The Anatomy of Business PDF

Prof. Dr. Ove Jensen The Anatomy of Bu...

Prof. Dr. Ove Jensen The Anatomy of Business Introduction to Business Administration Session 03 WHU on Management CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared.  Anatomy of a Value Chain Classification of Players Size of B2B vs. B2C Content Value Chain Reconfiguration Anatomy of a Firm Anatomy of a Business Model Anatomy of Competition Ove Jensen 2 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. The economy consists of many commercial chains. These are called verticals, value chains, or supply chains. Some players in the chain are producers, others traders Structure of a Vertical “upstream” Raw material producers Commodity trader Supplier of semi-finished material Dealer of industrial supplies Manufacturer Wholesale distributor Retailer “downstream” Consumer Ove Jensen 3 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. Every value chain has a B2B beginning and a B2C end “upstream” “downstream” Farmer Food company Wholesale Retail Consumer Business-to-Business: Business-to-Consumer: Customers are Customers are organizations private individuals/households Ove Jensen 4 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. Business-to-Business can be further classified by the type of customer Business Classification Business-to-Consumer (B2C): Customers are private end customers Business-to-Business (B2B): Customers are organizations or individual professionals (i.e., small businesses such as contractors, lawyers, medical doctors, etc.). Large business customers are also called enterprise customers, particularly in the IT sector.  Customers are producers  Customer consumes the product: The product is absorbed in the customer‘s production process, e.g. raw materials, chemicals, services  Customer integrates the product: The customer combines the product as a part into their product, but the part remains recognizable, e.g., engine parts in the automobile industry, chips in the computer industry. Industrial producers of branded final products, e.g., Volkswagen or Lenovo, are called Original Equipment Manufacturers (OEMs).  Customer uses the product: The customer uses the product for their operations  Customers are traders. Other words: merchant, reseller, dealers, distributors  Customer acquires (i.e., takes ownership) product from producer and resells it.  Resellers that are providing extensive consultative services for the implementation of the product are also called Value-Added Resellers (VARs), particularly in the IT sector  Distributors serving other resellers or service providers, e.g., METRO serving vendor booths and restaurants, or distributors of electrical materials serving electricians, are called wholesale distributors (“Großhändler”).  Distributors selling to consumers, e.g., ALDI, are called retailers (“Einzelhändler” or “Detailhandel”)  Customers are governments (“B2G”: Business-to-Government”) Ove Jensen 5 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. The term supply chain emphasizes the sourcing and logistics aspects of the chain Examples of Supply Chains Stages of a Detergent Supply Chain1 Stages of an Automotive Supply Chain Materials Supplier Timber Company Chemical Producer (Tier 3) Parts Supplier Paper Producer Plastic Producer (Tier 2) Packaging Systems Supplier Producer (Tier 1) Detergent Original Equipment Manufacturer Producer (OEM) Retailer Car Distributor Distribution Center Retail Store Car Dealer Consumer Consumer 1) Chopra, Sunil and Peter Meindl (2010), Supply Chain Management, 4th. ed., p. 21. Ove Jensen 6 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared.  Anatomy of a Value Chain Classification of Players Size of B2B vs. B2C Content Value Chain Reconfiguration Anatomy of a Firm Anatomy of a Business Model Anatomy of Competition Ove Jensen 7 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. The term value chain emphasizes the monetary aspect Question What is bigger – B2C or B2B? Ove Jensen 8 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. B2B is bigger than B2C because the upstream content is sold multiple times: first in raw form, then in refined form as an ingredient of downstream products Illustration of Value-Added Original Automotive Oil-drilling Chemical Plastics Equipment Automobile parts Consumer company company processor Manufacturer dealer supplier (OEM) Oil sold Oil re-sold Oil re-sold Oil re-sold Oil re-sold Oil re-sold as ingredient as ingredient as ingredient as ingredient as ingredient Ove Jensen 9 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared.  Numbers are Upstream sales are part of downstream material costs. Added costs and profit margin at each illustrative only stage are called „value-added“ (Wertschöpfung) Illustration of Value-Added Original Automotive Oil-drilling Chemical Plastics Equipment Automobile parts Consumer company company processor Manufacturer dealer supplier (OEM) Sales Material 750 Costs 750 + Other Costs, Profit 350 Material = Sales Costs 1100 1100 + Other Costs, Profit 250 Material = Sales Costs 1350 1350 + Other Costs, Profit 200 = Sales and so forth 1550 Ove Jensen 10 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared.  Numbers are The consumer‘s price (3450) is the sum of costs and profits along the value chain illustrative only Illustration of Value-Added Original Automotive Oil-drilling Chemical Plastics Equipment Automobile parts Consumer company company processor Manufacturer dealer supplier (OEM) Costs + Value-added + Value-added + Value-added + Value-added + Value-added 750 350 250 200 100 1800 = Total Consumer’s 3450 purchase price Ove Jensen 11 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared.  Numbers are The sum of sales is larger than the sum of costs and profits because upstream costs are „re- illustrative only sold“ (i.e., included) multiple times in downstream sales Original Automotive Oil-drilling Chemical Plastics Equipment Automobile parts Consumer company company processor Manufacturer dealer supplier (OEM) + Value added: + Value added : + Value added : + Value added : + Value added : + Value added : 750 350 250 200 100 1800 = Sales: = Sales: = Sales: = Sales: = Sales: = Sales: 750 1100 1350 1550 1650 3450 Oil sold Oil re-sold Oil re-sold Oil re-sold Oil re-sold Oil re-sold as ingredient as ingredient as ingredient as ingredient as ingredient Ove Jensen 12 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared.  Numbers are Because precursors (e.g., oil) are turned over multiple times between businesses, but “sold” to illustrative only the consumer only once, the sum of B2B sales is larger than B2C sales Original Automotive Oil-drilling Chemical Plastics Equipment Automobile parts Consumer company company processor Manufacturer dealer supplier (OEM) + Value added: + Value added : + Value added : + Value added : + Value added : + Value added : 750 350 250 200 100 1800 = Sales: = Sales: = Sales: = Sales: = Sales: = Sales: 750 1100 1350 1550 1650 3450 Sum of Business-to-Business-Sales: Business-to-Consumer- 6400 Sales: 3450 Ove Jensen 13 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared.  Anatomy of a Value Chain Classification of Players Size of B2B vs. B2C Content Value Chain Reconfiguration Anatomy of a Firm Anatomy of a Business Model Anatomy of Competition Ove Jensen 14 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. When upstream players integrate downstream activities, we speak of forward integration Forward Integration “upstream” Raw material producers Examples of Forward Integration Chinese battery producer BYD making cars Commodity trader Adidas opening its own retail stores and webshop Apple opening its own retail stores and webshop Supplier of semi-finished material Coca-Cola taking over its bottlers Oil producer Exxon operating its own gas stations Electronics parts and telco equipment producer Huawei making its Dealer of industrial supplies own phones BMW and Volkswagen substituting independent dealers with branches Manufacturer (...) Wholesale distributor Retailer “downstream” Consumer Ove Jensen 15 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. When downstream players integrate upstream activities, we speak of backward integration Backward Integration “upstream” Raw material producers Examples of Backward Integration IKEA making its own furniture Commodity trader Edeka making its own sausages Lidl producing its own ice cream and owning its own water sources Supplier of semi-finished material Apple making its own CPUs Volkswagen making its own software Enpal installing solar roofs with its own electricians Dealer of industrial supplies (...) Manufacturer Wholesale distributor Retailer “downstream” Consumer Ove Jensen 16 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared.  Anatomy of a Value Chain Anatomy of a Firm Content Anatomy of a Business Model Anatomy of Competition Ove Jensen 17 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. The three key functions of the firm are 1) supply & operations, 2) marketing, sales, and service, and 3) finance Supply & Operations Support functions: (a.k.a. Production) Accounting Finance Information Technology Translates materials and Human Resources Acquires financial resources services into product and Engineering and capital for inputs service outputs Research & development Marketing, Sales, and Service Generates revenues of product and service outputs Based on Krajewski, Lee J., Larry P. Ritzman, and Manoj K. Malhotra (2010), Operations Management, 9th. ed., Upper Saddle River: Pearson, p. 24. Ove Jensen 18 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. Michael Porter visualized primary and support activities as his so-called “firm value chain“. It is a micro value chain inside the firm in contrast to the macro value chain between firms Firm Value Chain (“Micro Value Chain”) Michael E. Porter (*1947), Harvard Business School Ove Jensen 19 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. Larger firms are organized into different business units: Firms within the firm Corporate Center Product Business Product Business Product Business Product Unit A Unit B Uni C Manu- Function Marketing Sales Sourcing facturing Country 1 Country 2 Country 3 Country 4 Geography Quelle: Homburg und Krohmer (2006) Ove Jensen 22 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. Corporate Center, divisions, business units, shared services and regions are the building blocks of every international organisation: Example Degussa (2004) Degussa AG Corporate Center 10 site service Central shared units Strategic Business Unit (one COO each) service units Fine and Antwerp Construction Performance Coatings & Special Industrial Business Services Chemistry Chemicals Filler Systems Polymers Darmstadt Chemicals Process Admixture Syst. Coatings & High Perform- Engineering Essen Fine Chemicals Superabsorber North America Colorants ance Polymers Procurement and Admixture Syst. Bleaching & Distribution Frankfurt Care Specialities Aerosil & Silanes Spezialacrylate Europe Water Chemicals Services Hanau-Wolfgang Admixture Syst. Oligomeres / Filling Systems & C4-Chemicals Methacrylate IT-Services Asia/ Pacific Silicones Pigments Marl Construction Catalysts & Food Ingredients Plexiglas HR-Services Syst. America Initiators Krefeld Construction Animal feed Management Mobile Syst. Europe Additives Services 7.700 MA 8.500 MA 5.400 MA 6.981 MA 3.708 MA Trostberg € 1,8bn € 2,7bn € 1,9bn € 2,1bn € 1,3bn Wesseling Western South Japan Taiwan Korea Oceania N./ M. East Europe America Eastern NAFTA China ASEAN India Africa Europe Ove Jensen 24 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. Some firms even divide business units into business lines: firms within firms within firms... Organizational motto: „business first“ – the organisation follows the market´s demands General guidelines are prescribed by the holding as a form of "crash barriers" Single business units hold entreprenurial responsibilities and freedom. They are seen as „entrepreneurs within the organization“ – decentralized management structure Business units cooperate among divisions at the Marketing & Sales Council – apart from that there is not much cooperation  General guidelines (some influence) Management Board (four)  Consolidation of results  Finance / Controlling Corporate Center  Synergy Management (ca. 175 Empl.)  Management and coordination of the divisions and implementation of the corporate strategy Division Management (ca. 10  Controlling, research coordination, personnel Empl. each) development, IT coordination  Aggregation and consolidation of the busines units´ results Business Units  Extensive organizational freedom, but they have to adhere to the boards´ directions  Operational unit – fully functional (except controlling) Business Lines  Entrepreneurial responsibilities Ove Jensen 25 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared.  Anatomy of a Value Chain Anatomy of a Firm Anatomy of a Business Model Content Business Definition Business Model Definition Business Model vs. Strategy Anatomy of Competition Ove Jensen 26 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. It is useful to define a business around benefits and technologies, not around products Definition of Business Company Customers 2. Which customer problem do we solve? Which benefit 1. do we offer? Who (Value Proposition) is our 3. How do we solve customer? the customer’s problem? (Technology) Source: Ove Jensen Ove Jensen 27 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. Levitts famous HBR-article „Marketing Myopia“ highlights the importance of adopting a broad perspective on customer benefits to detect disruptive technologies Companies have a myopic perspective on their business environment because they suffer from a myopic understanding of their own business domain Future (technological) developments cannot be anticipated and are overlooked: no “thinking outside the box“ Examples  U.S. railway companies‘ growth slowed down because of a myopic understanding of their business model  „Railway business“ instead of “logistics business“ (product orientation instead of customer orientation)  Competition grew because of modern airplanes that were capable of transporting enormous amounts of cargo across long distances in a short time  Hollywood‘s film industry almost went out of business because the newly-developed TV business was seen as a threat and not as a chance to do business; restricted point of view: “Movie business“ instead of “entertainment business“ Theodore Levitt (1925 – 2006), Harvard Business School Source: Levitt (1960) Ove Jensen 28 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared.  Anatomy of a Value Chain Anatomy of a Firm Anatomy of a Business Model Content Business Definition Business Model Definition Business Model vs. Strategy Anatomy of Competition Ove Jensen 29 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. An “elevator pitch” of a business model should address six questions Essence of Business Model: How do we make money? Company Customers Revenues 4. How do we 2. Which customer get paid for our problem do we services? (Monetization) solve? Which benefit 1. - Costs do we offer? 5. How do we “buy” or Who (Value Proposition) “make” our services? is (Sourcing&Manufacturing)? our 3. How do we solve customer? 6. How do we advertise and the customer’s problem? sell our services? (Technology) (Marketing&Sales)? = Profit Source: Ove Jensen Ove Jensen 30 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared.  Anatomy of a Value Chain Anatomy of a Firm Anatomy of a Business Model Content Business Definition Business Model Definition Business Model vs. Strategy Anatomy of Competition Ove Jensen 36 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. The business model and strategy concepts are related, but have different foci. Both emphasize the definition of target customers and customer value proposition Comparing business model and strategy Essence of Business Model: How do we make money? Company Customers Competitors Revenues 4. How do we 2. Which customer get paid for our problem do we services? (Monetization) solve? Which benefit 1. - Costs do we offer? Who are 5. How do we “buy” or 7. (Value Proposition) our target “make” our services? Who are our customers (Sourcing&Manufacturing)? competitors? and who 3. How do we solve is not? 6. How do we advertise and the customer’s problem? sell our services? (Technology) (Marketing&Sales)? = Profit 8. What are we doing better for the customers than the competition? (Competitive Advantage) 9. Where do we want to stand in the competition? (Vision) Essence of Strategy: How do we win the competition? Q1&Q7: Where to compete?, Q2&Q8: How to compete? Source: Ove Jensen Ove Jensen 37 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared.  Anatomy of a Value Chain Anatomy of a Firm Content Anatomy of a Business Model Anatomy of Competition Ove Jensen 38 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 6:55 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. A simplified look at business: Innovation and cost reduction as necessary criteria for profit, pricing as sufficient criterion Profit (i.e., Surplus) Gain (i.e., Surplus) of the supplier: of the end user: NP-TC TV-NP Cost Pricing Innovation reduction True Negotiated “True value” costs price of our (TC) (NP) solution (TV) “Money on the table”: TV-TC Ove Jensen 39 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 7:03 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared. The literature distinguishes two simple forms of competitive advantage: cost leadership and differentiation Our company Competitive advantage Costs Customer’s type 1 (“Cost leadership”): (C1) Perceived Value and Willingness-to-Pay (WTP1) Lower costs, same value Competition Costs Customer’s (C2) Perceived Value and Willingness-to-Pay (WTP1) Our company Costs Customer’s Price disadvantage (C1) Perceived Value and type 2 (“differentiation”): Willingness-to-Pay (WTP1) Higher value, Competition same costs Costs Customer’s (C2) Perceived Value and Willingness-to-Pay (WTP1) 1): Ohmae (1982), p. 92; 2) Dranove und Marciano (2005); 3) Simon (1988) p. 465, Ghemawat (1986); The term competitive advantage is attributed to Ansoff (1965) Source: Srivastava, Fahey, and Christensen (2002), p. 779; Backhaus and Schneider (2007); p. 3 Ove Jensen 40 CONFIDENTIAL AND PROPRIETARY WORKING DRAFT This document was prepared solely as a basis for classroom discussion and is not a complete record of the Last modified 9/11/2023 7:07 AM discussion. The material is classroom confidential and for your personal study at WHU only. Any other use of this material without specific permission of Ove Jensen is strictly prohibited. For example, no part of this document may be digitized, reproduced, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise. No derivative works of this document such as - but not limited to - translations, abridgments, revisions, dramatizations, video adaptions may be prepared.