TEMO lesson four spring 2011

8/7/2019 TEMO lesson four spring 2011

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Business Models

TEMO Spring 2011

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Introduction and overview

Chapter 1

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Definitions

A business model is aframework for makingmoney .

It is the set of activities thata company performs tocreate customer value andearn a profit .

A strategy is a framework for desired performance .

It is a cluster of decisionsabout what goals topursue , what actions totake and how to useresources to achieve goals.

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Determinants of Profitability

Resources PositionsActivities

Profitability

FIRM-SPECIFIC FACTORS

INDUSTRY FACTORS Competitive forces Cooperative forces Macro environment

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Industry Factors

Competitive forces [rivals, suppliers, customers, potentialnew entrants, complementors, substitute products]

Cooperative forces [cooperation and alliances withcompetitive forces]

Macro environment [culture of surrounding society,government and monetary policies, legal systems andtechnological change]

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Firm-Specific Factors

Positions [A companys position within an industry consist of customer value, market segments, sources of revenue,relative positioning and price]

Activities [A companys activities are the sum of whichactivities it chooses to perform, how it performs them, andwhen it performs them]

Resources [A companys resources are its assets. The abilityof turning a specific combination of assets into customervalue is the competence or capability of the company]

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Critical Industry Value Drivers

In almost every industry, there are certain factors that

have a significant impact on cost or differentiation - andconsequently on the profitability.These factors are called critical industry value drivers .

To determine critical industry value drivers it is

necessary to identify primary influencers of cost andprimary influencers of differentiation.


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Components of a Business Model

Resources

Costs

ProfitabilityActivities Positions

Industry

Factors

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Customer value and relative positioning

Chapter 2

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Customer ValueHigh

Low

Differentiation

Cost

Low High

I II

IV III

Are superior to benefits of competitors products andare offered at a lower costthan competitors prices

Are superior to benefits of competitors products

Are identical to benefits of competitors products butare offered at a lower costthan competitors prices

Are identical to benefits of competitors products

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Differentiation and its determinants

Product features [properties, specifications] Brand-Name Reputation [perception, appreciation, street

credit]

Network Size[distribution, number of customers]

Timing [first movers] Location [availability, ease of access, locations reputation] Service [comfort, one-stop shopping]

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Low Cost and its determinants

Economics of scale [per-unit cost] Factor costs [costs of inputs] Industry-specific cost drivers [idiosyncratic costs]

Efficiency [business processes] Economics of learning [knowledge and experience] Agency costs [waste of time and resources]


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Determinants of Relative Positioning

Substitutes

Complementors

Rivalry

Buyers

Suppliers

Threat of Entry

RelativePositioning

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Connected activities for a profitable business

model

Chapter 5

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Business Systems

Value Chain (manufacturing industries) Value Network (mediating industries) Value Shop (consulting services)

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Business Systems and Task Interdependence

SEQUENTIALPERFORMANCE

POOLED PERFORMANCE

RECIPROCALPERFORMANCEVALUE SHOP

Overall company performance isthe sum of performance of the

individual function ordepartment.

VALUE CHAINThe predetermined activities performed by eachfunction or department of the company are sequentiallyinterdependent.

VALUE NETWORKThe individual performance of eachfunction or department and the overallperformance of the company are fullydependent on network externalities.

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Business System of a Manufacturing Company

Upstream Downstream

R&DProductDesign

Operations Marketing Distribution

SophisticationPatents

FunctionAestheticsQuality

AssemblyLocationProcurementPurchasingLogistics

PricingAdvertisingPromotionPackagingBrand

ChannelsWarehousingTransport

CustomerSupport

Human Resource Management

WarrantySpeedQualityPrices

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Value Systems

Supply Chains From raw materials to consumers Vertical Linkages Backward vertical integration

[upstream], forward vertical integration

[downstream], tapered integration [sampling],captive input [self-sufficiency]

Strategic Alliances From causal agreements to jointventures

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Value System for Makers of PC

Microprocessors

Upstream Downstream

Appliedmaterials

IntelAMD

Motorola

DellHP

IBMRetailers

BusinessesConsumers

SemiconductorEquipment

ManufacturersMicroprocessor

MakersComputer

Makers DistributorsComputer

Users

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Competitive Advantage and ConnectedActivities

Resources

Costs

Activities

Industry Factors Competitive and macro forces Cooperative forces Industry value drivers

Positions Customer value Market segments

Revenue sources Relative positioning Price

Profitability

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Resources and capabilities: The roots of

business models

Chapter 6

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Resources and Assets

Tangible Assets Physical (buildings, plants andequipment) or financial (cash).

Intangible Assets Non-physical or non-financial

(such as patents, brands, copyrights, databases,and relationships with customers).

Human Assets Skills and knowledge of employees.

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Capabilities and Competences

The ability or capacity to turn resourcesand assets into customer value and profitsis the competence or capability of thecompany.

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VRISA Analysis

Attribute

Value

Rareness

Imitability

Substitutability

Appropriability

Key Questions

Does the resource provide customer withsomething that they value?

Is your company the only one with thatcapability? If not is the level of capabilityhigher than that of competitors?

Is the resource difficult to imitate?

Is the resource difficult to substitute? Cananother resource offer customers the samevalue?

Can we make money from the resource?


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Competitive Consequences

Competitive consequence

Sustainable competitive advantage

Temporary competitive advantage

Competitive parity

Competitive disadvantage

Characteristics of Resources

V R I S A

+ + + + +

+ +/- +/- +/- +

+ - - - -

- - - - -

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Familiarity MatrixUnfamiliar

Familiar

Market

TechnologyFamiliar Unfamiliar

Internal development of technological resources

Strategic collaboration withcoopetitor that is familiar with themarket (co-marketing, joint venture)

Venture capital

Educational acquisition

Internal window on technologyand market

Internal technological andmarketing development

Acquisition

Internal development of marketingresources

Strategic collaboration withcoopetitor that is familiar with

technology (licensing, joint venture)

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TEMO lesson four spring 2011

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