Business modelling Flashcards
What is a business as a financial structure?
-Obtains revenue and incurs costs, ideally producing profits for its owners in the long run
What is a business as an organisation?
-Employs people and coordinates their effort in a meaningful way
What is a business as a legal structure?
-Carries certain obligations and rights
What is the main objective of a private business?
-Return a profit to its owners and/or shareholders
Define a business model
-Model describing the rational of how an organisation acts, and how the business runs
What is a business plan?
-Detailed document outlining the objectives, strategy and tactics planned of a business
-Shows expected profits for 3-10 years
What is the ‘Economies of scale’?
-Relationship of the size of a business and the efficiency it can operate
What is the equation describing economies of scale?
C=aX^b
C=cost
a=constant
X=manufacturing throughput/capacity
b=scale coefficient
if b<1; increasing returns to scale (lower cost for increasing production volumes)
if b>1; decreasing returns to scale (higher cost for increasing production volumes)
What are the risks of increasing economies of scale?
-Quality could decrease
-Market demand might not meet production volume, leading to high inventory
What is ‘Economies of scope’?
-Cost of bulk production of multiple products is lower than individual production of separate outputs
-Is a form of Economies of scale (special type)
What are the advantages of ‘Economies of scope’?
-Ability to create variation in the design of products
-Responsiveness to market changes
-Minimisation of changeover costs
What is transaction cost economics?
-Contractual arrangement between independent freelancers/contractors (gig economy)
-Lower production costs
-Higher coordination costs
eg. Uber, Deliveroo, ect..
What is the effect of IT on transaction costs?
-Generally reduces coordination costs
-Issues with incomplete contracting (constant contract revision is required)
Explain customer needs analysis for business model formulation
-What are the needs and wants of the customers? How do the needs vary between customers?
What are the 3 kinds of interaction between a product and customer for Customer Needs Analysis?
-Interaction through the product features and attributes
-Objective and subjective benefits of the customer through product use
-Values or characteristics of a customer allowing them to experience the underlying product benefits (personal, financial, social or psychological)
What are the principles of successful Customer Needs Analysis?
-What the customer seeks to accomplish from the product
-Customer circumstances is very significant
-Commercial success comes from solving problems that haven’t been addressed previously
Explain Value Proposition Design for business model formulation
-Distinctive presentation of the product to convince the customer of its utility
-Product/service provides help to customers
-Emphasis on practicality (only)
Explain the Value Mapping and Customer Profiling steps in the Value Proposition Design framework
Explain Business Model Generation for business model formulation
Explain ‘PESTEL analysis’ for assessing business models
-Assessment of external factors (gives an overview of ‘macro-factors’)
-eg. Assess the effect of technological change on the validity or sustainability of a business model
-Political
-Economic
-Social
-Technological
-Environmental
-Legal
Explain ‘Porter’s 5 forces analysis’ for assessing business models
-Analysis of competition for a business
-Assesses forces that determine intensity of competition
Explain ‘SWOT’ for assessing business models
Strengths:
-Characteristics of the business giving advantages over others
Weaknesses:
-Characteristics of the business placing it at a disadvantage to others
Opportunities:
-Elements in the environment that a business could exploit to its advantage
Threats:
-Elements in the environment that could cause trouble for a business
What are the 3 conventional business models?
-Vertically integrated business
-Conglomerates
-Specialised businesses
Explain the ‘Vertically integrated business’ conventional business model
-Downstream elements of supply chains (forward integration)
-Upstream elements (backward integration)
-Vertical integration avoids conflicts between suppliers and buyers (limits bargaining and profit maximisation)
-Vertical integration resulted in the emergence of huge companies
Explain the ‘Conglomerates (diversified businesses)’ conventional business model
Wide array of distinct companies:
-Allows owners to extract profits to invest in new units in high-growth areas
-Risks are spread across different investments
Explain the ‘Specialised business’ conventional business model
-Development of a specific and coherent capability and deploy at scale
-Acquire more investment and specialised workers
-Works in one segment of the supply chain
What is the importance of coherence for a business model?
-Create a value proposition aligned to the internal processes and goals of the company
-Develop a system of capabilities able to deliver the value proposition
-Have a matching portfolio of products and services
Explain ‘platforms’ as a business model
-Business is a privately owned venue for interaction between customers (and businesses)
-Generates value amongst customers instead of directly
-Digitalisation allows extremely low MC’s
What are the 3 kinds of network effects for platforms?
Direct network effects:
-When the value of accessing the platform increases with the number of users (potential customers)
Cross-group network effects:
-The benefit of a single group when multiple increasing demand groups exist
Indirect network effects:
-2 way exchange in benefits from the 2 groups increasing in size
