Business ModelsSession 1

iPod

Reinventing your business model• Johnson, Christensen, and Kagermann (2008) • Understand your current business model

• A successful model has the following components • Customer value proposition

• The model helps customers perform a specific “job” that alternative offerings don’t address.

• Profit formula. • The model generates value for your company through factors

such as revenue model, cost structure, margins, and inventory turnover.

• Key resources and processes. • Your company has the people, technology, products, facilities,

equipment, and brand required to deliver the value proposition to your targeted customers. And it has processes (training, manufacturing, service) to lever- age those resources.

Business Model Need• An opportunity to…

• Address needs where existing solutions are expensive or overcomplicated

• Capitalise on new technology or leverage technology in new markets

• Bring a job-to-be-done focus where it does not exist !

• A need to… • Fend off low-end disruptions • Respond to shifts in competition

Customer Value Proposition• Who is the target customer? • What is the important problem or need being met? • What offer will solve the problem or fulfil the need? • How is it sold?

Profit Formula• What is there revenue model? • How are costs allocated? • What margins are expected? • What resource velocity does it need?

Key Resources• What specific resources are needed to deliver the CVP?

!• People • Technology • Equipment • Information • Channels • Partnerships/Alliances • Brand

Key Processes• What processes allow profitable delivery of the CVP that can

be repeated and is scaleable !

• Processes • Design, product development, marketing, IT..

• Rules and Metrics • Margin requirements, credit terms, supplier terms

• Norms • Opportunity size needed for investment, approach to

customers and channels

Iteration• Success may not be immediate; iterations are common

• e.g. Lean Startup thinking !

• “Patient for growth, impatient for profit” !

• What do you think is meant by this in the context of business models?

Value Innovation• Kim, W.C., Mauborgne, R., 1991 !• Strategy focuses on competition which is regressive rather

than innovative • 3 latent unintended effects • Found that value innovations accounted for 61% of profits

from only 14% of business launches • Introduce Value Innovation • Value innovations lead to a pattern of punctuated equilibrium

where improvements bring greater profits until the next value innovation arrives

• Expand markets

Value Based Strategy• Brandenburger, A.M., Stuart, H.W., 1996 !• Value Chain Theory • Concept of ‘Added Value’ • External focus and supplier relationships • Co-operative game theory • ‘Willingness to pay’ and ‘Opportunity Cost’ • Bargaining determines division of value

Value Creation• Bowman, C., Ambrosini, V., 2000 !• Resource Based Theory • Value has two components:

• Perceived use value • Exchange value

• Entrepreneurial Labour • Bargaining relationships • Contrast with neo-classical economics and transaction cost

economics

Business Model Innovation• Chesbrough, H., 2010 !• Technology needs to be commercialised to have value • Xerox case study - ‘orphan’ projects • Definition of a business model • Dominant logic (Prahalad and Bettis) means firms miss

opportunities • Companies should use effectuation and experimentation

Business Model Literature• Zott, C., Amit, R., Massa, L., 2011 !• Meta analysis • Business model as unit of analysis • Emphasize a system-level holistic approach to explaining

how firms “do business” • Business models seek to explain how value is created, not

just how it is captured • Suggest there are three strands: e-commerce; strategy and

Technology and Innovation management

Co-creation Experiences• Prahalad, C.K., Ramaswamy, V., 2004 !• Consumer dissatisfaction • The growth and value creation paradox • Value will become about ‘experiences’ - consumer driven • Interaction between the firm and the consumer is the locus of

value creation and value extraction

Experience Economy• Pine, B.J., Gilmore, J.H., 1998 !• Experience not services • Based on realms of experience which describe the levels of

participation and immersion consumers exhibit