A framework for defining e-business models

A framework for defining e-business modelsA framework for defining e-business models

September 2002

Yves PigneurHEC Lausanne

[email protected](+41 21) 692.3416

© 2002, Pigneur Business model 2

Université de Lausanne

SYLLABUS | AGENDA | FIN

Agenda

INTRODUCTION

PRODUCT INNOVATION

• Value proposition

CUSTOMER RELATIONSHIP

• Target customer

• Distribution channel (and intermediation)

• Customer equity

• Revenue & pricing

INFRASTRUCTURE OPERATION

• Capabilities & resources

• Activity configuration

• Partnership

• Cost model CONCLUSION




IT Alignment

BUSINESS INFORMATION TECHNOLOGY

STRATEGIC FIT AUTOMATION LINKAGE

FUNCTIONAL INTEGRATION

INT

ER

NA

LE

XT

ER

NA

L

BUSINESS STRATEGY I/T STRATEGY

ORGANIZATIONAL INFRASTRUCTUREAND PROCESSES

IS INFRASTRUCTURE AND PROCESSES

BUSINESSSCOPE

DISTINCTIVE COMPETENCIES

BUSINESSGOVERNANCE

BUSINESSSCOPE

TECHNOLOGYSCOPE

I/TGOVERNANCE

PROCESSES

ARCHITECTURES

SKILLSSKILLS

ADMINISTRATIVE INFRASTRUCTURE

PROCESSES

[Venkatraman, 1983]




What is a Business Model anyway?

• A buzzword with no precise definition ?– […] Executives, reporters and analysts who use the term don't have a clear

idea of what it means. They use it to describe everything from how a company earns revenue to how it structures its organization

A business model is– the value a company offers to one or several segments of customers, and

– the architecture of the firm and its network of partners

– for creating, marketing and delivering this value and relationship capital,

– in order to generate profitable and sustainable revenue streams.




Why a business model approach to e-strategy?

Business ProcessesInformation systems

Business Model

StrategyPlanninglevel

Architectural level

Implementationlevel

Conceptual architectureof a business strategy

e-Business Technology layer

• Positioning• Objectives & goals• Communication of strategy

Avoid re-inventing strategy




State of the Art - ontology

• The Enterprise Ontology– collection of terms and definitions relevant to business enterprises

– Activities and processes, organization, strategy, marketing, time

• On-to-knowledge (XML) Content-driven Knowledge-Management through Evolving Ontologies

• Electronic Business (EDI) using XML– «To provide an open XML-based infrastructure enabling the global use of

electronic business information in an interoperable, secure and consistent manner by all parties»

• Other EDI ontology: bizTalk, cXML, CBLScénario




State of the Art – e-business models

• Categorization– According different axes (innovation, integration, control …)

– Timmers, Rappa, Tapscott …

• Modeling– Concepts and questions

– Hamel, Afuah, LinderWeill, Rayport, …

• Tools– Computer-aided design

– MIT eBusiness Process Handbook (Malone)




State of the Art – business strategy

• (Un-)bundling the corporation– Product (What?), Customers (Who?), infrastructure (How?)

– Hagel, Markides …

• Competence tree– Knowledge, strategy, value creation

– Giget, …

• Value creation framework– value-creating activities result in

offerings provided to customers

– Ramirez, Wallin, Norman …

WHATWHAT

WHOWHO

HOWHOW

Market

Product

Activities

Capabilities




e-Business Model Framework (eBMF)

Customerrelationship


Productinnovation

Productinnovation

FinancialAspects

FinancialAspects

Infrastructureoperation


WHO?Who are the customers?How to manage relationships with customers, satisfy them and generate revenues to be on the winning side?

HOW?

How to organize the resources and competencies? manage the value chain and processes? build alliances?to achieve performance?

WHAT?What is the scope of products and services, its value and benefits for the customer?

HOW MUCH?What is the revenue model? the profit model? The cost model, designed to last?




Value proposition

Value Proposition

Offering

setOf isA

• Description• Reasoning (use, risk, effort)

• Life cycle (creation, purchase, use, renewal, transfer)

• Value level (me-too, innovation/imitation, innovation)

• Price level (attractive, market, high-end)

• Categorization (barter, sale, market, buy)

Target CustomersCapabilities

What we offer?

ProductInnovation

ProductInnovation

synonym: Benefice




Value proposition

To characterize product innovation, the value proposition

• defines,

• the actual product or service, and

• the value or benefits perceived by customers of the products and services offered by the firm.

• In the case of e-business this offer naturally includes a strong information system component, principally the Internet.




Value proposition – Offerings

• Facilitate research– and reduced transaction costs

• Speed up distribution– particularly for digital goods (written, music, image, software)

• Improve the quality of service– by personalization, for example

• Improve facility and experience of buying– capitalizing on ludic aspects

• Improve the transparency of information– by opening up the information system

• Develop a sense of community– and improve the diffusion of knowledge,

contacts and trust

• Bind complementary products

ticketless

Yield Management

Barcelone Loterie Romande

reservation

easyCar

Illustrations




Value proposition – Customer Service Life Cycle (CSLC)




Value proposition – Value and price levels

[Kambil, 1997]

Cos

t

Performance

Val

ue fr

ontie

r

Concorde

EasyJet

Exec jet

High-endQuality, comfort

…

Low cost(frequent flight, on-time schedule, service)

Underperformers

Major airlines

Me-tooInnovation/imitationInnovation

AttractiveMarketHigh-end




Value proposition – categorization

Influence of sellerlow high

Influ

ence

of

buye

r

low

high

Electronicbarter

Electronicbarter

SwapBarterAlaxis

Onlinesale

Onlinesale

Products:Amazon LeShop Brun Passot

Services:AutoWebE*tradeeasyJet

aggregation:

EMB

Onlinebuy

Onlinebuy

Portals:AOL, Yahoo Zdnet

Group buying:Cendant MercataAccompany

Pressure of seller

Pressure of buyer

competition

cooperation

Electronicmarket

Electronicmarket

search:Acses

auction:eBay PriceLine Ricardo

plate-form:TPN Register, linkom goFish

POWER




Value proposition

Browsing in price lists Online bookingTransportation(low flight fares)

explanation

The customer can navigate onthe Website and check-out

prices for flights on differentdates and at different times

The customer can book flightsdirectly on the easyJet.comWebsite by using his credit

card

The customer buys atransportation service from

easyJet.com that is similar tocompetitor offers but cheaperbecause there is no in-flight

service and no seat reservation

reasoningThis service essentially reduces

the risk of not choosing thecheapest convenient flight

This service reduces thecustomer’s effort of having to

go to a travel agency

nature of valueelement

Value creation: The customerindividually chooses the flight

that fits him best

Value appropriation: Thisservice concerns the buying

process

Value consuming: The mainproduct is transportation from

A to B

value measure me-too me-too me-too

price free free highly attractive

Illustration

Online sale




Target customers

Target customer

Criterion

setOf isA

Value proposition

Community

Segment isA

Who are our customers?



• Description• Reasoning• Categorization




Segment

• Categorizations of the population into social class or psychologically defined groups

• Area where a firm can specialize and gain competitive advantage– By having lower costs or customer-satisfying differentiation

– Clear distinction– Limited set of competitors– Distinctive supply– Different purchase criteria– Barriers to deter new entrants

Large organization

Home User

Market

Small Business

Medium Business SOHO




Community

Group of people or entities– that share values or interests

– and use the le Net regularly &at the same place

transaction Business, trading, occasions, barter …

interest Idea sharing,communication …

fantasy Role games, fantasy world…

relation Assistance (disease), sharing of experiences …

[Hagel, 1997]

Put pressure on sellers

Meeting ofsellers/buyers

Target customers

BuyUnion(mass)

BuyUnion(mass)

Marketmix

(informed)

Marketmix

(informed)

BarterNew age

(unselfish, elitist)

BarterNew age

(unselfish, elitist)

Sale target

(spendthrift)

Sale target

(spendthrift)

One-to-tribe

marketing




Distribution channel


Link

setOf isA

Target CustomersValue proposition

Offering

isA

Internet

Network isA

Call center

How we reach our customers? Feel and serve them?

Actor by





• A channel can be defined as a set of links or a network via which a firm “goes to market” and delivers its value proposition.

– Owned channels - direct (i.e. Web, phone, fax…)

– Owned channels - indirect (i.e. brand shops)

– Partner channels (intermediation i.e. retail, shops, ...)

• More precisely it defines how a firm is “in touch” with its customers for a variety of tasks

– Customer Buying Cycle (CBC)

– Customer Service Life Cycle (CSLC) The purpose is to make the right quantities of the right products or

services available at the right place, at the right time

The purpose is to make the right quantities of the right products or

services available at the right place, at the right time





Corporate Resellers

Large organization

Value Added Resellers Traditionnal

Dealers

Home User

Organization focus

End users

Channels

Market

Small Business

Medium Business

AlternateRetail

Needs

SOHO

Network Software PC's Periph.

Preferences Buying behaviour

ProgramsSelection criteria

ProductsTraining

Procurement strategy

Distribution strategy

Distribution channel Illustration




Distribution channel – intermediaries

Airline Travel AgencyReservation S.

80% by Internet!

Otopenia …

Illustration

[Klein, 2001]




Distribution channel – mix of links

Promotion of authors and

books

Reading cornersCoffee shopsSales person

Cash registry(cash/credit

card)Return books

Banners to books etc.

Search functionCustomer review

CriticsExcerpt

Shopping cartcheckout

(Credit card)

Order statusReturn booksTransaction

history

Specialized affiliate Websites

Expert commentaries

Recommendation

Free online courses

Courses based on books etc.

Mass advertising

Illustration




Customer Relationship

Relationship

mechanism

setOf isA

• …


Offering

isA

Retention

Acquisition isA

Add-on selling

How we get and keep our customers?

Trust

Personalization isA

Security




Customer equity

• Customer Acquisition– How do we get customers?

– Growing market share

• Customer Retention– How do we keep customers?

– Nurturing customer loyalty

• Add-on selling– How do we get customers to buy more?

– Enhancing Average Revenue Per User (ARPU)

In some mobile firms,customer acquisition costshad reached almost a quarter of all operating expensessaid Mr Zehle, CEO of




Make recommendation Make recommendation

PERSONALIZATION mechanisms

2

3

4a

5

4b

Establish configuration Establish configuration

Planing of production

Listen to the customerListen to the customer

Distribution

CRM

Production (internal)

ERP Outsourcing (external) SCM

One-to-one

Mass-customization

Collaborative

filtering




TRUST & LOYALTY mechanisms

TRUST

SECURITY

PRIVACY

Contribute to the establishment of

BRAND

Notoriety …

Fear: financial losses

Fear: loss of intimacy

INFO- MEDIARY COMMUNITY

Certification

Verification et authorization

Escrow

Notary, payments

Expertise

Guarantee of quality

Rating

Reputation of actors

Insurance

Risk management

Contribute

QUALITY




Revenues and pricing

Revenue

Pricing

setOf isA


Offering

for

What are our revenues? Our pricing?


Link




Revenue models – categorization

REVENUE

one time

recurrent

sale

registry

subscription

advertisement

use

Income of the subscription fees to become a memberPaid by the buyer and/or the vendor

transaction

commission Income, percentage of a transaction made by the settlement(affiliate program)

Income of online sales paid by the buyer

Income of the ad banners posted on the shopfrontPaid by the vendor

Phone• registry• subscription• Usage

• Time• Services

combination




Trends towards dynamic and online pricing

• Based on – catalog– negotiation between the seller and the buyer– auction– request for proposal (RFP)

• « good bye to fixed pricing »?– Suppliers enjoy price differenciation in order to avoid comparison– Customers enjoy low price and gaming using comparison

Yield Management • Allows to calculate in real time (online if on the Internet)

• the best prices• for maximazing the profit generated by the sales• based on a forecasting model of sale behavior

(for micro-segments)

[Klein, 2000]




Illustration

uploadimages

Print ofimages

Deliveryof items

Marketingof product

services

Printinginfrastructure

Packingstaff

ColorMailerWebsite

enablesvalue forActivities

Resources

Partners

required

perform

Infrastructure operationInfrastructure

operation





Capabilities and resources

Capability

Resource

setOf isA

Value proposition

What are our key competencies?

Actor by





• Capability– Repeatable patterns of action in the use of assets

– Aptitude to exploit and coordinate resources

– to create, produce, and/or offer products and services to a market

• Resource– Assets that are available & useful

– in detecting and responding to

– market opportunities or threats

[Wallin, 2000]

OWN

DO

Capabilities and resources

IBM




Online Gift Center

Online Gift Center

Integrated Partner Offers

Integrated Partner Offers

Broad Assortment

of Gifts

Broad Assortment

of Gifts

Customer Service

Customer Service

Wide Reach to CustomersWide Reach to Customers

Widespread Easy Access

Widespread Easy Access

Multiple Contact Points

Multiple Contact Points

Popular Web Site

Popular Web Site

High Quality of Flowers

High Quality of Flowers

TechnologyTechnologyStrong Brand

NameStrong Brand

Name

Strong Distribution

Network

Strong Distribution

Network

[Rayport, 2001]

Capabilities Illustration

= Capabilities

= Core Benefits




Capabilities – categorization

[Wallin, 2000] & Synocus

external

internal

customersresources

Related to business processes

Related to management processes(decision)

Business modelingcapability• Absorptive capacity• Conceptualizing• timing




Value configuration

Value configuration

Activity

setOf isA

Value propositionCapabilities

Resource

FitFlowSharing

Value shop

Value chain isA

Value network

How we operate and deliver?

Actor by





Laminer (1)

Presser (13)

Découper (14)

Souder (9)

Concevoir (16)

Rechercher composants

(17)

Assembler (8)

Stocker (15)

Livrer (10)

Gérer les stocks (11)

Livrer (12)

Presser (2)

Découper (3)

Alusun

Aerotech

Stocker (4)

Livrer (7)

Metalu

Tôles laminées

Tôles pressées

Toits

Capots moteurs

Landcar

ToitsCapots moteurs

Toits

Capots moteurs

SkyStar

Composants

Composants

Panneaux alu

Alliages reçus

Tableaux de bord

Rechercher alliages (5)

Suivre les contrats (6)

Propositions émises Contrats

Commandes

Informations alliages

Montants encaissés

Emettre des propositions

Conclure des contrats

E1

E2

Tôles pressées

Tôles découpées

Eléments soudés

Tôles laminées

Tableaux de bord

Plans

Panneaux alu

Eléments soudés

Eléments soudés

Tôles pressées

Informations

Informations

Tableaux de bord

Nouvel alliage

Commandes

Cartel

[Revaz, 1995]

Value configuration Illustration




Value chain, shop & network[Stabell, 1998]

cate

goriz

atio

n




Value chain, shop & network[Stabell, 1998]

Illustration

Value chain

Value shop

Value network




Partnership

Partnership

Agreement

setOf isA

Value propositionCapability

Activity

on

Market

Chain isA

Network

How we collaborate?

Actor by





Pro

du

ctio

n c

ost

Coordination costlow

low

high

high

[Malone, 1993]

Partnership – categorization

CHAINCHAIN

manufacturersupplier retailerdistributor buyer

pro

du

ct

MARKETMARKET

Authormarketing

Authormarketing

Distributorinventory

Distributorinventory

sales

Information systemscoordination

contents

sales

Information systemscoordination

contents

Shippingtransporttracking

Shippingtransporttracking

Affiliatesales

Affiliatesales

Customerbuy

content

Customerbuy

content

Bankpayment

Bankpayment

deliver deliver

order

sale order

sales

critics

Credit cardclearance

returns

NETWORKNETWORK




Costs

Cost

Account

setOf isA

What are our costs?





Costs

Revenues

Total net revenue

Cost of goods sold

Total Costs of goods sold

Gross margin

Total Costs of goods sold

Operating expenses

research and development

sales and marketing

general and administration

Total operating expenses

Operating income (loss)

Income (loss) before tax

Net income (loss)

PROFIT = (P – VC).Q – FC

P the unit price of a product

VC the variable cost of a unit

Q the number of products

sold

FC fixed costs




e-Business Model Framework (eBMF)

Channel CustomerPropositionConfigurationCapability

Link CriterionOfferingActivityResource

Cost

Account

Revenue

Pricing

Partnership

Agreement

Relationship

Mechanism

Actor

isa

isa

flowfitshare

ProductInnovation

ProductInnovation





Financialaspects

Financialaspects

Profit






Productinnovation

Productinnovation

FinancialAspects

FinancialAspects



Model & document (XML)DEFINE




Balanced scorecard (BSC) & Intangible Assets Monitor

Customerperspective

Customerperspective

Innovationperspective

Innovationperspective

Financialperspective

Financialperspective

Internalperspective

Internalperspective

How do the customers perceive us?

In which process do we have to prove excellence?

How to improve our services and our quality?

How do shareholder perceive us?

CUSTOMER

Goals Measures

& initiatives

INNOVATION

Goals Measures

& initiatives

FINANCE

Goals Measures

& initiatives

PROCESSES

Goals Measures

& initiatives

MEASURE[Kaplan, 1992]




System dynamicsSIMULATE



Productinnovation

Productinnovation

FinancialAspects

FinancialAspects






Questions

http://inforge.unil.ch/yp/Talk/oois2002.htm

Documents

A framework for defining e-business models