Business models

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Business models

  1. 1. 1 A bit about Business Models
  2. 2. 2 Business Model • Components and linkages • Dynamics Environment • Competitive • Macro Performance Change • Properties • Underpinnings Determinants of performance
  3. 3. 3 Commerce Matrix From To Business Consumer Business Consumer B2C C2B C2C B2B Priceline.com VerticalNet Amazon.com eBay
  4. 4. 4 Customer value Scope Pricing Sources of revenue Connected activities Capabilities Implementation Sustainability Successful Business Model
  5. 5. 5 Component of business model Question for all business models 1. Customer value Is the firm offering its customers something distinctive or lower cost than its competitors? 2. Scope To which customers (demographic and geographic) is the firm offering this value? What is the range of products/services offered that embody this value? 3. Pricing How does the firm price the value? 4. Revenue source Where do the dollars come from? Who pays for what value and when? What are the margins in each market and what drives them? What drives value in each source. Critical Business Model Questions
  6. 6. 6 5. Connected activities Which set of activities does the firm have to perform to offer this value and when? How connected (in cross section and time) are these activities? 6. Implementation What organizational structure, systems, people and environment does the firm need to carry out these activities? What is the fit between them? 7. Capabilities What are the firm's capabilities and capabilities gaps that need to be filled? How does a firm fill these capabilities gaps? Is there something distinctive about these capabilities that allows the firm to offer the value better than other firms and that makes them difficult to imitate? What are the sources of these capabilities? 8. Sustainability What is it about the firm that makes it difficult for other firms to imitate it? How does the firm sustain its competitive advantage? Critical questions for a business model (continued)
  7. 7. 7 Business Model Dynamics  Blocking Strategies  unique capabilities  barriers to entry  Run Strategies  changing the playing field  cannibalization  Teaming Strategies  strategic alliances  high risk
  8. 8. 8 Generic strategies and complementary assets Complementary assets High Low I II IIIIV Imitability • Run • Team-up Joint venture Strategic alliance Acquisition • Internal development • Block Tightly held and important Freely available or unimportant • Block • Team-up Joint venture Strategic alliance Acquisition
  9. 9. 9 Who Profits from Innovation Complementary assets High Low I II IIIIV Imitability Difficult to make money Holder of complimentary assets makes money Inventor makes money Tightly held and important Freely available or unimportant Party with both technology and assets or with bargaining power makes money
  10. 10. 10 Appraising a business model Level 1 Profitability measures • Earnings • Cash flow Level 2 Profitability predictor measures Margins Market share Revenue share growth rate Level 3 Component attribute measures • Value • Scope • Price • Revenue • Activities • Implementation • Capabilities • Sustainability
  11. 11. 11 Componentof businessmodel Benchmarkquestions Rank 1.Customervalue Iscustomervaluedistinctfromthatofcompetitors?Ifnot,is thefirm'slevelofithigherthanthatofcompetitors? Isthefirm'srateofincreaseincustomervaluehigh,relative tothatofcompetitors? H/L 2.Scope Isthegrowthrateofmarketsegmentshigh? Isfirm'smarketshareineachsegmenthighrelativeto competitors'? Ispotentialerosionofproductshigh?Ifso,inwhat segments? H/L 3.Price Isthequality-adjustedpricelow? H/L 4.Revenuesource Aremarginsandmarketshareineachrevenuesourcehigh? Aremarginsandmarketshareineachsourceincreasing? Isfirm'svalueineachmarketdistinctive?Ifnot,isthelevel ofithigherthanthatofcompetitors? H/L Appraising a Business Model
  12. 12. 12 Component of business model Benchmark questions Rank 5. Connected activities Extent to which activities: Are consistent with customer value and scope? Re-enforce each other? Take advantage of industry success drivers? Are consistent with firm's distinctive capabilities. Make the industry more attractive for the firm? H/L 6. Implementation Is the quality of the team high? H/L 7. Capabilities Extent to which firm's capabilities: Are distinctive Are nonimitable Are extendible to other product markets H/L 8. Sustainability Has the firm been able to maintain or extend its lead in its industry. H/L Appraising a Business Model (cont)

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