus, divergence, and an attractive tagline (Kim & Mauborgne, 2005).

Leveraging the Marketing Team The CMO encourages interaction with members of the marketing team early on in a project as they hold data about the current competitive landscape, current customer behaviours and trends to utilise the knowledge within the company.

5.7 Channels Channels describe the path to the customers. The first channels should help you in acquiring your first customers, providing a channel for sales and for distribution. Channels can be distinguished through internal connections and already established channels, partnerships, direct- or indirect distribution channels or sales (Osterwalder & Pigneur, 2010). The aim is to achieve a great customer experience and at the same time maximise the revenue which usually is a challenge (ibid.). The questions in Table 11 are compiled to provide the idea evaluator with sufficient information on the Channels block.

Table 11. Questions for defining Channels, and their origin.

Questions Origin How will customers know about the offer and the company?

Venture Cup (2017), Osterwalder & Pigneur (2010)

How will customers be acquired? How will customers be maintained to ensure a long-term relation or make them return?

How will the solution be delivered/offered to the customer?

Map Customer Routines The channels through which the offering is delivered and marketed to the customer should be decided through understanding of the customer. One way of doing so is through mapping of the target customers’ routines (Osterwalder & Pigneur, 2010). Articulating the ideal customer relationship for the specific project could be of great guidance and increased understanding to

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the sales team at the later phases. Maurya (2012) explained that the best way to increase learning and understanding of the customers is by starting with direct sales and proceed to automated selling at a later stage. In this way, an understanding of the actual customers is achieved early on.

Use Existing Marketing Efforts If the new offer is of a more core nature, aimed for an existing customer segment, existing marketing efforts might provide an indication of how one should best allocate resources for marketing. This can be done through a marketing attribution modelling (Kannan et al., 2016). This modelling attributes sales to different channels that have been used for marketing and can help in determining which channels are the most impactful in terms of financial resources spent. For activity that require the attention of the marketing team, a link to a document that should be filled out for such a proposal is included in the branded result.

5.8 Resource Analysis Osterwalder & Pigneur (2010) categorised resources as physical, intellectual, human, and financial when they highlight the most important resources that are essential for the business model. The resources required for the initiative can be formally articulated by answering the questions in Table 12.

Table 12. Questions for defining Resource requirements, and their origin.

Questions Origin What competencies are required to create a marketable product?

Venture Cup (2017), Osterwalder & Pigneur (2010), O’Connor & Rice (2013)

Which of the competencies are currently available to us? How should we acquire missing resources and competencies?

What collaborations/partnerships are important to the venture? (Suppliers, distributors, manufacturers, advertising agencies, dealers, etc.)

What impact does this project have on the organisation and the departments that are involved?

Interview result (Management)

How much time is expected from different departments for the different activities?

Interview results (Marketing, Sales)

Internal and External Resources Required This part should not only act as a map of what resources that are the most necessary for the business model, but also communicate who and what competence is needed - both internally and externally, when it is needed, and for how long. All in order for managers to be able to plan their teams resources. These details are usually strongly connected to the financial aspects as time is positively correlated to money. The management has mentioned the costs per hour for different competences and suggests performing an estimation of both time and cost in the framework. However, estimation of the amount of time that each person needs for an activity, single-point estimations might not be the best technique due to the amount of uncertainty that most projects at this stage inherently faces. In order to create the estimations of optimistic-, pessimistic- and most likely time requirements, the marketing department has an internal document where a task can be described and from which they can estimate the required time for the marketing work.

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Utilising knowledge within the organisation for any estimations during the POC-process is encouraged by the whole management team.

5.9 Financial Analysis Financial tools are often used to support financial decisions, but the data used for these analyses might not be accurate enough (Killen, et al., 2008; Christensen, 2008). Bowers & Khorakian (2014) gave examples and pointed out that it is hard to evaluate or suggest a price in the beginning of a project, or in a more radical offer, since there might not be any competitors or similar offers available at the market yet. Koen et al. (2001) further emphasised that approximation of financial returns in the FEI is difficult to the limited information and highlights that the definition is often just a wild guess. Further, it is explained that better selection models specifically designed for the FEI are needed so that market and technology risks, investment levels, competitive realities, organisational capabilities, and unique advantages, along with financial returns, may all be considered. Burgelman (1983) argued that there is often a systematic bias toward underestimating the importance of innovation as the financial costs triumph the hidden benefits, such as organisational learning. Christensen (2008) suggested avoiding processes which typically focuses on financial analysis and instead apply discovery-driven planning (McGrath & MacMillan, 1995; 2000), as evaluating the financial returns of an initiative in a company that is not investing in innovation is very difficult (Christensen, 2008). Along the same line of reasoning, Killen et al., (2008) argued that financial data is not very accurate at points in time where important decisions about the project’s future are made as they can be skewed by optimism or enthusiasm. Bowers & Khorakian (2014) highlighted that making a financial estimation early on in a project causes an increased risk of biased and preconceived decisions. This underlines the importance of understanding the level of uncertainty within all phases of the project, which was highlighted by the CTO as a desired feature in the framework. Further, the notion that financial estimates are required early on by the Head of Sales were contrasted by both the CMO and CTO who argued that brand equity and alignment with business strategy are other important aspects for new projects. To perform an analysis and present financial projections for the specific project, the preliminary ‘Cost Structure’ and projected ‘Revenue Streams’ have to be identified.

Cost Structure To create a foundation for the financial analysis, all fixed and variable costs have to be presented and should include both internal and external activities, such as costs for in-house and outsourced development. This can be done by answering the questions in Table 13.

Table 13. Questions for defining Costs, and their origin.

Questions Origin

Which are the main costs? Define which of these are fixed costs and which are variable costs (e.g. marketing, channels, sales, development, test, customer acquisition etc.)

Venture Cup (2017) Maurya (2012), Osterwalder & Pigneur (2010), Interview results

How much does it cost to acquire one new customer? Interview results

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In order to communicate to the management which costs are the most important, costs should be ranked by size. This is something that McGrath & MacMillan (2009) does in an example of how costs should be presented when having a discovery-driven approach to business modelling. In cases where some costs are hard to estimate at an early stage, the uncertainty and estimations should be clearly defined.

Revenue Streams The pricing of the product is regarded as one of the most difficult details to decide upon, but one should remember that it is strongly correlated to the characteristics of the intended customer (Maurya, 2012). Questions that aid the idea owner in defining the revenue streams related to the initiative can be found in Table 14.

Table 14. Questions for defining Revenue Streams, and their origin.

Questions Origin How will we monetise the idea and from where will we get money? (Direct sales, resellers, advertisers, service contracts, licensing, franchising, subscriptions, etc.).

Venture Cup (2017) Maurya (2012), Osterwalder & Pigneur (2010), Interview results What price will we charge for the product/service and how did you determine

this price? Both Osterwalder & Pigneur (2010) and Maurya (2012) provided their audiences with examples on different revenue models. Research on other companies’ successful revenue models could serve as a source of inspiration to the idea owner. However, many of the revenue models listed were radically new at some point. Entire new businesses have been formed through innovating on revenue models, such as the free newspaper Metro. Just like there are many ideation techniques for developing new products to solve problems, ideas on how to appropriate a share of the created value can be the catalyst for new competitive advantage, and ideation can just as well serve as the engine.

Seeing the situation from the customers’ eyes are a central part of the business model approach. Osterwalder & Pigneur (2010) suggested looking at how the customers currently are paying, and to investigate how they would prefer to pay. Due to the difficulties in deciding upon a price at an early stage, and in this case before the actual POC, the management would at least like to get a span of what a realistic price span could be, and what consequences this would bring to the financial analysis. If there are several revenue streams to the initiative, rank them by size and clarify how much each contribute to the overall revenues of the initiative.

Financial Projections The financial projections can be calculated based on the defined costs and revenues. Some questions that help in doing so are presented in in Table 15. If an answer to any of the questions below is an estimation that can only be based on a wild guess, then this should be indicated, as to not create a bias that potentially creates unwarranted optimism or pessimism (Killen et al., 2008).

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Table 15. Questions for performing a financial analysis, and their origin.

Questions Origin Describe the number of products you estimate we will sell and when we will sell them.

Venture Cup (2017), Interview results (Marketing, Sales)

When do you estimate a break-even point? Interview results (Management), McGrath (2010)

How much revenue would this initiative generate over a period of time? (6 months, 1 year, 2 years)

How much would the Monthly Recurring Revenue be, and when will this be achieved?

It was expressed by the Head of Sales that one preferred way of doing the cost estimations was through ‘Three-Point Estimation’ (Project Management Institute, 2017). This technique creates three different cases for the outcome. One case in which the most pessimistic outcome determines the results of the revenue projections related to the project (rP), one case in which the most optimistic outcome determines the results of the revenue projections related to the project (rO) and one case in which the most likely outcome determines the results of the revenue projections related to the project (rM). If it is desired to project a single-point estimation for the costs related, this estimation can be performed through triangular distribution to estimate what the expected costs related to the project results will be. Triangular distribution of the expected costs (rE) is calculated as

!" = !$ + !& + !'3 (1)

The primary reason for using a three-point estimation is to define a range for an activity’s cost (Project Management Institute, 2017). The benefit of using a three-point estimation is improved accuracy of estimations in comparison to only using a single-point cost estimate.

5.10 Key Metrics Using the right kind of metrics is often a key to growth and improving the product, and it is not necessarily what you measure that counts, but how it is done (Maurya, 2012). Unfortunately, there is no ready innovation performance metric solution that fits all organisations or situations, which makes the subject more complex (Killen et al., 2008). Within the project portfolio management, there is no such solution provided either, but hybrids of approaches where techniques can be chosen are common to use as a complement to the lack of a complete solution (ibid.). By answering the questions in Table 16, the ‘Key Metrics’ block can be articulated sufficiently.

Table 16. Questions for defining Key Metrics, and their origin.

Questions Origin Which numbers will tell us how the venture is doing? Maurya (2012) What confirms that the POC is successful when tested?

Interview results (Management) What does the POC need to show in order for us to prove the revenue

projection?

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The author of the Lean Startup, Eric Ries (2011), put a lot of emphasis on measuring the progress and to do this continuously as the product or service is under development. However, increasing the tracking of metrics is not a shortcut to a successful progression, rather, this would be an indication of pivoting (ibid.). The metrics are often connected to the type of accounting and financial analysis that is being used in the organisation. If the innovation is of transformational nature, the type of accounting should be adjusted in order to follow up on metrics for products and services with such nature, as it is usually harder to foresee the success of a new product (ibid.). Ries’ (2011) innovation accounting is based on a ‘Minimum Viable Product’ (MVP) which would generate a picture of how far the company has developed its product. This would be followed by improving the product iteratively towards the ideal result. The improvement is to a high extent dependent on the ability to learn and use learnings, as Ries’ build-measure-learn principle focuses on. This creates a foundation for which metrics to use for measuring the progress of a product with respect to the uncertainties that normally comes with transformational characteristics of a product.

Cohort Analysis To support the innovation accounting, ‘Cohort Analysis’ is suggested as a more realistic technique for tracking the conversion rates of their different types of customers, rather than presenting a traditional analysis with aggregated numbers of total customers and total revenues (Maurya, 2012; Ries, 2011). Typically, funnel reports are used, which do not take in consideration the different lifecycle lengths of the metrics, resulting in skewed numbers (Maurya, 2012). The metrics which are suggested to be used instead should be ‘Actionable’, ‘Accessible’, and ‘Auditable’ so that they communicate clear cause and effect, are simple and understandable, and should be able to support guidance during testing.

Pirate Metrics (AARRR) One guidance for establishing such key metrics is to look at ‘Pirate Metrics’ which cover ‘Acquisition’, ‘Activation’, ‘Retention’, ‘Revenue’, and ‘Referral’ (AARRR). These metrics are commonly used to measure progress and finding customers’ hot spots, especially within software companies (Maurya, 2012). This is an activity that relates to the ‘POC’-phase but can favourably be initiated as early as possible in a project. The metrics should answer how the customers will find you, how their first experience is, if they are returning, how money is made, and if the word about the product or company is spread. This should preferably be visualised with the help of a cohort analysis (Maurya, 2012).

Existing Metrics One example of an established metric at the subject company is MRR. MRR is a metric that will be continuously used by the management as it is one of the most central decision bases internally for this year when it comes to new initiatives. The management must be aware of these mentioned pitfalls and should therefore analyse projects with different kinds of nature and characteristics separately from core initiatives. By mapping suitable metrics in the presentation material used for the POC-process, the management will be provided with important success factors for the specific initiative. Further, as the framework is partly based on the interviews, the idea owner will provide management with metrics that are stated as important in idea evaluation.

Measuring Innovation Innovation accounting should only be applied on the projects within the portfolio which are of the same nature, i.e. not core products, as comparing projects of different nature is often done,

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ending up in unfair and less favourable outcomes for innovative initiatives (Viki et al., 2017). Focusing too much on financial metrics could harm the ability of innovations of more transformational nature to succeed (Eccles, 1991) which again highlights the importance of a dynamic variation of metrics to communicate a true picture of the project and product performance. Chen (2015) argued that one should avoid depending the metrics too much on the outcome of the project, as the outcome could change during the progression of the project. By utilising a layout that resembles the business model canvas, we argue that the consequences of outcome dependent metrics are reduced as business modelling frameworks are meant to be dynamic documents and updated iteratively. Looking at the proposed innovation process at the subject company, the POC is the upcoming activity after the project has gone through the final decision gate. Concluding, metrics for measuring the success and performance of the POC should be considered in the ‘Formulating’-phase, but should not be the main focus.

5.11 Risk Analysis Risk and uncertainty are natural parts of developing new products, but should not be mistaken for the same meaning (Maurya, 2012). Risk is associated with loss and negative consequences, whereas uncertainty does not necessarily have to be related to risk (ibid.). Bowers & Khorakian (2014) explained that risk analysis is a technique for identifying unknown unknowns, or gaps in knowledge. The questions related to the ‘Risk Analysis’ can be seen in Table 17.

Table 17. Questions for defining Risks, and their origin.

Questions Origin Describe and assess the risks that exist in the different parts of your business model and how it would affect the project (technical, economic, market, environmental, human barriers, etc.)

Venture Cup (2017), O’Connor & Rice (2013), Interview results (Management) How will we manage or prevent these risks and minimise their negative

impact?

Characteristic innovation project risk factors cover many parts of the organisation as they usually regard the environment, technical aspects, management, resources, marketing, integration and strategy (Bowers & Khorakian, 2014). To increase the number of successful projects, more rigid risk analyses could be an aid, but there is also a risk of harming the creativity at early stages of a new innovation project if the analyses are too extensive (ibid.). It is suggested to apply simpler risk analysis in the beginning, and as the project evolves, more rigid analyses can be performed. The underlying reason apart from negative creativity consequences are the restricted knowledge and information available at such stage of the development. Bowers & Khorakian (2014) highlighted the importance of applying risk analysis in parallel to other development activities. More specifically, through simpler risk analyses early in the project and more rigorous as the project is forming and requires more extensive resources. They argue that even a simple risk analysis makes major difference and is better than not applying any risk analysis at all, as long as it is formal and adjusted to the specific organisation. As with processes and metrics, there is no one-solution-fits-all for risk analyses either (Bowers & Khorakian, 2014).

Probability-Impact Matrix It is of importance to the management that the project communicates what the risks are, and the level of those risks. The riskiest assumptions should be investigated first, and if there is no way to reduce the risk level of the riskiest one, there would be no point of continuing the investigation of the others (Ries, 2011; Maurya, 2012). There is an established technique for

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risk analysis at the company which has previously been performed internally to assess risks in other areas of the business through the use of a ‘Probability-Impact Matrix’. This technique was included in the framework as it is useful also in project management (Project Management Institute, 2017). The matrix allows each risk event to be assessed towards a two-dimensional scale. Its dimensions on which risks are assessed resemble the dimensions ‘Criticality’ and ‘Latency’ explained in O’Connor & Rice (2013) framework on how to manage uncertainty, see Figure 3, but are named ’Probability’ and ‘Impact’. Both dimensions are evaluated on a 5-step scale ranging from ‘Very Low’ to ‘Very High’.

5.12 Implementation plan Important aspects of the implementation are to cover what the key activities will be in the later phases of the project and who should perform it. Regardless of which phase of the POC-process a project is in, a plan for what the next steps toward implementation is desired by the management team. This proved true for all managers. Generally, communication with both external and internal parts, as well as cross-functional activities in the early stages of development are argued to be important activities to prepare for an implementation as this generates increased understanding for what an implementation requires (Brown & Eisenhardt, 1995; Osterwalder & Pigneur, 2010; Ernst et al., 2010; Eling & Herstatt, 2017). The questions, see Table 18, derived from theory and the interviews together create a template for an ‘Implementation Plan’ at this stage.

Table 18. Questions for defining an Implementation Plan, and their origin.

Questions Origin What are the key activities you need to perform in order to create and deliver your value proposition to the customer?

Venture Cup (2017), O’Connor & Rice (2013), Interview results (Management) Who will do what and how much time is estimated for that?

A more extensive plan for the project is required in the later phase, after the ‘Formulating’-phase. McGrath and MacMillan (1995; 2000) emphasises the importance of describing key steps that are needed in order to produce the desired output. The activities related to this building block should give indications of what the key activities are, which departments are involved and what the time ranges are. Activities with a higher degree of uncertainty in terms of time estimations are recommended to be decomposed into sub-activities where time is easier to estimate (Project Management Institute, 2017). This material should rather act as a solid base for the project plan, which will be the deliverable for the next phase in the POC-process at the subject company. New calculations for budget, responsibilities, time plans etc. will therefore be easier to establish. The HoSI requested that the implementation plan at the ‘Formulating’-phase should be a simple slide that only provides an oversight for how the product should reach the market, by articulating what the most important next steps are.

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6 DISCUSSION This chapter discusses the methodology of the paper used for developing the framework, any potential biases that could have affected the outcome of the results, the applicability, validity and limitations of the results.

6.1 Methods Used Management Interviews The limitations to the project before its start included that the management team would have little to no time to devote for this project, and that most interaction would be with the HoSI. The attitude towards the project quickly proved positive from the management side and there was some demonstrated commitment. This resulted in the opportunity to interview the three out of four members of the management team, which was of great value to making the framework tailored to the company. However, the framework would have benefitted from further review from the management. This was unfortunately not realistic due to emerging circumstances demanding the management’s attention and time.

The knowledge of the POC-process differed significantly amongst the different top managers. The resulting evaluation criteria varied because of this. For example, the work required to create material that should be subject to evaluation differs largely depending on where in the POC-process the project currently is. This means that the evaluation criteria from the interviews are based on our request. The request was for them to prepare measurements that they evaluate new projects upon regards to their functional responsibilities as well to the responsibilities of being part of the management team. It did not clearly indicate that the interviews had a focus on the ‘Formulating’-phase, but rather opened up for evaluation criteria that possibly could’ve been related to other blessing/halt decision points. The intention was to value the results from all interviews equally, meaning that each manager’s input should have the same possibility of affecting the outcome of the framework. The interview with the Head of Sales mainly resulted in evaluation criteria in the domain of financial feasibility. As the job of each manager is to make sure that their function is represented in these issues, it was not surprising that the Head of Sales was the member of the management team that emphasised financial feasibility. However, there is a clear difference between the questions that were derived from the managerial interviews and the questions that were derived from literature with regards to the amount of emphasis put on financial estimations. This raises the issue whether evaluation criteria on financial feasibility should be present in the framework in its current, somewhat extensive, form at this early stage of innovation. The methodology of involving those who will be using the framework in its development is similar to what Gordijn et al. (2005) explained as how previous research on business modelling has been performed and from which frameworks have evolved. This could also explain the similarities between the evaluation criteria, and the questions and guidelines from McGrath (2010), Osterwalder & Pigneur (2010), Maurya (2012), O’Connor & Rice (2013) and Venture Cup (2017). As researchers who strive to apply theory in practice, we find this validating of the connection between business modelling theory and the problem domain.

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Biases As one of the students previously has been working as an intern at the company, the risk of psychological biases among colleagues has been discussed. The effect of such biases remains unknown, but the awareness of the risk could have somewhat reduced the likeliness of negative consequences (Kihlander & Ritzén, 2012). Further, the thesis is based on co-creation and three semi-structured qualitative interviews in which biases could have occurred (ibid.). The intention was that the student without previous relation to the subject company would contribute to a less influenced perspective of the organisation and thereby reduce the risk of result influenced by biases. This could potentially have skewed the interview results in a way that would affect the results negatively. However, we experienced that the interviewees had a high degree of transparency that would not have been natural if we would not have been employed at the company. As the company has chosen to be anonymous in this thesis, there has been no interest or bias in presenting an exaggerated positive image of the company. As the company’s incitement for co-creation of the framework and participation in the thesis is to receive a tailored solution to the problem for the organisation, the incentives to distort the truth are small as it is in their own interest to share all necessary information. The questions that were chosen for each building block were chosen by the authors. This opens up for potential errors due to confirmation bias when choosing suitable questions and eliminating duplicate questions for the predetermined blocks of the framework.

Literature Study Applying ‘Snowballing’ to the literature research has shown to be an effective way of finding new and relevant articles to read. The domain ‘Business Modelling’ in which the problem description was most frequently discussed in literature was found through snowballing. After a while, the snowballing method resulted in an extensive number of articles to read and the relevance of the articles was harder to evaluate. This led to a distinction of which articles to choose, which unintentionally could have eliminated articles which could have been valuable to the thesis. Snowballing also became a method for validating different sources of knowledge through understanding how frequently they are discussed and mentioned, and whether they have been subject to a critical lens from their peers.

6.2 Result ‘Formulating’-phase One delimitation to the framework prior to its development was that it was intended to function as the material for the ‘Formulating’-phase of the POC-process, see Figure 1. The potential consequences of this delimitation include that other material could be developed internally for the other phases of the POC-process, potentially overlapping techniques in the framework. Further, material for other parts of the process could potentially be designed differently, weakening the overall impression of the POC-process. As highlighted by Khurana & Rosenthal (1998), the entire innovation process has to be managed in order for a firm to be competitive within innovation. There is no internally developed material that is equivalent to the developed framework for the next phase of the POC-process, ‘Project Plan’. Neither are the requirements for evaluation of such a tool articulated. This limits the usefulness of the framework as it is not adjusted to fully prepare the idea owner with the knowledge of what the requirements for the ‘Project Plan’-phase are.

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Generality Even though the developed framework has not been tested for its intended purpose, it follows that the less customised it is to the subject company due to a lack of innovation strategy, the more general its application of it will be. This indicates that the framework could be valuable for other companies, practitioners or intrapreneurs looking to progress projects through the similar phases of their innovation processes. However, this does only hold true for the unbranded version of the result that is presented here, as the branded version both follows the graphic profile of the company as well as contains links that are not public. It is worth noting that many of the questions in the framework originates from interviews at the subject company. If the framework was developed at another company the idea evaluation criteria could, and to a degree probably would, differ from the yielded results, causing the framework to be developed differently. This potentially reduces the general applicability of it. It is difficult to assess whether the general version of the developed framework is influenced by the fact that the company that contributed to the shopping list of requirements is a B2B-, FinTech-company. Most components of the material that are obviously only of significance to the specific company is not included in the unbranded version of the material, both due to confidentiality reasons but also to increase the general applicability of it. The fact that the questions were derived only from this company does increase the risk of the characteristics of the company influencing even the unbranded version of the material. Further, the questions themselves were not altered between the two (company-branded and unbranded) versions of the guiding material.

Innovation Strategy The framework could be subject to changes in the environment in which it is meant to aid the innovator due to changes in the overall innovation process or strategy. In the words of Pisano (p. 44-54, 2015) “Innovation strategies change, therefore innovation processes and systems must change!”. As the subject company does not have an explicit innovation strategy, there is a risk that the articulation and implementation of one would affect the existing processes and systems, including the material related to the framework. As explained by Koen et al. (p. 49, 2001), it is important that the entire innovation process is “aligned with the business strategy to ensure an uninterrupted, flowing pipeline of new products and processes with value to the corporation”. This has also led to a limitation of the customisability of the framework during its development, e.g. when attempting to establish a set chronological order for using it.

Did We Democratize Innovation? The purpose of the initiative was to create a result that can be used by any member of the organisation to democratise innovation. Due to the limitations set on the time commitment from other employees than the HoSI, validating and co-creating the framework with the intended practitioners was made difficult. As the HoSI and strategy team were part of the intended users for the framework, this does not eliminate its applicability. It might even be more frequently used as the HoSI dedicated significant resources to co-create and tailor the framework to the HoSI’s needs.

Formality and Extensiveness Whether the framework reached a desirable level of formality or not is hard to evaluate as it is partly up to the eye of the beholder. The top management at the subject company wish to receive a short presentation, but at the same time they have high demands on the work-related research and information gathering at the early phases of the POC-process. Some of the literature from

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which the questions were derived, such as Venture Cup (2017), included material which was intended to aid in developing a full business plan. Osterwalder & Pigneur (2010) argued that their framework for business modelling, the BMC, should serve as a summary of a business plan. Our tailored framework for business modelling has thus included questions that require a more extensive answer with more extensive work behind it.

A problem related to creating an extensive, fully developed business plan for this phase of the innovation process is the risk of overkill deliverables with consequences including management or gate-keepers not reading the developed material (Cooper, 2008). To ensure that the framework was developed with a desired level of formality, the extensiveness of it was discussed with both the HoSI and the top management members. With regards to Cooper’s (2008) explained pitfalls of overkill deliverables, the structure of a canvas for the framework limits the space to write which further reduces the material’s extensiveness. If the deliverables of the ‘Formulating’-phase of an idea is blessed for further progress, then the material developed with the use of the framework is a solid foundation on which a project plan can be written.

The intention of the framework is to encourage the idea developer to visualise and present the idea in a creative way, as this usually is a better way to communicate a new business model and the logic of it (Osterwalder & Pigneur, 2010). The idea developer is free to add necessary slides to the presentation material, as long as it still corresponds to the management’s questions and is not too extensive, as the material that reaches management should be concise and purposeful.

Business Modelling Framework for the FEI Many business modelling frameworks exist, all with their own purpose(s). Osterwalder & Pigneur (2010) described a multitude of applications for their BMC. Ries (2011) argued that the Lean Startup principles can and should be used at any company, no matter the size. The purpose of the Lean BMC is to be a tool for the practicing entrepreneur. Few peer-reviewed business modelling frameworks have its main purpose to function during the FEI. However, many of the above-mentioned frameworks include questions, components and elements that relate to the activities that have been explained as part of the FEI. We do describe the FEI Canvas as a business modelling framework for projects in the FEI, but its applicability and usefulness has not been reviewed other than in Koen’s own blog post (Koen, 2017). There are differences and similarities between the developed framework and the FEI Canvas by Koen (2017). Both share the same structure as other business modelling frameworks, constituted by building blocks to be filled in by the idea developer; both includes building blocks from the Lean BMC, and both has added the functionality of highlighting the most crucial risks and uncertainties/assumptions. One could argue that the building block ‘Key Resources’ from the FEI Canvas and the block ‘Resource Analysis’ of the developed framework share the same purpose, which would constitute another similarity. This is also a similarity to the BMC by Osterwalder & Pigneur (2010). Further, the building block ‘Implementation Plan’ and ‘Key Processes’ could prove to yield similar results. The naming of the building block ‘Implementation Plan’ comes from the desire of having the next steps related to commercialising the idea formulated in terms of when to occur and their duration. According to us, the framework that includes most components of business modelling is Richardson’s (2008). The building blocks of both the developed framework and the FEI Canvas can all be fitted into the three major components of his ‘Business Modelling Framework’.

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The Framework as Part of the POC-Process One positive aspect in terms of the applicability of the framework is that it is based on the Lean BMC as a starting point for the visualisation and for development of its content. Today it is an existing process for documentation and visualisation used for communication of new business projects across the departments at the company and includes the front-end activities that are required for project success according to literature. The current process could give the impression of a classic linear Stage-Gate process. Developing or changing the structure of the company’s existing innovation process was not part of the scope, but the approach to the development of the framework was to pay attention to how iterative the ‘Formulating’-phase is, which is demonstrated in Figure 1, much like Cooper (2008) himself argue in his later work. To some extent, failing and learning from mistakes to improve is natural to the human. However, it seems that processes that are not clearly communicating the iterative character guttle the practitioner, who then instead works more linear. This makes the choice of techniques important. To kindly force the idea owners to work iteratively in this step of the process, the visualisation of the material has been reviewed and discussed. One of many benefits with using a BMC is the allowance of iterative work, which can help in overcoming organisational barriers (Griffin et al, 2014). Iterative processes have also proved to be more successful when the level of uncertainty is higher (Ries, 2011). Just like the deliverables from the previous phase ‘Idea Exploration’ of the POC-process can work as a foundation on which the idea is developed further, the deliverables from the ‘Formulating’-phase can be considered a precursor to the next phase ‘Project Plan’.

References and Literature Important to note about the contributions to the framework is that they are not all peer-reviewed. For example, the questions for idea evaluation, which the framework is based upon, were chosen from several different sources, both peer-reviewed sources such as O’Connor & Rice (2013), and non-peer-reviewed sources, such as Osterwalder & Pigneur (2010), Maurya (2012) and Venture Cup (2017).

Sustainability Aspect Any business model framework with the intention to favour change could act as a catalyst for innovations with the aim to contribute to positive social and environmental change. A good example of this is Joyce et al.’s (2016) TLBMC. Innovations and new ideas which are not characterised by high revenue could easily be neglected when only the economic value is considered. New ideas which contributes to high social or environmental value could in some cases prove to be more interesting and important to a company. The management expressed the importance of their understanding of what kind of value a project proposes when evaluating the impact of the project and determining financial estimations. Adding environmental- and social perspectives to the ‘Value Proposition’ building block of the framework enables the idea owner to communicate the different perspectives of value. In this way, sustainable perspectives are forced to be considered in a natural way in all new innovation projects at the subject company, without demanding extensive sustainability analyses.

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7 CONCLUSION This chapter explains how well the results fulfilled its purpose, and in extension, how well the results solves the described problem.

The result consists of two parts: (1) the results from the interviews with the management team which aims to lay the foundation for the requirement specification on which components (2) the framework should contain. The purpose of the framework was to function as a material that would guide the idea owner in progressing their ideas through the ‘Formulating’-phase of the POC-process. To fulfil its purpose, the framework is presented together with a deeper analysis of the separate building blocks that create the structure, together with suggestions on techniques that aim to help the user of the material related to the framework. From the literature study and our observations of the subject company, we have understood the importance of allowing innovation to continuously occur through a process for stimulating innovation, rather than believing that aiming for innovation as a result will be enough. Innovation as a result can be the end-goal or a vision. To achieve this, a strategy which supports the development and experimentation of innovations should be in place. Practically, this is achieved through a commitment from management, allocation of resources that enable innovative efforts and established processes for stimulating innovation. The developed material for the framework is part of a formal process of that kind. The results fulfil the following parts of the purpose:

• Management idea evaluation criteria are (together with literature) the foundation to which questions are presented in the framework,

• The framework provides the means through which uncertainties on different questions or building blocks can be indicated, through a risk analysis, indicators of uncertainty to any statement and by allowing sections to be left blank,

• Helpful techniques for developing and presenting the idea are presented in the framework,

• The graphical branding of the company’s version of the framework, together with presentation material to standardise what components of an idea management are presented with. This is not presented in this thesis due to confidentiality reasons.

Even though this was not specified in the problem description or in the purpose of the paper, the framework fills a gap that is argued to exist between the more theoretical subject FEI and the more practically explored topic of business modelling. Whether the framework will succeed in democratising innovation within the subject company cannot be said with certainty. Neither can any conclusion be drawn on how useful the framework will prove to be for the subject company. The hope is that where our knowledge of the company has been limited, the HoSI and the management team have been representative of the company’s wishes and thus been able to evaluate the practical usefulness of the framework based on their experience. The framework is tailored to the specific company with regards to the fact that there is no strategy for innovation, and to the fact that the other parts of the POC-process have yet to be developed. Further, the customisability includes the following aspects of the framework:

• Graphical profile of the framework delivered to the company, • Partly based on a company familiar framework, the Lean BMC, • All evaluation criteria from management were considered (Table 1-3) in the

development of the framework.

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Even though there are several arguments that explains the level of customisation the framework has to the subject company, there are few aspects of its customisation that limits its usefulness in a more general application. First off, an unbranded version of the material is presented in this thesis in order to create a version of it that is more generally applicable. Secondly, the Lean BMC has been used by other companies in similar applications historically, and lastly, only a few questions derived from the interviews are completely situation-specific to the subject company’s internal processes. The framework should be considered a material that functions as a phase-deliverable for processes, such as the POC-process, where there is a decision point between the articulation of a business model and a completed business plan. We argue that the result is a business modelling framework that considers recommendations for how to handle the FEI, and that regards theory on business modelling to establish what such a framework should include. The argument for this is that the result is based on a wide variety of literature and authors. Concluding, we argue that the result can be considered a synthesis of knowledge from two relatively young research areas with its primary area of application at one specific company.

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8 RECOMMENDATIONS & FUTURE WORK This chapter provides the subject company with recommendations when using the framework and explains some necessary future work related to the result.

8.1 Recommendations Innovation Strategy The processes for new innovation projects among service-based companies are generally less mature than in product-based companies (Killen et al., 2008). One could argue that it might be hard to determine whether the company has reached a suitable age to implement a standardised process for innovation. With this in mind, and with regards to the rapid growth of the company, establishing a process for dealing with innovation could prove to have its primary use in the future. Whether a company is in its conception or has matured and grown for a long period of time, the need to develop and improve exists (Killen et al., 2008). All with the goal of securing future success by stimulating growth. Based on this and the discussion of the applicability of the result, we suggest that the company should articulate an innovation strategy. Doing so allows the innovation process to be developed so that it is aligned with this strategy. This would come with benefits such as more ideas that are aligned with the overall strategy and a transparent basis on which blessing/halt decisions are based on. Further, it enables new projects to evaluate whether or not they are aligned with such a strategy. Resources should be allocated for the different levels of innovations: core-, adjacent- and transformational. This should be established in order to practically commit to innovation. This notion is based on observations of how innovation projects are prioritised internally today. One way of organising the resources to promote innovation is through establishment of cross-functional teams whose primary responsibilities are to progress innovation projects through a process, such as the POC-process. This regards organisational issues and are not to be solved by the framework itself.

Democratising Innovation Democratising innovation at the subject company was part of the purpose of the POC-process. Even though the framework provides techniques for an idea owner, there is a risk that the framework is less accessible to someone who is not used to perform such tasks in comparison to someone in the strategy team. This raises the question whether the subject company should lower their requirements on projects that are developed by others than the strategy team or give them more time for developing their ideas. Further, we argue that the issue related to innovation not being democratised at the company is related to the organisational structure. As of today, most ideas that have any chance of being subject to evaluation are presented by for instance someone in the strategy team. This issue is not for the framework to resolve. We argue that there must be incitements for employees in the organisation to propose and progress ideas through the POC-process.

Innovation Metrics & Financial Estimations Another factor that could improve the overall innovation management at the company would be to invest more knowledge in innovation metrics and consider its characteristic dos and don'ts. As mentioned, transformational innovation should not be evaluated against the same metrics as core innovations as this is often very misleading and include a higher degree of uncertainty.

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As Koen et al. (2001) explained, approximating financial returns in the FEI is difficult due to the limited information and uncertainty present. It is also mentioned that the financial feasibility is often just a wild guess at these stages. As mentioned earlier, Bowers & Khorakian (2014) highlights that making a financial estimation early on in a project causes an increased risk of biased and preconceived decisions. One cannot blame the Head of Sales at the subject company for contributing to this issue, as it is part of the responsibility as a functional manager to decrease uncertainty related to his/her function. However, as a part of the cross-functional management team, there is a need for committing to innovation by understanding that the requirements on financial estimations or metrics cannot be the same for transformational- and core innovation projects. From a managerial perspective, both the CTO and CMO did put emphasis on that the value of a project does not always have to be direct financial returns, but could be constituted through other valuable returns such as brand equity etc. To eliminate the risk of reduced applicability of the framework due to a systematic bias towards underestimating the potential of transformational innovations due to the inclusion of extensive financial feasibility questions, the ability to use three-point estimations, indications of uncertainty and to leave questions blank in the framework were added.

8.2 Future Work Even though the framework is co-created with the subject company, testing of the framework and its applicability is desired. As of today, a new innovation project is planned to enter the ‘Formulating’-phase of the process with the aim to test the framework. Future work would be to evaluate the process with regards to the idea owners’ perspective and the management’s perspective. To assess how applicable the framework is at other companies, further case studies should be performed. Favourably in settings where the framework would be used as a material in a phase similar to that of the ‘Formulating’-phase of the POC-process. This would increase the validity of the general applicability of the framework and justify that the inputs gathered from management at this company prove to correspond to general requirements on deliverables at the end of such a phase in other companies. Further case studies like this could either confirm the general applicability or provide new angles of perspective and contribute to changes of the framework.

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APPENDIX A: THE FEI CANVAS The business modelling framework for the FEI by Koen (2017).

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APPENDIX B: THE FRAMEWORK This material is the result of an M.Sc. degree project in ‘Integrated Product Design’, within the ‘Innovation Management & Product Development’-track at the ‘Royal Institute of Technology’, performed during the spring of 2019. It is co-created through a case study with a Swedish Fintech company.

It is a material that is the embodiment of the engineered business modelling framework presented in the results of the thesis. Its purpose is to function as a guiding material that the idea owner can use during the ‘Formulating’-stage of the company’s innovation process as explained in the introductory chapter. The building blocks of the canvas are presented in this material in a specific order. This should not force you to completely answer all questions presented under each block one at a time.

All pages of the developed e-book are presented below. To get the full experience of using the material, either the e-book or a printed version of it should be used.

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Why does this material exist?This material was created to guide you, the intrapreneur, on your journey through one of the most uncertain phases of innovation - the front end. Its content is derived from academic journals on innovation, business mo-delling and uncertainty, as well as from well-known practitioners within corporate entrepreneurship such as Ash Maurya, Alexander Osterwalder and Yves Pigneur. The canvas presented above is the product of a thesis with the goal of developing a business modelling framework based on the results of a literature- and a case study at a Swedish FinTech company.

Where do I start?The building blocks of the canvas is presented in this material in a speci-fic order. This should NOT force you to completely answer all questions presented under each block one at a time. You can finish any page in any order, or just jump between them.

What if I get stuck?Many of the questions can surely be answered straight away, while some will require extensive amounts of resources to answer and validate. Because of this, it is completely fine to leave questions unanswered and blocks empty, as long as you indicate this to those who make the next halt/blessing-decision for the project.

When do I use it?The material intends to guide your project’s development through a phase located after the typical phase in which a (Lean) Business Model Canvas (BMC) is the deliverable, and prior to the phase where your intended de-liverable is a fully articulated project plan. By using the material you will be able to deliver information which is more relevant to your decision makers than the traditional BMC or the Lean BMC, with less work than through de-veloping a full business plan.

Problem

Solution

Value Proposition

Unique Value Proposition

Customer Segment

Key Metrics Channels

Idea Headline

Resource AnalysisRisk AnalysisFinancial AnalysisCost Structure

Revenue Streams

Implementation Plan

Uncertainty DisclosureAs uncertainty is characterizing the early parts of a development process it is important to ma-nage and communicate the uncertainties of all estimations. To include this in the framework, a system of indication of uncertainty is implemented. Indicate the level of uncertainty by high-lighting the statements or hypotheses on a three-step scale from green to red.

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Problem

What are the top 1-3 problems?

How is the problem solved today?

How severe is the problem for those affected??The problem block should explain the problem that is attempted to be solved and ar-ticulate who has, is or will experience it. Verify that the problem is actually a problem. Remember that there could be problems that are spoken and unspoken. Unspoken problems can be found by observance. Explain how (if ) the problem is solved today.

Different innovation strategies will provide projects with different prerequisites for developing a business model. Because of this, the ‘Problem’ block will not always be the first to tackle.

The severity of the problemTo create an understanding of how severe the problem is, the MoSCoW method with a twist can be used.

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Must be solvedThe most vital problems that need to be solved

Should be solvedProblems considered important, but not vital

Could be solvedProblems that are nice to solve

Won’t be solvedProblems that provide little to no value to solve

1

Solution

!What is the solution to the problem?

How is the solution presented to the customer?

How have you verified that your potential customers are actually interested in the solution you offer them to solve their problems?

Are there any patents or legal constraints that affect the solution?

What should the technical specifications be?

A common pitfall is to focus too much effort on a solution that could prove to be subject to changes in the near future, therefore, the description should be short and clear. The solution should include a prototype with regards to the capability and competence of the project owner. The minimum requirements for such a prototype is a flowchart describing a detailed flow and its context. It should convey the flow for the customer, if affected, and the flow for the company. This would provide clarity in the functionality of the idea and will help to answer and visualise both the first and second questions.

Prioritisation of featuresTo prioritize the features of the solution, the original MoSCoW method can be used.

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Must haveThe most vital features you cannot skip

Should haveFeatures considered important, but not vital

Could haveFeatures that are nice to have

Won’t haveFeatures that provide little to no value to solve

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Customer SegmentGains

Map the benefits which the customer wants.

PainsAdress the issues the

customer is facing.

Jobs to be doneDefine the activities performed by the

customer.For whom are we creating value?

Describe the company’s first customers: Who are they? How many are they? Clarify what you base your estimations on.

How will the market change over time in terms of size, growth prospects and trends?

Are there any barriers to entering the chosen market?

Can the customers be matched to any of the company’s predefined personas?

TAMTM SAM

Total Available Market (TAM)

Serviceable Available Market (SAM)

Target Market (TM)

How big is the pie?How many people would want/need the product?How large is the market if everyone bought?

How many need/can use the product?How many have the money to buy it?How large is the market if this segment bought?

Who do we sell to in year 1, 2 and 3?How many customers is that?How large is the target market if they all bought?

How do I find out?Industry Analysis Use Search EnginesUse the Internal Database

Talk to potential customersObserve potential customers

Talk to potential customersIdentify and talk to channel partners and competitorsObserve potential customers

Mapping the market in which you find your customers and understanding them are essential prerequisites to an ana-lysis of the profitability of any initiative that includes new customers. Failing to do so properly can result in skewed profitability analysis and cause the initiative to fail in re-gards to generating profit.

Market Sizing Assessing the size of the customer segment can be done through seg-mentation with regards to the questions that are presented in a framework by Steve Blank.

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Value PropositionGain Creators

Describe how the offer creates customer gains.

Pain RelieversDescribe how the offer eases

the customer’s pain.

Product/ServiceDefine the offer you intend to

provide to your customer.What value is delivered to the customer and how? (money / time / convenience / quality improvement / social / environmental etc.)

For what value are our customers really willing to pay, and for what are they currently paying for?

What are the top 1-3 unique selling points?

The building block ‘Value Proposition’ explains what the firm will deliver to its customers, and what they are willing to pay for.

If you need help to articulate a value proposition from your knowledge of the customer and your proposed solution you can use the Value Proposition Canvas.

Economic

Perspectives of valueThe total offer is a combination of the three: Economic, Social and Environmental. This has to be considered when deter-mining financial estimations etc. It is important to cover the value creation for all stakeholders: customers, investors and shareholders, employees, suppliers and partners, environment, and society.

EnvironmentalSocial

Define the economic value for stakeholders

and shareholders.

Clarify what is being examined in the

environmental area and the impact.

Communicate benefits for stakeholders and

society more broadly.

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Unfair Advantage

Are there any competing products/services? If yes, describe why the customer should buy your product over your competitors?

What makes your product hard to replicate by others, and how will you maintain a competitive advantage? (design, patent, service, availability, price, suppliers, customer relations etc.)

The unfair advantage maps what your company has that your competitors do not. Some common pitfalls when it comes to analysing the industry are to define it either too narrowly or too broadly, making lists instead of analyses, not prioritising the most important forces, confusing price sensitivity with buyer economics, and not taking trends in consideration.

Entering a busy market?To get a holistic overview of the market you are entering, an industry analysis based on Michael Porter’s five forces can be executed.

Define the industry, the threats from new entrants and substitute products and services, bargaining power of suppliers and customers.

Entering an unclaimed market?The Blue Ocean strategy can be used to create and analyse a situation where competition is non-present. This is typical for innovations with a transform-ational nature as demand is rather created than observed. However, it could be used to tweak existing offers of core nature to develop adjacent or transformational offerings, which has been proved to be a successful strategy

ERICTo distinguish your offer from your competitors’, map what activities andfeatures you have to Eliminate, Reduce, Increase and Create.

Bargaining Power of Suppliers

Bargaining Power of

Customers

Threat of substitute products &

services

Threat of new

entrants

Competitors

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Channels

How will customers know about the offer and the company?

How will customers be acquired?

When you’ve got customers, how will you pro-ceed in order to maintain these in the long term?

How will the offer be delivered to the customer?

Channels describe the path to the customers. Channels can be distinguished through internal connections and already established channels, partnerships, direct- or indirect distri-bution channels or sales.

Targeting existing customers?

Involve your company’s sales department to make use of their

expertise.

Attribution modelling is a way to att-ribute sales to different channels that

have been used for marketing and can help in determining which channels

are the most impactful in terms of financial resources spent.

Targeting new customers?

Understand your customer segment’s routines through observation and research.

To increase learning and understan-ding of the customers. start with direct sales and proceed to automated selling

at a later stage.

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Resource Analysis

What competencies are required to create a mar-ketable product?

Which of the competencies are currently available to us?

How should we acquire missing resources and competencies?

How much time is expected from the different competencies to create the product?

What collaborations/partnerships are important to the venture? (suppliers, distributors, manufactu-rers, advertising agencies, dealers, etc.)

This part should not only act as a map of what resources that are the most necessary for the business model, but also communicate who and what competence is needed - both internally and externally, when it is needed, and for how long, for managers to plan an optimal use of resources.

These details are usually strongly connected to the financi-al aspects as time is positively correlated to money.

PHYSICALFINANCIAL

HUMAN

INTELLECTUAL

INTERNAL RESOURCES

Resources can be categorised as physical, intellectual, hu-man, and financial where they aim to highlight the most important resources that are essential for the business mo-del.

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EXTERNAL RESOURCES

Key MetricsWhich numbers will tell us how the venture is doing?

What confirms that the Proof of Concept is successful when tested?

What does the Proof of Concept need to show in order for us to prove the revenue projection?

Using the right kind of metrics is often a key to growth and improving the product, and it is not necessarily what you measure that counts, but how it is done. Unfortunately, there is no ready innovation performan-ce metric solution that fits all organisations or situations, which makes the subject more complex.

Measuring innovation is different from measuring core businessInnovation accounting should only be applied on the projects within the portfolio which are of the same na-ture, i.e. not core products, as comparing projects of dif-ferent nature is often done, ending up in unfair and less favourable outcomes for innovative initiatives. Focusing too much on financial metrics could also harm the ability of innovations of more transformational nature to suc-ceed which again highlights the importance of a dyna-mic variation of metrics to communicate a true picture of the project and product performance.

Pirate MetricsOne guidance for establishing key metrics is to aim for ‘Pirate Metrics’ which cover acquisition, activation, retention, revenue, and referral (AARRR). These metrics are commonly used to measure progress and find customers’ hot spots, especially within software companies

AA

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R

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eferral

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etention

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Financial Analysis

Which are the main costs?

Rank them by size and define which of these are fixed costs and which are variable costs, (e.g. marketing, channels, sales, development, test, customer acquisition etc.)

CostsAll fixed and variable costs have to be presented and should include both internal and external activities, such as internal development costs and external development costs, if any.

How will you monetize your idea and from where will you get money?

Rank the revenue streams by size. (direct sales, resellers, advertisers, service contracts, licensing, franchising, subscriptions, etc.).

Revenue StreamsThe pricing of the product is regarded as one of the most difficult details to decide upon, but one should remember that it is strongly correlated to the characteristics of the intended customer.

To perform an analysis and present financial projections for the specific project, the preliminary ‘Cost Structure’ and projected ‘Revenue Streams’ have to be iden-tified. If it is hard to perform a thorough financial analysis at this point in time, make sure to describe what you require in order to answer the questions of this block in the ‘Resource Analysis’-block

Describe the number of products you estimate to sell and when you will sell them.

When do you estimate a break-even point?

How much revenue would this initiative generate over a period of time? (6 months, 1 year, 2 years)

How much would the Monthly Recurring Revenue be, and when will this be achieved?

Assess the certainty of the financial calculations on a scale from 1 to 10, and clarify what is required to achieve a 10.

Three Point EstimationThe primary reason for using a three-point estimation is to define a range for an activity’s cost. The benefit of using a Three-Point Estima-tion is improved accuracy in comparison to only using a single-point cost estimate.

Such an estimation can be done by creating three different cases. One case in which the most pessimistic outcome determines the re-sults of the revenue projections related to the project (rP), one case in which the most optimistic outcome determines the results of the revenue projections related to the project (rO) and one case in which the most likely outcome determines the results of the revenue pro-jections related to the project (rM). If you want a single-point estima-tion (rE), this can be calculated as:

rE = (rO+rM+rP) / 3

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Risk Analysis

Describe and assess the risks that exist in the different parts of your business model and how it would affect the project (technical, economic, market, environmental, human barriers, etc.)

How will you manage or prevent these risks and minimize their negative impact?

Probability Impact MatrixUse to assess risk according to how likely a risk event is to occur and its severity. The matrix allows each risk event to be assessed towards a two-dimensional scale. Its dimensions are named ’Probability’ and ‘Impact’.

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Implementation PlanWhat are the key activities you need to perform in order to create and deliver your value proposition to the customer?

Who will implement it and how much time is estimated for that?

Determining key activitiesImportant aspects of the implementation are to cover what the key activities will be in the later phases of the project and who should perform it. Generally, communication with both external and internal parts, as well as cross-functional activities in the early stages of development are argued to be important activities to prepare for an imple-mentation as this generates increased understanding for what an implementation requires.

This material should rather act as a solid base for a future project plan.

CommercialisationPOCDevelopment

What?Who?

For how long?

What?Who?

For how long?

What?Who?

For how long?

KEY ACTIVITIES

DETAILS

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The authors, Charlotta Lundberg & Marcus Almqvist, graduates from the Royal Institute of Technology, KTH, after five years of studies including a B.Sc. in Design & Product Realisa-tion and an M.Sc. Innovation Management & Product Development. The two have co-written during this time and finish their last collaboration connected to their education with their master thesis in Innovation management.

This material is the result of an M.Sc. degree project in Integrated Product Design - Innovation Management & Product Development at the Royal Institute of Technology, performed during the spring of 2019. It is co-created through a case study with a Swedish Fintech company.

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A Business Modelling Framework for the Front End of Innovation

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