Biz model 1.2   why are they important
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Biz model 1.2 why are they important

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These slides summarize why business models are important for a course that I teach on business models for hi-tech products and services

These slides summarize why business models are important for a course that I teach on business models for hi-tech products and services

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Biz model 1.2   why are they important Biz model 1.2 why are they important Presentation Transcript

  • Business Models (MT5016): Why are they important? A/Prof Jeffrey Funk Division of Engineering and Technology Management National University of Singapore
  • Why Business Models?• They have a big impact on business success – Many examples of why some firms succeeded more than others can be explained in terms of business models• Business models need constant modifications as changes in technology etc. occur – But many firms do not modify their business models – One example of how business models require change can be found in so-called disruptive technologies• Changes in business models can also explain growing success or failure of certain countries• The variety (and pace?) of technology change and thus need for new business models may be accelerating
  • MT 5016 Addresses Success or Failure of Firms in Many Industries• Computer-related• Video-game• Mobile Phones• Other Consumer Electronics• Internet• Broadcasting• Semiconductor• Transport• Medical Equipment View slide
  • One Reason why Biz Model Impacts on Success and Failure is… (1)• They need constant modifications particularly when there are changes in – Technology – Customer needs – Market segments – Performance, price, and costs – Levels of vertical (dis)integration – Number of firms in industry – Regulations and laws (e.g., deregulation) – Scale (e.g., more or less economies of scale) – Stage of industry lifecycle View slide
  • One Reason why Biz Model Impacts on Success and Failure is… (2)• But many firms do not modify their business models as changes occur• And thus they – they lose market share – they are acquired or gradually disappear
  • Why Business Models?• They have a big impact on business success – Many examples of why some firms succeeded more than others can be explained in terms of business models• Business models need constant modifications as changes in technology etc. occur – But many firms do not modify their business models – One example of how business models require change can be found in so-called disruptive technologies• Changes in business models can also explain growing success or failure of certain countries• The variety (and pace?) of technology change may be accelerating
  • Disruptive Technologies• Many argue that disruptive technologies are a trivial technology that requires a new business model (Andrew Grove, CEO of Intel)• Low-end innovations involve – new value proposition (always) – new customer selection (always) – often new method of value capture (sometimes, e.g., lower gross margins) – may have less scope of activities (because new entrants) – may involve new method of strategic control
  • Why Business Models?• They have a big impact on business success – Many examples of why some firms succeeded more than others can be explained in terms of business models• Business models need constant modifications as changes in technology etc. occur – But many firms do not modify their business models – One example of how business models require change can be found in so-called disruptive technologies• Changes in business models can also explain growing success or failure of certain countries• The variety (and pace?) of technology change may be accelerating
  • Biz Model can also Partly Explain Success and Failure of Countries• Success of Japanese firms partly came from new business model that involved:• Value proposition – emphasize quality including reliability, durability, and low number of internal defects• Scope of activities – vertically integrated in firm or business group (keiretsu)• Method of strategic control – high quality in both design and manufacturing – low inventory (just-in time manufacturing) – Kaizen, continuous improvement
  • Biz Model can also Partly Explain Success and Failure of Countries (2)• But many changes have occurred over the last 20 years – U.S., Taiwanese, Singaporean and other firms have learned about quality, inventory control, and Kaizen – They have used low-cost and relatively high-quality manufacturing from China to reduce importance of Japan’s advantages in manufacturing• Result is products from other countries have quality (and often lower cost) that is comparable to Japanese quality
  • Biz Model can also Partly Explain Success and Failure of Countries (3)• Other changes have also occurred – Emergence of vertical disintegration enabled entry of new firms that have lower scopes of activities in computers, semiconductors, consumer electronics, etc. – Japanese firms have been slow to reduce their scopes of activities partly because there are no startups in Japan – But U.S., Taiwan, and Singapore have startups in semiconductor, computer, and biotechnology sectors• This vertical disintegration has been accompanied by emergence of standards, some of which are open……..
  • Biz Model can also Partly Explain Success and Failure of Countries (4)• But not all standards are open and certainly not completely open• These complex values and the varying degree of openness in the standards has caused focus of strategic control to changed to interface standards and industry architecture• Result is falling shares for Japanese firms in – Computers – Semiconductors – Consumer electronics
  • Why Business Models?• They have a big impact on business success – Many examples of why some firms succeeded more than others can be explained in terms of business models• Business models need constant modifications as changes in technology etc. occur – But many firms do not modify their business models – One example of how business models require change can be found in so-called disruptive technologies• Changes in business models can also explain growing success or failure of certain countries• The variety (and pace?) of technology change may be accelerating
  • Why Business Models?• Finally, Technology Change may be Accelerating – Frequency of discontinuities is increasing• These discontinuities often require changes in business models• Understanding how and when changes in business models are needed, is essential to business success
  • Examples of Technological Changes Currently Occurring (1) Industry ExamplesPhotography 1. Movement from film to digital bits and packets 2. New devices (e.g., camera phones) 3. New methods of transferring the data between individuals (fixed versus wireless Internet transfers) and between devices (e.g., PCs and cameras) that are owned by an individual (e.g., with USB and memory cards) Television 1. Movement from analog to digital and to high-definition television 2. Movement to a new generation of digital video disks (DVDs) 3. New methods of broadcasting such as over the Internet 4. New mobile devices (e.g., digital tuners in mobile phones) Music 1. Movement from CDs (compact discs) to MP3 players 2. New mobile devices (e.g., i-Pod type devices and mobile phones) 3. New methods of transferring data between mobile and fixed devices (e.g., USB, memory cards, wireless)
  • Examples of Technological Changes Currently Occurring (2) Industry Examples Books 1. Emergence of e-books 2. Use of laptops and i-Pad to read booksComputer/ 1. Much cheaper laptop computers IT 2. New “computers” such as tablet computers and smart phones 3. Utility computing/cloud computing/software as a service 4. Networks of RFID tags and smart dust Human 1. From keyboards to touch displays Computer 2. Gesture-based interfaces Interface 3. Voice-recognition; 4. Neural interfacesTelecom/IT 1. New forms of mobile phones, applications for mobile phones, or wireless networks (e.g., WiFi, ultrawideband) 2. New forms of wireline networks: e.g., integration of optics and computing on the same substrate, i.e., optical computing
  • Examples of Technological Changes Currently Occurring (3)Industry Examples Semi- 1. New types of materials and processes such as nanotechnologyconductors/ 2. New types of designs such as System on Chip (SoC), Integrated configurable processors Circuits 3. New types of applications such as micro-electronic mechanical systems (MEMS), bio-electronic ICs such as laboratory on a chip, DNA sequencers and synthesizers, or drug delivery via an implanted or digested chip Displays 1. Touch displays 2. LCDs backlit with LEDs 3. Organic light emitting diodes (OLEDs) 4. Electrophoretically Controlled Nematic (EPCN) liquid crystal display 5. 3D Displays 6.Augmented reality 7. Holographic displays
  • Examples of Technological Changes Currently Occurring (4)Industry Examples Lighting 1. Compact fluorescent light bulb 2. LEDs 3. Smart LEDs Electricity 1. Wireless electricity 2. Renewable energy sources such as solar cells: crystalline silicon, micro-crystalline silicon, thin film amorphous silicon, thin film CdTe, CIGS (Cadmium Indium Gallium Selenide), organic cells, dye-sensitized cells 3. Other renewable such as wind turbines, fusion, geothermal 4. Smart grids
  • Examples of Technological Changes Currently Occurring (5)Industry ExamplesAutomotive 1. Hybrid (battery and engine) vehicles 2. Plug-in vehicles; Hydrogen; Bio-fuels 3. Autonomous vehicles Education 1. Internet-based educationHealthcare 1. Movement to Internet-based information systems 2. Nanotechnology-based treatments for cancer 3. New forms of surgery 4. New medical equipment 5. Obviously many more Other 1. 3D content, video, social network Internet 2. Social networks 3. Utility/Cloud computing (e.g., Software as a service) 4. Mashups; video conferencing 5. Business support services
  • U.S. Venture Capital Funding (B$) is Partly Driven by High Frequency of Technological Change Software 5.1 Communications & Networking 3.0 Semiconductors 1.6 Other IT 2.2 Total IT 11.9 Biopharmaceutical 3.8 Medical devices 2.0 Other healthcare 1.0 Total healthcare 6.9 Other industries 3.5 Total all industries 22.3Source: Dow Jones 2006 Venture Capital Industry Report
  • All Industries in 2010 26.45 Billion USDAerospace and defense 97Agriculture and forestry 34Biopharmaceuticals 3,246Business support services (mostly Internet) 2,516Communications and networking 1,027Construction and civil engineering 141Consumer information services 4,552Electronics and computer hardware 1,282Financial institutions and services 631Food and beverage 100Healthcare services (mostly Internet) 1,144Household and office goods 71Machinery and industrial goods 188
  • All Industries Billions of USDMaterials and chemicals 413Media and content 343Medical devices and equipment 2,249Medical software and information services 478Non-renewable energy 296Personal goods 47Renewable energy 2,118Retailers 182Semiconductors 764Software 3,762Travel and leisure 133Utilities 141Vehicles and parts 460Wholesale trade and shipping 0
  • New Technologies, New Business Models• Every one of these new technologies requires a new business model• Finding the appropriate business model is difficult• This will cause incumbents and many new entrants to fail• This provides opportunities for firms with good business models
  • On Last Reason for Why Business Models: Business Models are Similar to Strategies• Strategy – Can be at corporate or business level – At business level, strategies are classified in terms of: • Cost vs. differentiation • Focused vs. broad markets – Business strategy should be consistent with • functional strategies • business models for each product/service• When a business only delivers a single product/service, a business strategy is very similar to a business model
  • When a Business Offers Multiple Products and Services• Customer selection and value proposition – may be different for each product and service – But probably business will focus on similar set of customers (e.g., high- or low-end, business or consumer)• Value capture, scope of activities, and strategic control – may be the same for each product and service – and generally should be the same
  • For Example, Apple’s Computer Business• Apple sells many types of desktop and laptop computers• Each type of computer – serves a different segment – offers a different value proposition• But all of their computers probably have similar – Method of value capture – Scope of activities – Method of strategic control
  • In Summary• There are many changes driving a need for new business models• Although technological changes are the most obvious, there are others• Opportunities for new entrants and incumbents continue to be created• The goal of MT5016 is to help you – understand these opportunities – their impact on business models – create business models