Business Model Framework (Klaus edition) Flashcards
Why business models are important?
1) Quick proliferation of new kinds of business models due to internet and digitalization is rapidly changing established industries
2) Increasingly competitive advantage comes not from innovation in product or technology, but from business model innovation
What is the difference between BM and Strategy?
Two different view:
1) Business model comes first, strategy comes second (Teece, 2010)
- A business model defines the logic of how the enterprise delivers value to customers, entices customers to pay for value, and c_onverts those payments into profits_
- Strategy is more granular and less generic than business models. Strategy (or the coupling of the two) consists in defining customer segments and unique positioning in those segments, differentiating the value proposition and finding other isolating mechanisms to ensure competitive advantage
–> Strategy is essential to make a business model competitively sustainable!
- Inspired by small (tech) corporations - ONE business model
2) Strategy comes first, business models come second (Casadesus, 2010) - A business model is made of the choices and consequences about how an organization must operate, choices about policy, assets and governance
- Business models are made of lower-level operating choices and the real consequences of these choices. Strategy is a higher-level choice of a particular business model, including the contingencies that can influence this choice (strategy as intention vs business model as realized strategy)
- Inspired by larger organisations (which often have multiple business models and one larger corporate strategy)
What are the core elements of the business model framework?
- Explain in one sentence their main question targeted?
And who are the authors?
Business model is a system that solves the problem of identifying who is (or are) the customer(s), engaging with their needs, delivering satisfaction, and monetizing the value.
- Customer identification: Who use the product / service? Who pays for it?
- Customer engagement: “Taxi” or “Bus”?
- Value chain and linkages: How are customer groups, value creation and monetization connected?
-
Monetization: When, What and How is money raised?
2) Baden-Fuller and Haefliger, 2013
Explain the Business Model Framework Element:
Customer Identification
- Historically, most business models were one-sided user=payer
- Multi-sided business models incorporate multiple value delivery systems: one for the user, for the customer who pays, etc.
- Internet facilitated the expansion of multiple value delivery systems
Are these one-sided or multiple-sided?
And who pays?
Explain the Business Model Framework Element:
Customer Engagement
- Requires sensing what the customer-user or groups of customer-users need, and establishing the value proposition for each of these groups.
- Project-based approach (“taxi”) –> projects responding to customer needs. Its routines are designed to be particularly effective at three things:
- dealing with non-routine complex tasks that require the repeated reconfiguration of organizational structures;
- responding flexibly to changing client needs;
- and integrating diverse bodies of knowledge.
- “Pre-designed” or “scale-based” (“bus”) approach is characterized by:
- products made through scale-based systems using machines and routines that have a limited capacity to respond “flexibly” to unexpected client needs
Customer Engagement
Are these projects scale-based (bus) or project-based (taxi)?
Explain the Business Model Framework Element:
Value Chain and Linkages
- Set of linkages between identifying the customer groups, and sensing their needs on the one hand, and monetization on the other.
- May go further than the traditional value chain, because a two-sided business model that has two sets of customers typically also involves two value chains — one for each side of the market.
- vertical integration and hierarchy vs. network.
Value Chain and Linkages
What are the linkages:
Explain the Business Model Framework Element: Monetization
Pricing: there are many other possibilities: negotiated prices, price based on value delivered, etc. Complementary assets can leverage monetizing opportunities, particularly in the case of the razor-blade model. In cases such as the fast-food franchise-system the user pays the complementary asset provider who in turn pays the provider.
- Another example: freemium (video games & apps), pay for performance in unexpected places (consulting, healthcare)
- When the money is collected: before the sale, at the point of sale, or after the sale, etc.
- A very important choice in the business model for durables is whether to rent a machine or sell it outright. The rental system implies a different form of customer engagement and different timing for collecting income that can be tailored more closely to value-based pricing.
Monetization
When, What and How is money raised?
How has the development been in video by demand?
Industry evolution: from free service with limited quality and user experience to fee-based sophisticated offerings
How is can competition be nuanced by looking at business models?
The competition in the industry is between business models, as well as companies are competing within business models
Customer identification: different customer groups (video on demand)
1)
- User of the service is the one who pays for it and is the primary customer at the same time.
- Core value proposition – quality of experience, no advertising.
2)
- Programs are free to users and are paid for by advertisers – like traditional for TV networks.
3)
- In this business model VoD streaming services is offered free as a complementary a different product or service, serving as an incentive and creating opportunities for more lucrative cross-sell and up-sell opportunities.
Customer engagement (video on demand)
paid online streaming creates value because it is more reliable, convenient, accessible, personalized and legal
Monetization mechanisms (video on demand)
There are three main monetization mechanisms in the VoD industry
What are the three ways of business model innovation?
draw the model used in Rational Positioning View
Explain the Evolutionary View
In reality new business models and change in business model rarely work the first time around.
–> Business model innovation through trial-and-error learning: low cost experimentation must be encouraged, as well as knowledge diffusion and readiness to bear potential negative outcomes from mistakes.
–> While ‘change’ may be initiated at the top, it must involve all firm levels and activities for it to become a collectively shared view.
explain Cognitive View
- Business Models as ‘schemas’ - ‘cognitive structures that represent knowledge about a concept
- “Business models and even the fine mechanics between customer needs, value propositions and other business model components are quite transparent and can be analysed from an outside perspective
- Key process analogical reasoning –> use of the knowledge contained in the schema about one domain (termed ‘source’) to interpret information in another domain (termed ‘target’)
