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DESIGNING BUSINESS MODELS
Types of BMs: Tradi(onal BM (Produce-‐Sell) Razor-‐and-‐Blade Model (Cross-‐subsidiza(on) Reverse Razor-‐and-‐Blade Model Pla<orm Business Models Freemium No-‐frills model Groupon Model Subscrip(on Franchise Model
Most business leaders, when asked to explain their company’s business model, would not have a ready answer to give, and when they do come up with one they will most likely describe their organiza(onal structure and networks.
Linder and Cantrell, 2000; Taran, 2011
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• A business model defines how the enterprise creates and delivers value to customers, and then converts payments received to profits (Teece, 2010)
• A way of telling a story about the business (MagreRa, 2002)
• The mind-‐set of the company (Linder and Cantrell, 2002)
• A business model is the media<on between technical input and economic output (Chesbrough and Rosenbloom, 2002)
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What is a business model?
How do I create Value?
To whom?
How do I capture value?
Agreement about BM?
• Means everything (Magretta, 2002; Seddon et al, 2004) • Language and background - management background,
people rather use the term strategy (Seddon et al, 2004) • A practical distinction describes business models as a
system that shows how the pieces of a business fit together, while strategy in addition includes competition (Magretta, 2002).
• Strategy seems to be more concerned with competitive positioning whereas business models are more concerned with the ‘core logic’ (Linder & Cantrell, 2000).
• Creation of value for the business versus creation of value for the shareholder (Linder & Cantrell, 2000 - strategy capture stakeholder value better (Chesbrough & Rosenbloom, 2002).
• A firm’s strategy is unique whereas a business model applies to various firms (Seddon et al, 2004).
“A mediocre technology pursued within a great Business Model may be more valuable that a great technology exploited via a mediocre business model.” (Chesbrough, 2006)
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Performance of Business Models
BM Innova(on: The New Route To Compe<<ve Advantage, IBM, 2006
New perspec(ve:
ü Outside-in than inside-out ü Experimentation rather than planning
ü Discovery driven approch: impossible to know in advance which design will winn
ü Any competitive advantage is a temporary advantage!
• Experiment: investment-‐ depended strategy
McGrath,2010
Barriers for a discovery driven approch
• Dominant logic: treat BM as a constant, instead of a variable
• Lack of an incen(ve scheme for explora(on • Too much focus on planning and es(ma(on of financial projec(ons
Business model definition (Teece, 2010:172)
”A business model reflects the management’s hypothesis about what customers want, how they want it, and how the enterprise can organize to best meet those needs, get paid for doing so, and make a profit.”
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Club 8 to BoConcept -‐ RTA-‐furniture to conceptmaker
Teece (2010)
A business model articulates the logic and provides data and other evidence that demonstrateshow a business creates and delivers value to customers. It also outlines the architecture of revenues,costs, and profits associated with the business enterprise delivering that value. The different ele-ments that need to be determined in business model design are listed in Figure 1.
The issues related to good business model design are all interrelated, and lie at the core of thefundamental question asked by business strategists e how does one build a sustainable competitiveadvantage and turn a super normal profit? In short, a business model defines how the enterprisecreates and delivers value to customers, and then converts payments received to profits.1 To profitfrom innovation, business pioneers need to excel not only at product innovation but also at busi-ness model design, understanding business design options as well as customer needs and techno-logical trajectories. Developing a successful business model is insufficient to assure competitiveadvantage as imitation is often easy: a differentiated (and hard to imitate) e yet effective and effi-cient e business model is more likely to yield profits. Business model innovation can itself be a path-way to competitive advantage if the model is sufficiently differentiated and hard to replicate forincumbents and new entrants alike.
In essence, a business model embodies nothing less than the organizational and financial ‘archi-tecture’ of a business.2 It is not a spread sheet or computer model, although a business model mightwell become embedded in a business plan and in income statements and cash flow projections. But,clearly, the notion refers in the first instance to a conceptual, rather than a financial, model of a busi-ness. It makes implicit assumptions about customers, the behavior of revenues and costs, the
Figure 1. Elements of business model design
In essence, a business model [is] a conceptual, rather than financial,
model of a business.
Long Range Planning, vol 43 2010 173
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Chesbrough (2006) Chesbrough and Rosenblom (2002)
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14 november 2014 17 Osterwalder et al. (2010): Business Model Canvas
14 november 2014 18 Shafer et al. (2004)
Sinfield et al,2012
Q&AJ
Template
Sinfield et al. (2012)
Example
Redesign the Business Model of SAS
Focus Ques(ons: • Fill out the components for each column • You can choose up to four for each column Start with using analogies from other industries (e.g. Freemium, GilleRe?) And include the following ques(ons: • Should we sell a product or a service? • Should it be standard or customizable? • Will its benefits be tangible or intangible? • Will we sell a generic or branded offering? • Should it be a durable or a consumable?
