Biz model 1.1 summary
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Transcript of Biz model 1.1 summary
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
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)
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 profitability
Source: Stephen Bradley’s “Capturing the Value,” HBS Video
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
What is a Need?
Today’s
Business
Customer Needs
Unarticulated
Articulated
Customer Types
Served Unserved
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
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)
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?
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 profitability
Source: Stephen Bradley’s “Capturing the Value,” HBS Video
Value Proposition
Value to
the
target
market
Benefits to
the
target
market
Price to
the
target
market
= Relative
to
A simple and clear statement of the intended target market, the
benefits of the offering, and the price
But you must provide more details than just a simple and clear
statement!!
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
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
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)
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
The Strategy Canvas of Southwest Airline
Low Price
Meals Lounges
Seating Class
choices
Hub connectivity Friendly
service
Speed Frequent point- to-point departure (new
dimension)
High
Average Airline
Southwest
Car Transport
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
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 profitability
Source: Stephen Bradley’s “Capturing the Value,” HBS Video
Types of Value Capture in Business Models
Dominant Revenue
Model
Basic Idea
Commission Fees levied on transactions where fees
are based on level of transaction
Advertising End users subsidized by advertising
Markup Value added in sales
Production Value added in production
Referral Fees for referring customers to a
business
Subscription Fees for unlimited use
Fee for Service Fee for metered service
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
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 profitability
Source: Stephen Bradley’s “Capturing the Value,” HBS Video
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
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
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)
Source: Christensen & Raynor, 2003
Vertical Disintegration
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 profitability
Source: Stephen Bradley’s “Capturing the Value,” HBS Video
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
Must Connect Customer Needs
with Company’s Capabilities
Require the effective and
efficient reconciliation of
any differences and result
in a
Market Pull
What the market
indicates it
needs/wants and is
willing to pay for
Company
Pull
What the firm
is capable of
and willing to
provide to the
market
Voice of the
Market Voice of
the Firm
Market-Based
Firm
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
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
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