Week 4 Flashcards
What is a business model?
Business model = An architecture for the product, service and information flows, including a description of the various business actors and their roles; and a description of the potential benefits for the various business actors; and description of the sources of revenues (Timmers, 1998).
There are four ways of defining business models:
➢ 1. Positioning the business model versus business strategy
➢ 2. Business model building blocks
➢ 3. Business model types
➢ 4. The business modelling process
or according to the slides:
• “an abstract representation of an organization, be it conceptual, textual, and/or
graphical,
• of all core interrelated architectural, co-operational, and financial arrangements
designed and developed by an organization presently and in the future,
• as well all core products and/or services the organization offers, or will offer,
based on these arrangements
• that are needed to achieve its strategic goals and objectives”
Is business strategy a pre-requisite and input for the business model or is business strategy an outcome of a business model? (Business strategy vs. Business model)
While business strategy focuses on how to prevail over competitors, the business model depicts the logic of value creation and the effective coordination of business resources. Business strategy defines how a company differentiates itself in which markets as well as via which products. A business model is important for constructing an organization’s strategic positioning and offering in the market. A business model is an interface between “business strategy” and the “business process layers” coping with the high dynamics in the digital world. A business model consists of two essential elements: the value proposition (what do we offer to whom) and the operating model (how do we profitably deliver)
What are the main elements according to literature?
➢ 1. Mission, Structure, Processes, Revenues, Legal issues and Technology (Electronic Markets, 2001) ➢ 2. Enablers (technologies, channels, network/partners), Structure elements (value chain, processes) and Results (value proposition, revenues) (Seidenstricker et al., 2014) ➢ IT itself is not a necessary ingredient of business models. (but: many business models are highly dependent on how IT is used to enhance the other business model elements).
Name 2 well-known examples of business model methods
Two well-known examples of “business model methods” are: ➢ Business Model Canvas (Osterwalder, 2004): 9 building blocks o Key partners, Key activities, Key resources, Value proposition, Customer Relationships, Customer segments, Channels, Cost structure, Revenu streams ➢ Business Model Elements (Boston Consulting Group, 2009): 6 building blocks o Target segments, Product or service offering, Revenue model, Value chain, Cost model, Organization
Timmers (1998) about Business Model Types
Business Model Types can be based on specific business model examples. Timmers (1998) suggested a typology of eleven business models for electronic markets and classified them depending on their degree of innovation and their scope of functional integration. These “ideal types” are generic in nature and decision-makers need to meet the challenge of crafting individual business models depending on their strategies. This explains why one business model hardly exactly matches other apparently similar competing business models.
Seidenstricker et al propose a thee phase methodology for developing business models: Explain
Seidenstricker et al propose a thee phase methodology for developing business models: after defining the aim and identifying the potential field, ideas for new business models should be generated and subsequently, the prototypes should be assessed. This area emphasizes that business model generation and refinement is an ongoing task that also calls for appropriate tools. Here, IT comes in a second time after being an enabler for business models: frameworks and typologies may be implemented on a business model workbench, which supports the configuration process of a new business model. The business modelling process defines how a firm develops a business model.
The role of IT in a business model
IT and the business model? Note that IT can affect (innovate) a business model in two distinct ways: ➢ By changing the value proposition and/or the operating model ➢ By enhancing the (quality and speed of) managerial decision making on business modelling.
A business model consists of two essential elements—the value proposition and the operating model—each of which has three subelements. Explain
Value proposition answers the question “What are we offering to whom?” It reflects explicit choices along the following three dimensions: ➢ Target Segment(s): Which customers do we choose to serve? Which of their needs do we seek to address? ➢ Product or Service Offering: What are we offering the customers to satisfy their needs? ➢ Revenue model: How are we compensated for our offering? Operating model answers the question “How do we profitably deliver the offering?” It captures the business’s choices in the following three critical areas: ➢ Value Chain: How are we configured to deliver on customer demand? What do we do in-house? What do we outsource? ➢ Cost model: How do we configure our assets and costs to deliver on our value proposition profitably? ➢ Organization: How do we deploy and develop our people to sustain and enhance our competitive advantage?
When does innovation becomes Business Model innovation
Innovation becomes BMI when two or more elements of a business model are reinvented to deliver value in a new way. Because it involves a multidimensional and orchestrated set of activities, BMI is both challenging to execute and difficult to imitate. Distinguishing BMI from product, service, or technology innovations is important. Companies that confuse the latter for the former risk underestimating the requirements for success.
Why is business model innovation relevant today?
Business model innovation is especially valuable in times of instability. BMI can provide companies with a way to break out of intense competition, under which product or process innovations are easily imitated, competitors’ strategies have converged, and the sustained advantage is elusive. It can help address disruptions such as regulatory or technological shifts that demand fundamentally new competitive approaches. BMI can also help address downturn-specific opportunities, enabling companies, for example, to lower prices or reduce the risks and costs of ownership for customers. Furthermore, BMI delivered more sustainable returns; even after ten years, business model innovators continued to outperform competitors and product and process innovators. BMI also helps with extending a business model with current customers and extracting brand value by extending the business model.
What can go wrong in Business model innovation?
Plenty can go wrong since we’re not talking about simple product innovation, but innovating simultaneously—and in a coherent and orchestrated manner—across several elements of the business. Common pitfalls are: ➢ Portfolio bloat: When a company has become bogged down in too many uncoordinated, bottom-up innovations the result is a bloated, unbalanced and overlapping portfolio which no resources. ➢ Failure to scale up: Once a project has been piloted and the initial excitement dies down, a lack of attention and resources can keep it from being scaled up successfully. ➢ Pet ideas: Projects that don’t go anywhere but refuse to die. ➢ Isolated efforts: Autonomous skunk-works teams can be too distant from the business to influence or leverage it, resulting in a lack of resources to validate ideas or no credibility to win cooperation. ➢ Fixation on ideation: Some organizations are able to churn out ideas endlessly but rarely move on to piloting and scaling them up. ➢ Internal focus: A common problem is a near-sighted attention to the organization’s internal needs at the expense of the unmet and evolving needs of customers ➢ Historical bias: Organizations must resist the temptation to overvalue past models and undervalue forward-looking disruptive ideas.
Explain the 3 most important activities when striving for BMI
➢ Uncovering opportunities: Before looking for new opportunities, it is important to diagnose the current model to understand its limitations. Look closely at each element of the business model and test how the choice aligns with industry trends, evolving customer preferences, and relative advantage or disadvantage over competitors. ➢ Implementing the new model: Winners in BMI are the ones that are the first to successfully roll out ideas that others may have originated. Scaling up can be the most critical step for BMI. An important choice that incumbent companies must make is whether to embed a new business model in the core business or establish it separately. The benefits of common assets, customers, and capabilities argue in favour of integration. But a significant disruption to the current model argues for a separate approach. ➢ Building the platform and skills: The final step is to build a platform for systematically managing the BMI process, capabilities, and portfolio of experiments. Most new business models are inherently disruptive and can incur significant internal resistance. BMI requires a distinct set of processes and capabilities to overcome an organization’s short-term focus and also sustain a BMI advantage continuously.
Whats the difference between behavioral research and design research?
Whats the difference between business modelling and business strategy?
– BM is important for constructing an organization’s strategic positioning and offerings in the market.
– BM is interface between ‘business strategy’ and the ‘business process layers’ coping with the high dynamics in the digital business world
What are the building blocks of the business model canvas (Osterwalder, 2004)
Key partners
Key activities
Key resources
Value propostion
Customer relationships
Channels
Customer segments
Cost structure
Revenue streams
What are the elements of the business Model Elements (Boston consulting Group)
