October 2008 Basic Business www.stankirkwood.com

For the purpose of this presentation ‘business’ will be defined as: Any organization engaged in producing goods and services Basic Business Copyright: www.stankirkwood.com 2008

For the purpose of this presentation ‘business’ will be defined as:

Any organization engaged in producing goods and services

Any organization engaged in producing goods and services. This definition does not limit the size of the organization nor does it put any restrictions on the industry in which the ‘business’ is competing. Basic Business Copyright: www.stankirkwood.com 2008

Any organization engaged in producing goods and services.

This definition does not limit the size of the organization nor does it put any restrictions on the industry in which the ‘business’ is competing.

It is important to understand that all of these entities can be included in the definition of business: For-profit corporations Non-profit corporations Publicly traded organizations Privately held organizations Government agencies Single business units Departments within an organization Employees And that the ideas in this presentation are applicable to all of these business entities. Basic Business Copyright: www.stankirkwood.com 2008

It is important to understand that all of these entities can be included in the definition of business:

For-profit corporations

Non-profit corporations

Publicly traded organizations

Privately held organizations

Government agencies

Single business units

Departments within an organization

Employees

And that the ideas in this presentation are applicable to all of these business entities.

Ideas that can be applied at different levels are powerful. “As above, so below” These ideas are equally true at all levels. Basic Business Copyright: www.stankirkwood.com 2008

Since the beginning of commerce there have been three activities: Selling of products or services * (Sales) Supplying of products or services (Operations) Accounting for profit or loss (Finance) * Throughout this presentation I will use the word products to mean ‘products’ and/or ‘services’. Basic Business Copyright: www.stankirkwood.com 2008

Since the beginning of commerce there have been three activities:

Selling of products or services * (Sales)

Supplying of products or services (Operations)

Accounting for profit or loss (Finance)

* Throughout this presentation I will use the word products to mean ‘products’ and/or ‘services’.

Commercial Activity Before currency existed we bartered People traded one set of goods and services for another. Each person had to decide if the goods and services of the other person was equal to or greater than the goods or services they were offering. After currency has been created People exchange monetary currency for goods and services We decide if the goods and services of the other person has a Value Proposition equal to or greater than the effort required to gain that currency. If the Value Proposition is great enough we make the exchange. If not we look else where for a better deal. Basic Business Copyright: www.stankirkwood.com 2008

Commercial Activity

Before currency existed we bartered

People traded one set of goods and services for another.

Each person had to decide if the goods and services of the other person was equal to or greater than the goods or services they were offering.

After currency has been created

People exchange monetary currency for goods and services

We decide if the goods and services of the other person has a Value Proposition equal to or greater than the effort required to gain that currency.

If the Value Proposition is great enough we make the exchange. If not we look else where for a better deal.

At the end of the day you must: ‘Sell what you have’ (Sales) ‘Supply what you sell’ (Operations) ‘Account for profit or loss’ (Finance) Basic Business Copyright: www.stankirkwood.com 2008

At the end of the day you must:

‘Sell what you have’ (Sales)

‘Supply what you sell’ (Operations)

‘Account for profit or loss’ (Finance)

‘ Sell what you have’ is a narrow definition. The goal is really the creation of demand for products. The creation of demand for products is the result of: Marketing Sales Product Development Advertising Merchandising Customer Service. All of those processes are grouped together for the overarching process called “Create Demand” . Basic Business Copyright: www.stankirkwood.com 2008

‘ Sell what you have’ is a narrow definition. The goal is really the creation of demand for products.

The creation of demand for products is the result of:

Marketing

Sales

Product Development

Advertising

Merchandising

Customer Service.

All of those processes are grouped together for the overarching process called “Create Demand” .

‘ Supply what you sell’ is also narrow. The goal of this process to have products available to the customer. Having products available for customers is the result of: Purchasing Manufacturing Assembly Warehousing Sourcing Logistics. Making products available does not require a company to actually produce the product but instead to ensure the purchased product is delivered. These processes are called “Fulfill Demand” . Basic Business Copyright: www.stankirkwood.com 2008

‘ Supply what you sell’ is also narrow. The goal of this process to have products available to the customer.

Having products available for customers is the result of:

Purchasing

Manufacturing

Assembly

Warehousing

Sourcing

Logistics.

Making products available does not require a company to actually produce the product but instead to ensure the purchased product is delivered. These processes are called “Fulfill Demand” .

‘ Account for profit or loss’ used to be the sole activity to support the two primary processes of selling and supplying. Now there are also many other functions whose purpose is to enable the two primary processes to be as effective and efficient as possible. Supporting the business consists of: Finance Accounting Human Resources Information Technology Legal. These processes are called “Support the Business” . Basic Business Copyright: www.stankirkwood.com 2008

‘ Account for profit or loss’ used to be the sole activity to support the two primary processes of selling and supplying. Now there are also many other functions whose purpose is to enable the two primary processes to be as effective and efficient as possible.

Supporting the business consists of:

Finance

Accounting

Human Resources

Information Technology

Legal.

These processes are called “Support the Business” .

One more overarching process that did not exist formally in earlier years is managing the business. This was done intuitively but now has a more formal approach. This process is the umbrella for the other processes. It is the glue that holds them all together. Managing the business consists of: Strategic Management Operations Management Managing Annual Plan Communication. These processes are called “Manage the Business” . Basic Business Copyright: www.stankirkwood.com 2008

One more overarching process that did not exist formally in earlier years is managing the business. This was done intuitively but now has a more formal approach. This process is the umbrella for the other processes. It is the glue that holds them all together.

Managing the business consists of:

Strategic Management

Operations Management

Managing Annual Plan

Communication.

These processes are called “Manage the Business” .

Basic Business Framework Copyright: www.stankirkwood.com 2008 Basic Business is now - Basic Business was -

The term ‘framework’ when referencing a business speaks to the processes of a business. Processes are how work gets done and all work is process work. But a business is not only processes. Copyright: www.stankirkwood.com 2008 Business more than Processes

A business is not only processes Goals are not processes Goals are part of the Capstone and create requirements for the entire business Products are not processes Products are produced by processes Organizations are not processes Organizations execute processes Systems are not processes Systems support processes Copyright: www.stankirkwood.com 2008 Business more than Processes

A business is not only processes

Goals are not processes

Goals are part of the Capstone and create requirements

for the entire business

Products are not processes

Products are produced by processes

Organizations are not processes

Organizations execute processes

Systems are not processes

Systems support processes

A business is all of these: Capstone (Goals / Desired Strategies / Environment) Products Processes Organizations Systems Which means a business model is the documented design of each of these components. Copyright: www.stankirkwood.com 2008 Business more than Processes

A business is all of these:

Capstone (Goals / Desired Strategies / Environment)

Products

Processes

Organizations

Systems

Which means a business model is the documented design of each of these components.

Business Model Five key components in every business model: Capstone Market Model Process Model Organizational Model Systems Model. Each component must be defined and quantified so that they can be measured and managed. Copyright: www.stankirkwood.com 2008

Five key components in every business model:

Capstone

Market Model

Process Model

Organizational Model

Systems Model.

Each component must be defined and quantified so that they can be measured and managed.

Create Demand Market Model and Create Demand are closely related. Market Model is the design. Create Demand is the process. Demand is the output of the process. Copyright: www.stankirkwood.com 2008

Create Demand How do businesses meet their sales goals? Copyright: www.stankirkwood.com 2008

By having the most compelling Value Proposition (VP) in the market place Copyright: www.stankirkwood.com 2008 Create Demand

Who decides whether a product has a compelling Value Proposition? The Customer Not you! Copyright: www.stankirkwood.com 2008 Create Demand

Value Proposition defines the: Factors that the customer will use to determine which product to buy Copyright: www.stankirkwood.com 2008 Create Demand

Before making a purchase each customer weighs your Value Proposition against your competitors. The product with the greatest VP gets the customer. Basic Business. Copyright: www.stankirkwood.com 2008 Create Demand

The product with the greatest VP gets the customer.

Basic Business.

There is another way to view Value Proposition. Value Proposition and Return on Investment is essentially the same thing from a customer’s perspective. Copyright: www.stankirkwood.com 2008 Create Demand

A customer wants to receive the best deal for the money s/he is spending. The biggest screen The clearest sound The fastest car Whatever you are buying you want to get the most for your money – you want the highest return on your investment. Value Proposition Copyright: www.stankirkwood.com 2008

A customer wants to receive the best deal for the money s/he is spending.

The biggest screen

The clearest sound

The fastest car

Whatever you are buying you want to get the most for your money – you want the highest return on your investment.

Four components in every Value Proposition: Desirability Cost Quality Lead Time. To win market share you do not have to be the best in each category but overall you have to have the best VP for the customer segment you are targeting. Basic Business. Value Proposition Copyright: www.stankirkwood.com 2008

Four components in every Value Proposition:

Desirability

Cost

Quality

Lead Time.

To win market share you do not have to be the best in each category but overall you have to have the best VP for the customer segment you are targeting.

Basic Business.

Personal application of the idea of Value Proposition. The TV in my Great Room needed to be replaced. Basic questions I needed to answer: What size TV? What kind of TV? (Plasma or LCD) What brand? What price range? What features? (How many input devices) Is the TV readily available? Does the material of the TV reflect light (TV in room with many windows and reflection is an issue) Resolution (1920 x 1080) Refresh rate – 120 Hz (for action films and football games) Sound (types of sound and volume) Ease of use Design – is it aesthetically pleasing? Personal Experience Copyright: www.stankirkwood.com 2008

Personal application of the idea of Value Proposition.

The TV in my Great Room needed to be replaced.

Basic questions I needed to answer:

What size TV?

What kind of TV? (Plasma or LCD)

What brand?

What price range?

What features? (How many input devices)

Is the TV readily available?

Does the material of the TV reflect light (TV in room with

many windows and reflection is an issue)

Resolution (1920 x 1080)

Refresh rate – 120 Hz (for action films and football games)

Sound (types of sound and volume)

Ease of use

Design – is it aesthetically pleasing?

Desirability (30%) What size TV? What kind of TV? (Plasma or LCD) What features? (How many input devices) Sound (types and volume) Ease of use Does the material of the TV reflect light (reflection is an issue) Design – is it aesthetically pleasing Personal Experience Copyright: www.stankirkwood.com 2008 Price (20%) Initial price Delivery charge Removal charge for old TV Set up fee for new TV Quality (40%) What brand TV? Resolution (1920 x 1080) Refresh rate – 120 Hz (for action films and football games) Warranty Consumer reports problems Lead Time (10%) Is the TV readily available? How soon can it be delivered? This is how basic questions become a Value Proposition. Each customer needs to define the attributes of each VP component. What are the attributes of Desirability? Depends upon the customer. Each customer needs to quantify the relative value of the VP components. In my case Quality ranked the highest. I wanted the largest TV with the best resolution and refresh rates available within a reasonable price range.

Desirability (30%)

What size TV?

What kind of TV?

(Plasma or LCD)

What features?

(How many input

devices)

Sound (types and

volume)

Ease of use

Does the material of

the TV reflect light

(reflection is an issue)

Design – is it

aesthetically pleasing

Price (20%)

Initial price

Delivery charge

Removal charge for

old TV

Set up fee for new TV

Quality (40%)

What brand TV?

Resolution

(1920 x 1080)

Refresh rate – 120 Hz

(for action films and

football games)

Warranty

Consumer reports

problems

Lead Time (10%)

Is the TV readily available?

How soon can it be

delivered?

This is how basic questions become a Value Proposition.

Each customer needs to define the attributes of each VP component.

What are the attributes of Desirability? Depends upon the customer.

Each customer needs to quantify the relative value of the VP components.

In my case Quality ranked the highest. I wanted the largest TV with the best

resolution and refresh rates available within a reasonable price range.

What will your Value Proposition look like? How do you weigh each component of the Value Proposition? Personal Experience Copyright: www.stankirkwood.com 2008

The VP is created by each organization Value Proposition It is the performance of the Create Demand, Fulfill Demand, Support the Business and Manage the Business processes that determine the Value Proposition. When you are competing it is not only your products that are competing but everything behind your products as well. Copyright: www.stankirkwood.com 2008

The VP is created by each organization

Alignment Just like the four sides of a pyramid need to be aligned with one another so do the four models of a business. Market Model Must be aligned with the vision, mission and goals of the company Process Model Must be aligned with the Markets to deliver on the Value Proposition Organizational Model Must be aligned with the Processes Systems Model Must be aligned with the Organization Copyright: www.stankirkwood.com 2008 Alignment must be designed into a business – it can not be managed in.

Just like the four sides of a pyramid need to be aligned with one another so do the four models of a business.

Market Model

Must be aligned with the vision, mission and goals of the company

Process Model

Must be aligned with the Markets to deliver on the Value Proposition

Organizational Model

Must be aligned with the Processes

Systems Model

Must be aligned with the Organization

Alignment must be designed into a business – it can not be managed in.

Business Model Five key components in every business model: Capstone Market Model Process Model Organizational Model Systems Model. Each component must be defined and quantified so that they can be measured and managed. Copyright: www.stankirkwood.com 2008

Five key components in every business model:

Capstone

Market Model

Process Model

Organizational Model

Systems Model.

Each component must be defined and quantified so that they can be measured and managed.

Business Model The relevance of a design is solely dependant upon the environment in which it exists. Every business design becomes obsolete because the environment will always change. Changing strategies has nothing to do with the business design. Business designs must be updated to adapt to the new environment. Copyright: www.stankirkwood.com 2008

Business Design requirements are contingent upon: Goals Environment Desired strategies Existing business design Organizational capabilities Inputs into Business Design Copyright: www.stankirkwood.com 2008

Business Design requirements are contingent upon:

Goals

Environment

Desired strategies

Existing business design

Organizational capabilities

Business Model Redesigned business models ensure businesses can achieve goals and execute desired strategies. The design is created within the context of the existing environment. First implement new design then execute desired strategies. Copyright: www.stankirkwood.com 2008