Core Concepts Flashcards
Why is it hard for companies to successfully change their business model?
Few companies understand their current BM well enough.
They don’t study the dynamics and processes of BM development
What does the CVP consist of?
Profit formula
Key processes
Key resources
What does the profit formula consist of?
Revenue model: price*volume
Cost structure
Margin model: The contribution needed from each transaction to achieve desired profits
Resource velocity: how fast inventory needs to be turned over along with fixed assets. How well resources need to be utilized
Steps how to change the business model
- Designing a profit formula
- Identifying key resources and processes
- Creating a CVP
When to change the business model?
- The opportunity to address through disruptive innovation the needs of large groups of customers, which are shut out of the market
- The opportunity to capitalize on a new technology by wrapping a new business model around it
- The opportunity to bring a job-to-be done focus on where one does not yet exist. Basically, a customer job, which is not fulfilled. For example, Fed Ex focused not on making deliveries cheaper but focus on speed and reliability of receiving packages.
- The need to fend off low-end disruptors such as Tata
- The need to respond a shifting basis of competition. As what defines an acceptable solution In a market will change over time.
How can firms learn from customers
In order to access such fragmented knowledge, the company must construct a customer portfolio breadth
What are the elements of the customer portfolio breadth?
- Size of firm’s customer potfolio – the number of customers the firm has relations with.
- Diversity of firm’s portfolio - Terms of differences in market domains between the firm and each of its customers.
- Diversity in customers’ demands can help
Importance of customer portfolio breadth
- Firms with ties to many and diverse customers will acquire more knowledge than firms with smaller and less diverse customer portfolios.
- Can help ventures learn leading to knowledge assimilation and utilization.
- Diversity in customers’ demands that ventures engage in BM and organizational adaptation and overcome potential inherent tendencies to stick to the status quo
- The larger the portfolio, the higher the likelihood of obtaining useful feedback – “wisdom of the crowds” effect.
Effect of emerging industries connected to BM change
In an emerging industry, where information is scarce and uncertainty high – a firm’s customer portfolio will be an important source of knowledge that will help a firm shape and adapt its business model. Learning from customers is a likely factor of BMA
Which are the multiple goals that lead to mission measurement paradox in SE?
The conflict of social goals and business behaviour.
Social goals are hard to measure, while financial goals are easily quantifiable
What is a mission measurement paradox?
The ‘disconnect between mission, objectives, and impact measurement’
Mission drift due to ease of measuring outcomes
To deviate from the normative mission and to be more inclined to ‘follow the money’ by prioritizing a strategy aimed at maximizing resources. Since financial measures are much easier
Which are the typical challenges, which SE’s face?
The governance challenge
The mission measurement paradox
The legitimacy challenge
Governance challenge
Governance defines systems and processes concerned with direction, control and accountability; it determines for what and to whom an organization is accountable. Main difference stems from two main factors:
- the origins of the main sources of funding (philanthropic donations or governmental support or own revenue)
- the way the governing board is composed
The legitimacy challenge
social enterprises need to be seen as economically fit but to be perceived as trustworthy and accountable.
Why does the BMC not fit SE?
It isn’t
(1) blending social and economic objectives;
(2) effectively communicating the objectives and their coherence with the use of resources and, more generally, the strategy;
(3) assessing, or more precisely quantifying its results in terms of output, outcomes and impact
(4) adopting the best governance mechanisms that enable the pursuit of mission values and objectives
Which are the blocks, which SE replaced in the BMC canvas
Social value proposition Non-targeted stakeholders Customers and beneficiaries Customers and beneficiaries engagement Income
Which are the NEW blocks in the SE canvas
The mission values The objectives The impact measures The output measures The governance
Difference between business model adaptation and business model innovation
- Adaptation – the process by which the management actively aligns the firms business model to a changing environment. For example, changes in preferences of customers, supplier bargaining power and technological changes
- Innovation – Defined as the process by which management actively innovates the business model to disrupt market conditions
Drivers of BM adaptation
- Need to adapt to external stakeholders
- Changes in competitive environment
- Opportunities brought by new information and ICT technologies
Hindrances to BM adaptation
- Willingness to experiment
- The ability to develop leadership and organizational capabilities
- Structured and interdependent operational activities and their structures might lead to rigidity
Threat-rigidity theory
Firms confronted with external threats are more likely to respond with caution, exhibit an inward-looking tendency, and to fall back on known and routinized patterns of actions.
Prospect theory
Managers are more sensitive to losses than gains of the same magnitude. So companies, which face unfavorable conditions are more likely to respond with BMA, as they have little to lose, whereas more successful companies are more risk-averse since they have “more to lose than to gain
Trial and error learning
Retaining actions, which produce favourable results and discarding those who do not
Organizational search
Trying actions and correcting and adjusting them during testing leads to learning.
The stages in the Naturhouse case study?
- Stage 1 Exploration - Initial business model design and testing
- Stage 2: Exploration - Business model development
- Stage 3: Exploitation -Scaling up the refined business mode
- Stage 4: Exploitation and further exploration- Sustaining growth through organization-wide learning
Difference between single and double loop learning
In single-loop learning, individuals, teams, or organizations detect deviations from the ‘rules’ and modify their actions according to the difference between expected and obtained results, but do not question the fundamental design, goals, and activities of their organization’.
In contrast, double-loop learning ‘questions changing fundamental aspects of the organization’, promoting deep changes in the ways it both behaves and performs.
