What's a Business Model

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Workshop CrESIT-Assobiotec 2008
Varese, Nov 24th, 2008

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What's a Business Model

  1. 1. CrESIT‐Assobiotec Workshop 2008 Business Model for Biotech Firms Business Models for Biotech Firms Alberto Onetti Director, CrESIT, Insubria State University
  2. 2. Why Business Model? Everybody talks about Business Models, but a proper definition  is still missing Most practitioners (Linder e Cantrell, 2000; Chesborough and Rosenbloom, 2002) Recently, some scholars focus mostly on e‐business contexts (Gordijn et al., 2000;  Hamel, 2000; Afuah e Tucci, 2001; Galper, 2001; Petrovic et al. 2001; Weill e Vitale,  2001; Gebauer e Ginsburg, 2003; Osterwalder, 2004) Why? Many success stories or innovative behaviors are based not on product/process  innovation but innovative ways in delivering a value proposition to customers  (Cirque du Soleil, IKEA, Benetton, Zara, …) Innovative companies are not just firms operating in high‐tech fields, but also  players in mature contexts Companies give different execution to the same strategy (Ryanair vs. easyJet) Business Model can trigger company’s innovation and success
  3. 3. What is a Business Model? Business Model is different from Strategy Business model is not Strategy but rather reflects the strategic choices Strategy selects the business/businesses where to compete (corporate  strategy) and defines how to position for each of them (business strategy) Corporate strategy: single‐business vs. diversified approach Business strategy: cost leadership vs. differentiation Business Model defines how to execute the strategy Business Model enables strategy (“hub and spoke”) It allows extraction of value from the Strategy chosen It defines how a company organizes its own activities
  4. 4. Business Model Decisions The relevance of the different activities, i.e. the “focus” of the business How to allocate resources to different activities? Where to invest resources? From where to divest? The localization of the different activities, i.e. the “locus” of the business Where to locate the different activities? Which countries? Which geographical areas/clusters? A multi‐localization approach is possible both for different activities and the same activity The way of execution of the different activities, i.e. the “modus” of the business Which activities to do in‐house ? Which ones to be outsourced? If in‐house, how do you approach it?  Capital intensive? High‐Tech intensive? Labour‐intensive? “Brain”‐intensive? If outsourced, how do you manage it? Buy or through partnership? (i.e. market‐vendors or recurring partners involved in long‐term  stable relationship?)
  5. 5. Designing the Business model LOCUS FOCUS MODUS How much Who? In-house or Third Parties? Where? Activity A to allocate? How? Capital or labour-intensive? How much tech-intensive? Activity B Activity C … Source: Onetti and Zucchella, 2008
  6. 6. How to define corporate activities? Is a standard list available? A standard taxonomy is difficult to apply The “Value Chain” concept introduced by Porter (1985) is no longer entirely applicable, also for  manufacturing companies. Nowadays:  new activities and more specialized activities are required to run the business company activities are spread among multiple companies and multiple places activity allocation and location changes on a continuous basis Literature talks about “value system”, “value network” or “value web” (Finger and Aronica, 2001;  Allee, 2000; Andrews and Hahn, 1998) The “activity list” has to be built case by case, based on: the industry the company operates in the strategy chosen Red Biotech is a good example The core activity is R&D R&D is articulated in many different phases and sub‐phases The real Business Model choice for a life science company is about the phase or sub‐phase they  focus on
  7. 7. Designing the Business model LOCUS FOCUS MODUS How much Who? In-house or Third Parties? Where? Activity A to allocate? How? Capital or labour-intensive? How much tech-intensive? Activity B Activity C … Source: Onetti and Zucchella, 2008
  8. 8. From Business Model to Value  Architecture Activity  location Activity (Where?) allocation (What? How  much?) Activity  Integration /Execution (Who? How?) Source: Onetti and Zucchella, 2008 Value architecture it is the output of the Business Model decisions
  9. 9. Designing the Business model LOCUS FOCUS MODUS How much Who? In-house or Third Parties? Where? Activity A to allocate? How? Capital or labour-intensive? How much tech-intensive? Activity B • since a company has multiple (potentially infinite)   Activity C options in terms of focus, locus, and modus STRATEGY … • the output of Business Model decisions (i.e. the  Value Architecture) BUSINESS MODEL • characterizes the company in a unique way • sometimes triggers strategy change  or innovation VALUE  ARCHITECTURE Source: Onetti and Zucchella, 2008

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