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These slides summarize the concept of a business model for a course that i teach on business models for hi-tech products.

These slides summarize the concept of a business model for a course that i teach on business models for hi-tech products.

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Biz model 1.1 summary Presentation Transcript

  • 1. Business Models For Hi-Tech Products (MT 5016): What is a Business Model? A/Prof Jeffrey Funk Division of Engineering and Technology Management National University of Singapore
  • 2. Module Objectives• To understand – business models – their impact on competition between firms – how different business models are needed for different situations – what drives need for change in business models – similarities/differences between business models and strategies• To develop a business model for a specific firm and a new technology in a group project (5-6 students)
  • 3. Outline: Elements of a Business Model• Customer selection: whom to serve and not serve• Value proposition: what to offer and how to differentiate• Value capture: what are dominant sources of revenues• Scope of activities: what activities to carry out and what relationships to have• Strategic control: how to sustain profitabilitySource: Stephen Bradley’s “Capturing the Value,” HBS Video
  • 4. Customer Selection• Who are the potential customers? – How do we segment the market (see following slides) – What is the potential size, growth, profitability• Are there collaborators who can also be thought of as customers?• What are the customer needs and wants?• How do they make decisions and purchases?• What are broad trends that affect customers
  • 5. What is a Need? UnarticulatedCustomer Needs Articulated Today’s Business Served Unserved Customer Types
  • 6. Segmentation• Categorize customers in groups that have distinct needs – How many types of customers are there? – What differentiates them, how are their needs distinct? – How valuable might they be (size of market and potential profitability)? – Which segments will be the first adopters of the new technology? – How will segments evolve as a new technology diffuse?• Understand the differences between product and market segments
  • 7. Targeting• Select the segment (s) that have the best short and long-term prospects for the firm – If a new technology, they must be early adopters of new technology – have a large potential value (Present/Future) – fit with the company’s core competency – preferably not fit with the competitor’s core competency• You must justify your choice of target segment(s)
  • 8. What About Collaborators?• Many products have multiple customers or collaborators who might be considered customers• Who are they?• They might be – retail outlets – providers of complementary products or complementary services• How does the business model fit with these collaborators?
  • 9. Outline: Elements of a Business Model• Customer selection: whom to serve and not serve• Value proposition: what to offer and how to differentiate• Value capture: what are dominant sources of revenues• Scope of activities: what activities to carry out and what relationships to have• Strategic control: how to sustain profitabilitySource: Stephen Bradley’s “Capturing the Value,” HBS Video
  • 10. Value Proposition Benefits to Price to Value to the Relative the the = target target target to market market marketA simple and clear statement of the intended target market, thebenefits of the offering, and the priceBut you must provide more details than just a simple and clearstatement!!
  • 11. Value Proposition• But what constitutes a good value proposition? – Benefits for customers reflect satisfaction of needs – But what are the needs? What are the important dimensions of performance, key features? – Do we have to redefine the product?• Value Proposition is closely related to customer selection – Different value propositions are appropriate for different customers – One must consider a lot of customers and a lot of value propositions
  • 12. For Your Group Presentation (1)• Choose a new technology that has recently been introduced or will soon be introduced – Don’t look too far into the future• Choose an existing firm that might or should introduce the technology because the technology is consistent with the firm’s core competencies
  • 13. For Your Group Presentation (2)• Defining a value proposition technology should help you segment and target markets• Some segments will adopt a new technology faster than will other segments• You must identify and target those segments• Ideally you will know the order in which segments/users adopt the new technology• Then you must contrast your firm’s product or service with the competitors’ product or service for the target segment(s)
  • 14. For Your Group Presentation (3)• Contrast the new technology with the old technology – What is the value proposition for the new vs. the old technology• Contrast your firm’s product with other products or services – Firm’s product or service vs. other firms’ product or service• You also need to provide some quantitative data
  • 15. The Strategy Canvas of Southwest AirlineHigh Southwest Average Airline Car TransportLow Price Lounges Hub Speed Frequent Meals Seating connectivity Friendly point- to-point Class service departure (new choices dimension)
  • 16. Quantitative Data• You must justify your data• Don’t just create a strategy canvas without justification• The justification is more important than the data• Make sure you consider all the important dimensions• Finding a new dimension is often a major source of advantage in the market• All dimensions aren’t created equal
  • 17. Outline: Elements of a Business Model• Customer selection: whom to serve and not serve• Value proposition: what to offer and how to differentiate• Value capture: what are dominant sources of revenues• Scope of activities: what activities to carry out and what relationships to have• Strategic control: how to sustain profitabilitySource: Stephen Bradley’s “Capturing the Value,” HBS Video
  • 18. Types of Value Capture in Business ModelsDominant Revenue Basic IdeaModelCommission Fees levied on transactions where fees are based on level of transactionAdvertising End users subsidized by advertisingMarkup Value added in salesProduction Value added in productionReferral Fees for referring customers to a businessSubscription Fees for unlimited useFee for Service Fee for metered service
  • 19. Large Changes for Revenue Models in Many Industries• As with other elements of business models, you can’t just summarize the dominant source of revenues, you need to – analyze other methods – Justify your choice• Creativity is an important part of a group presentation’s grade! Propose and analyze a new method of value capture
  • 20. Outline: Elements of a Business Model• Customer selection: whom to serve and not serve• Value proposition: what to offer and how to differentiate• Value capture: what are dominant sources of revenues• Scope of activities: what activities to carry out and what relationships to have• Strategic control: how to sustain profitabilitySource: Stephen Bradley’s “Capturing the Value,” HBS Video
  • 21. Scope of Activities• What do you make or do versus what do you buy or outsource?• Partly a cost decision, partly a strategic decision – Want to reduce costs – But also • want to develop capabilities • don’t want to become dependent on a single firm for a key component – Thus, make versus buy decisions determine the areas in which a firm intends to compete
  • 22. Other Strategic Issues• Part of the decision involves whether you can buy or outsource something – this depends on the degree to which independent suppliers of components and services (i.e., vertical disintegration) have emerged• This is why one must consider the levels of vertical (dis) integration in the industry using value chains, etc when considering the scope of activities
  • 23. Vertical (Dis)integration• Represents the extent to which work is shared among different organizations• Changes in vertical (dis)integration can come from technological, institutional, or social changes that impact on how economic agents divide up work• In particular, reductions in transaction cost (cost of different firms working together) can reduce – costs of having work done by multiple agents – importance of integrative capabilities – and thus facilitate the emergence of vertical disintegration (and entrepreneurial opportunities)
  • 24. Vertical DisintegrationSource: Christensen & Raynor, 2003
  • 25. Outline: Elements of a Business Model• Customer selection: whom to serve and not serve• Value proposition: what to offer and how to differentiate• Value capture: what are dominant sources of revenues• Scope of activities: what activities to carry out and what relationships to have• Strategic control: how to sustain profitabilitySource: Stephen Bradley’s “Capturing the Value,” HBS Video
  • 26. Strategic Control• Control key resource, capability, Intellectual Property (IP), “assets,” bottleneck• Might control key resource or asset through economies of scale – Manufacturing – Distribution – R&D• Control the way work is divided up among economic agents (e.g., through control of interface standards)• Must create barriers to entry, without barriers to entry profits will fall to very low levels
  • 27. Must Connect Customer Needs with Company’s CapabilitiesMarket Pull Company Require the effective and PullWhat the market efficient reconciliation ofindicates it What the firm any differences and result is capable ofneeds/wants and is in awilling to pay for and willing to provide to the Market-Based market Voice of the Firm Voice of Market the Firm
  • 28. Barriers to Entry Determine Profitability• As firms enter, prices fall to a level at which “marginal prices equal marginal revenues” where – Profits barely support business• So creating barriers to entry is critical for achieving having above average profits – Control key resource, Intellectual Property (IP), etc. – Might control key resource or asset through economies of scale – Control the way work is divided up among economic agents (e.g., through control of interface standards)• Whether a firm(s) can create barriers to entry largely determined economic viability of project
  • 29. Consistency Among Elements is Critical • How to achieve consistency? • By using an iterative process: – Customer selection: whom to serve and not serve – Value proposition: what to offer and how to differentiate – Value capture: dominant source of revenue – Scope of activities: what activities and what relationships to have – Strategic control: how to sustain profitability
  • 30. For your presentations• Tell me about the business model – Customer selection: whom to serve and not serve – Value proposition: what to offer and how to differentiate – Value capture: dominant source of revenues – Scope of activities: what activities to carry out and what relationships to have – Strategic control: how to sustain profitability• You must justify your choices!• Consistency – among elements is critical – between business model and company capabilities