Business Model Chapter 7

Chapter 7: Framing the Business Model

• This chapter focuses on business model development and application.
• Key learning objectives include understanding business model components, evaluating effectiveness, recognizing risks of stagnation within a model, and building advantage.

Business Model Composition

• A business model is composed of several key elements:
  • Customer Value Proposition: Effective, reliable, and affordable solutions.
  • Critical Resources: People, assets, capital, technology, and brand.
  • Culture, Structure, and Mgmt. Systems: Internal processes and organizational structure.
  • Critical Processes: Repeatable, scalable, and sustainable procedures.
  • Profit Formula: Revenue model, cost structure, target margins, and resource velocity.

Business Model Composition, 2

• Market-centric side: Assessing market opportunities, and communicating a market position.
• Company-centric side (business system): Activities necessary for developing and delivering products/services to the market.
  • Resources required
  • Partners involved

Business Model Overview

• Presents a holistic view of a business model.
• Company-centric analysis:
  • Key Partners (forward/backward/ecosystem)
  • Key Activities (value chain)
  • Key Resources (composition and velocity)
• Market-centric analysis:
  • Positioning (Value proposition, customer relationships)
  • Available customer segments (primary/secondary, size, penetration potential)
  • Opportunity assessment (revenue models, volume, scope, etc.)
• Underlying cost model: Cost structure, cost drivers, scalability potential, break-even point (BEP), etc.

Business Model in Action - Amazon

• Amazon changed the retail landscape, disrupting traditional brick-and-mortar stores.
• An omnichannel approach and a customer-centric approach were key in achieving success.

Assessing the Business Model

• Analyze various factors (Macro-economic forces, Societal Forces, Market Forces, Industry Forces) that influence a business.
• Evaluate the current business system and model.
• Identify profitability and growth.
• Evaluate profitability and growth, and assess the business system/model.
  • Business Systems evaluation includes elements such as:
    • Maintain
    • Build upon
    • Rejuvenate
    • Reinvent

Conducting the Analysis

• Analyze business logic, market logic, risk logic, and value logic to gain a complete business model evaluation.

Value Logic Example

• Add: Renewable energy opportunities, manufacturing investment, etc.
• Enhance: Gas-fired power, medical scanners, etc.
• Maintain: Existing operations
• Remove: Eliminate assets (or debt) like GE Capital

Business IN ACTION - Spotify

• Spotify's "freemium" approach (free with premium options) increased customer acquisition.
• Spotify had significant revenue growth, but struggled with profit margins
• New rules for ARPU (average revenue per user) need to be implemented to improve profits.

The Risk of Business Model Stagnation

• Active inertia (being stuck in current ways)
• Ignoring new entrants
• Outdated customer perspectives
• Focusing solely on cost reduction as the profit improvement method
• Complacency about technological advancements
• Changing consumer behavior

Core Business Model Outcomes

• These are the desired outcomes of the business model.
  • Target Market
  • Customer Needs
  • Solution Fit
  • Key Value Deliverd
• Understanding competitor identification, uniqueness, differentiation, and imitation of products/services is part of developing a business model.

Potential Areas for Sustainable Advantage

• Management Systems: Portfolio management, mergers and acquisitions (M&A), business unit strategies, talent relations, culture, PESTEL (Political, Economic, Social, Technological, Environmental, and Legal) analysis.
• Operating Capabilities: Supply chain logistics, production, "go-to-market" capabilities, and customer relationships.
• Proprietary Assets: Tangible assets, scale, technology, brand, and locked-in customer networks.

The Apple Advantage

• Apple's revenue and profit graph (over time) show sales growth, correlating with the release of notable products (iPhone, iPad, iPod, Apple Watch).

Management Reflection - Successful Business Models

• Execution Test: Matching strategic priorities with core business activities (key pivots).
• This process helps determine where resources should be allocated (capital, time, talent, and other resources) for success.
• This process helps determine prioritization.

Chapter Summary

• The business model framework, covering market, company, and holistic business models are key to achieving success
• Assessing the business model requires detailed analysis.
• Core ways to build advantages (using management strategies) is an integral aspect of successful businesses.

This quiz explores Chapter 7 on framing business models. It covers essential components like customer value proposition, critical resources, and profit formula. Understanding these concepts is vital for effective business strategy development.