Business Model Design:
-> DEFINITIONS of Business Model:
“A business model is an architecture for the product, service and information flows, including a description of the various business actors and their roles, a description of the potential benefits for the various business actors, and a description of the sources of revenues”
(Timmers, 1998)
“A business model is the method of doing business by which a company sustains itself, that is, generate revenue”
(Rappa, 2000)
“The essence of a business model is in defining the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit”
(Teece, 2010)
-> BM Design moved from a piecemeal approach to one searching for a clear and unambiguous ontology to emplyo as a generalized tool for supporting strategy analysis of firms.
-> BM has become extensive and dynamic concept:
- FOCUS:
- From the single firm to the network of firms;
- From the sole firm’s positioning within the network to its entire interrelations and hierarchies.
-> CHAR:
- Shall be analyzed through a…
- Multi-category approach;
- Combination of multiple design dimension;
- Elements or building blocks.
- They’re not homogeneus (it’s difficult to find a standard).
- The relationship between BM and Strategy is debated.
-> Value Architect: BM are set of components that are set to stay togheter in order to create value.
-> PILLARS:
- VALUE CREATION: BM describe how to create value for customers;
- VALUE DELIVER: BM should describe how deliver the value to customers;
- VALUE CAPTURE: BM should describe how capture value form customers and how to transform the benefit of the customer into profit.
Overview of the Main Elements, Models and Frameworks:
-> There were different models:
BM affinity diagram (Shafer et al., 2005)
Entrepreneur’s Business Model (Morris et al., 2005)
-> There where 6 questions (component) to answer in order to create the BM:
| Component 1 (factors related to the offering): How do we create value? (select from each set) | Component 2 (market factors): Who do we create value for? (select from each set) |
| offering: primarily products/primarily services/heavy mix offering: standardized/some customization/high customization offering: broad line/medium breadth/narrow line offering: deep lines/medium depth/shallow lines offering: access to product/ product itself product bundled with other firm’s product offering: internal manufacturing or service delivery/ outsourcing/ licensing/ reselling/ value added reselling offering: direct distribution/indirect distribution (if indirect: single or multichannel) | type of organization: b-to-b/b-to-c/ both local/regional/national/intemational where customer is in value chain: upstream supplier/ downstream supplier/ government/ institutional/ wholesaler/ retailer/ service provider/ final consumer broad or general market/multiple segment/niche market transactional/relational |
| Component 3 (internal capability factors): What is our source of competence? (select one or more) | Component 4 (competitive strategy factors): How do we competitively position ourselves? (select one or more) |
| production/operating systems selling/marketing information management/mining/packaging technology/R&D/creative or innovative capability/intellectual financial transactions/arbitrage supply chain management networking/resource leveraging | image of operational excellence/consistency/dependability/speed product or service quality/selection/features/availability innovation leadership low cost/efficiency intimate customer relationship/experience |
| Component 5 (economic factors): How we make money? (select from each set) | Component 6 (personal/investor factors): What are our time, scope, and size ambitions? (select one) |
| pricing and revenue sources: fixed/mixed/flexible operating leverage: high/medium/low volumes: high/medium/low margins: high/medium/low | subsistence model income model growth model speculative model |
RCOV Framework (Lecocq et al., 2006)
-> DEF: Framework that should describe how resources are organized and how use them:
Business model for ICT services (Ballon, 2007)
Business Model Framework (Richardson, 2008)
The Business Models reinvented (Johnson et al., 2010)
Elements of business model design (Teece, 2010)
Surces of value creation in e-business (Amit & Zott, 2001)
Business model design: an activity system perspective (Amit & Zott, 2010)
-> A firm’s business model is conceptualized as a system of interdependent activities that transcends the focal firm and spans its boundaries.
-> The activity system enables the firm, in concert with its partners, to create value and also to appropriate a share of that value.
-> Activity system’s set of parameters:
- Design Elements – which describe the activity system’s architecture:
- Content
- Structure
- Governance
- Design Themes – which describe the source of value creation:
- Novelty
- Lock-in
- Complementarities
- Efficiency
Business Model as choices and consequences (Casadesus-Masanell and Ricart, 2010)
-> Business Models are composed of two different sets of elements:
- The concrete choices made by management about how the organization must operate;
- The consequences of these choices;
-> DESCRIPTION:
- POLICIES: (Choices) Choices regarding the courses of action adopted by the firm regarding all aspects of its operation;
- ASSETS (Choices) Choices regarding tangible resources such as manufacturing facilities;
- GOVERNANCE (Choices) Choices regarding the structure of contractual arrangements that confer decision rights regarding policies or assets;
- FLEXIBLE (Consequences) Consequences that are sensitive to the choices that generate it;
- RIGID (Consequences) Consequences that does not change rapidly with the choices that generate it.
The Origin of the Business Model Canvas (Osterwalder, 2010):
-> HISTORY: developed in “Business Model Generation” written by Alexander Osterwalder in 2010.
-> CHAR:
- Intuitive and simple way.
- Is the most used tool for rappresenting and implementing strategic decision in both consolidated companies and startups.
- Enables interaction and iteration, thus being significantly appealing for practitioners
-> Evolution of all the BM that we saw:
- Define how create value thanks to 9 sources.
- You should start from the right: who your target market is? This because first we have to know the customers (needes, preferences). If we start from the left => we are driven by the technology (we have a solution instead of a problem).
-> Why we don’t start from left?
- It’s huge;
- It present a solution;
- It don’t find a problem.
Customer Segments:
-> DEF: heart of any business model.
- Successful companies know how turn satisfied customers into revenue streams;
-> A clear description and understanding of a company’s customers is an integral part of every business model.
-> KEY QUESTIONS:
- Who do we create value for?
- Do any of these customers merit to be grouped into a distinct category, because…
… we propose them a distinct offer?
… we reach them through different communication and distribution channels?
… we entertain different relationships with them (e.g. more personal)?
… they have a substantially different profitability?
Value Proposition:
-> DEF: reason why customers turn to one company over another.
- It solves a customer problems or satisfies a customer need.
- Each V.P. consists of selected bundle of products and/or services.
-> Some V.P. may be innovative and represent a new or distruptive offer.
-> KEY QUESTIONS:
- What do we offer the market?
- What is the specific bundle of products and services you offer each of our customer segments?
- Which customer needs does each value proposition cover?
- Do we offer different service levels to different customer segments?
-> FACTORS enabling value creation:
| Originality Performance Customization «Getting the job done» | Design Brand/Status Price Cost reduction for the customer | Risk reduction for the customer Accessibility Handiness |
Channels:
-> DEF: how company reaches its customers through various communication and distribution channels.
- Represent the interface between a company, its value propositions and its customers.
- how physically or intangibly we create a channel from the company to the market;
-> Have become increasingly important in business model design.
-> CHAR:
- DIRECT: company property (e.g. shops, web pages);
- INDIRECT: partner property.
-> KEY QUESTIONS:
- Through which communication and distribution channels do we reach our markets?
- How well does each channel work?
- How expensive or cost efficient is each of our channels?
- Through which communication and distribution channels do we promote and deliver each value proposition?
- Through which channels do we reach each customer segment?
-> FUNCTIONS:
- Create awareness of the proposal;
- Support the customer in the evaluation of the proposal;
- Allow the purchase of specific products/services;
- Get the value proposition to the customer;
- Support the customer in the post-sale phase.
-> TYPE:
- DIRECT: sales force, web;
- INDIRECT: owned dealers, dealer of partner, wholesalers.
Customer Relationships:
-> DEF: how you manage the relation with the customer;
- The types of relationships we entertain with each customer segment.
- Crucial to satisfy customer’s expectations.
-> KEY QUESTIONS:
- Do we develop and maintain different types of client relationships in our business model (e.g. more or less intense, more or less personal)?
- How resource intensive is each of these client relationship types in terms of time consumption and other costs?
- For each client segment, which client relationship types and mechanisms do we develop and maintain?
-> ALLOW:
- ACHIEVE ENGAGEMENT: you want to engage the customer, start a conversation:
- OUTBOUND MARKETING: calling, using news letter;
- INBOUND MARKETING: ordiented a content (podcast, video or post) to engage customer and indirecting lead them to the brand.
- LOCK-IN: keep conversation continuing with customers,
🔗 switching costs (there are negative or positive. POSITIVE: discount; NEGATIVE: )
- CROSS/UP-SELLING: when we are overcrowded by information we are blinding from something. The real competitions is to share-mind customers. It’s all about positive experiences.
-> Value = WHAT + HOW + WHY:
- WHAT (Value Position): what I do to create value;
- HOW: the way that I pursue to create value;
- WHY: should customer buy my brand?
Customer Relationship Management:
- Personal assistance;
- Dedicated personal assistance;
- Self-service;
- Automated services;
- Online community;
- Co-creation.
Revenue Streams
-> DEF: streams through which we earn our revenues from our customers for value creating ad customer facing activities.
- Come from one or several segments of clients who are willing to pay for the value they get from our offer.
- Come in the form of selling, lending, licensing, commissions, transaction fees or advertising fees.
-> KEY QUESTIONS:
- What are our revenue streams?
- What are the revenue streams from each customer segment and value proposition?
- How much is each revenue stream’s contribution to overall revenues in terms of percentages?
-> EXAMPLES:
- Sell of products/services;
- Usage fees;
- Subscription fees (guarantee a retourning);
- Exclusive right of use for a limited time (renting);
- Licence;
- Brokerage fees;
- Advertising fees;
- Partners.
Whattsapp
❓Who are whatsapp customers? -> Everyone that has a smartphone.
❓How do we pay them? -> With data.
“If you are not paying for it, you are the product!”
- In whatsapp we are key resources and customer
- Whatsapp was bought by Meta for 19 bilions $.
- Meta made 1 billion in s year from whatsapp -> Thanks to data that profile people.
- Whatt’sapp has 55 employee.
Key Resources:
-> DEF: key resources that the company use to create value.
- Could be: Physics, Competences, financiaries or humans.
-> KEY/ CORE RESOURCES:
- KEY RESOURCE: needed in order to compete in the market
-> EX: I go to the restaurant and i want to go to the toilet. It is expected that there is.
- Expected to be;
- CORE RESOURCES: resoruces that allow to exceed in the market.
-> EX: the chef
-> KEY QUESTIONS:
- What are the key resources we rely on to run our business model?
- How does each of these resources relate to our value propositions and their corresponding customer segments, channels and relationships;
Key Activities:
-> DEF KEY ACTIVITIES: most important activities performed to implement our business model.
- It may perform these activities itself or get them done through a network of partners.
-> KEY QUESTIONS:
- What are the main activities we operate to run our business model?
- On which key resources do they rely?
- To which value propositions, channels or relationships do they contribute?
Partner Network:
-> DEF KEY PARTNER: partners and suppliers we work with.
- EX: network of partnerships, joint ventures, cooperation and alliances between different companies.
-> KEY QUESTIONS:
- Which partners and suppliers do we work with?
- Which key resources do they relate to?
- To which value propositions, channels or relationships do they contribute?
📌 Key Activity/ Key Partners: give the level of vertical integration (higher vertical integration level <=> more are the activity that the company do inside).
- Opposite: OUTSOURCING: give away things.
Cost Structure:
-> DEF: direct result of all the other building blocks of the business model.
- Ideally costs should be traceable back to each business model block.
-> TYPE:
- CAPITAL EXPENDITURES: assets, investments you buy;
- En up in deprecation
- OPERATIONLA EXPENDITURES: operational costs: energy, meterials;
-> Allow to understand if the business is capital expenses
-> KEY QUESTIONS:
- What are the most important cost positions in our business model?
- Can the cost positions be easily connected to a business model building block?
- Can costs be calculated for each customer segment?
Areas’ of the BM Canvas:
- Value Proposition: a selected bundle of products and/or services targeting a group of customers and satisfying welldefined needs;
- Customer Interface: the channels through which we offer our value propositions to our customers and the types of relationships we entertain with our customers;
- Value Infrastructure: the key activities, resources and suppliers/partners on which the value proposition is built;
- Value Monetization: the revenue streams through which the company earns from its customers and the corresponding cost structure.
The Value Propositions Canvas:
-> DEF: helps to design products and services that customers want.
- Defined by Osterwalder, 2013;
- Make explicit that we are creating value for customers.
Customer Profile:
- CUSTOMER JOB: task that customer have to do and you want to help him to solve it.
-> EX: parking the car;
- PAINS: all problems customers enconuter when they are trying to perform a job.
-> EX: losing of money
- GAINS: all sources of satisfaction and happines that follow the ending of a job.
Value Proposition Map:
-> DEF: should help to design a soluction for the CP.
- GAIN CREATOR: how to generate the gain;
- PAIN RELIEVERS: how to extinguish pains;
- PRODUCTS & SERVICES: connect the information of the Customer to the products/services we are selling.
-> CONNECTING TO THE BMC:
- We start from the Value Proposition Canvas;
- We create the BM Canvas;
- We integrate the VP Canvas in the BM Canvas.
Business Model, Strategy & Tactics Relationship:
Generic two-stage competitive process framework (Casadesus-Masanell and Ricart, 2010)
-> There are two stages:
Strategy formulation and business model:
-> Steps of a strategy formulation process that integrates the business model (Ghezzi, 2014):
- Sharpen your generic business idea through a preliminary business model;
- Define your business’ industry foresight, strategic intent and goals;
- Perform a SWOT strategy analysis;
- Assess alternative strategic decisions that lead to many possible business models;
- Formulate your strategy (differentiation/cost leadership/hybrid) through a set of consistent strategic decisions embodied in a business model;
- Execute and implement your strategy through a detailed business model;
- Control your strategy by controlling and monitoring business model performance;
- Innovate and experiment on your strategy through business model innovation.
Business Model Innovation:
-> BM enable to achieve successful innovations.
- It captures the innovation of tat least one of its constituting elements including its value proposition, value infrastructure or revenue model and thereby provides a firm with potentials like the activation of overlooked value sources.
