gsm business models

Business ModelsFormulating Strategy and Developing a Business Model

Swati Chaudhary

Tanushree Soni

Ayush Saxena

Anusha Parihar

Business Model• A business model describes the rationale of how an organisation

creates, captures and delivers value;

• It describes the value an organization offers to various customers and portrays the capabilities and partners required for creating, marketing, and delivering this value and relationship capital with the goal of generating profitable and sustainable revenue streams;

• It describes the key income and expense drivers for the organization, and the critical success factors (key assumptions) related to the financial sustainability of the organization;

• The business model reflects the company’s way of competing, whether it concerns being unique or being the most cost-efficient company in the industry.

Business Model vs. Strategy Business model articulates and interprets strategy with

action: it is the operational aspect of strategy;

Strategy gives the conceptual base of action: it is a critical part of any business model, but does not fully comprise it;

The business model is like a blueprint for a strategy to be implemented through organizational structures, processes, and systems;

Value Proposition

CostStructure

CustomerRelationships

Customer Segments

KeyActivities

KeyResources

KeyPartnerships

Revenue Streams

Distribution Channels

Components of a Business Model

Customer Segments The Customer Segments defines the different groups of

people or organizations an enterprise aims to reach and serve;

Customer groups represent separate segments if:• Their needs require and justify a distinct offer

• They are reached through different Distribution Channels

• They require different types of relationships

• They have substantially different profitabilities

• They are willing to pay for different aspects of the offer

Value Proposition The Value Propositions describes the bundle of products and

services that create value for a specific Customer Segment;

It solves a customer problem or satisfies a customer need. Each Value Proposition consists of a selected bundle of products and/or services that caters to the requirements of a specific Customer Segment.

In this sense, the Value Proposition is an aggregation, or bundle, of benefits that a company offers customers.

Distribution Channels The Channels describes how a company communicates with

and reaches its Customer Segments to deliver a Value Proposition;

Channels serve several functions, including:• Raising awareness among customers about a company’s

products and services

• Helping customers evaluate a company’s Value Proposition

• Allowing customers to purchase specific products and services

• Delivering a Value Proposition to customers

• Providing post-purchase customer support

Channel types:• Sales force• Web-sales• Stores: own or partner• Wholesaler

Customer Relationships The Customer Relationships describes the types of

relationships a company establishes with specific Customer Segments;

Customer relationships may be driven by the following motivations:• Customer acquisition• Customer retention• Boosting sales (upselling)

Customer relationships could be:• Personal Assistance/ Dedicated Personal Assistance• Self-service• Automated Service• Communities• Co-creation

Revenue Streams The Revenue Streams represents the cash a company

generates from each Customer Segment;

Each Revenue Stream may have different pricing mechanisms, such as fixed list prices, bargaining, auctioning, market dependent, volume dependent, or yield management.

A business model can involve two different types of Revenue Streams:• Transaction revenues: resulting from one-time customer

payments• Recurring revenues: resulting from ongoing payments to

either deliver a Value Proposition to customers or provide post-purchase customer support

Key Resources The Key Resources describes the most important assets,

required to make a business model work;

These could be : Physical Financial Intellectual Human

Key Activities The Key Activities describes the most important things a

company must do to make its business model work;

They are required to create and offer a Value Proposition, reach markets, maintain Customer Relationships, and earn revenues;

They differ depending on business model type. E.g.: For software maker Microsoft, Key Activities include software development. For PC manufacturer Dell, Key Activities include supply chain management. For consultancy McKinsey, Key Activities include problem solving.

Three primary forms: Production Problem-solving Platform/network

Key Partnerships The Key Partnerships describe the network of suppliers and

partners that make the business model work; Companies create alliances to optimize their business

models, reduce risk, or acquire resources. Four different types of partnerships:

• Strategic alliances between non-competitors• Competition: strategic partnerships between competitors• Joint ventures to develop new businesses• Buyer-supplier relationships to assure reliable supplies

Reasons to form partnerships:• Optimization and economy of scale• Reduction of risk and uncertainty• Acquisition of particular resources and activities

Cost Structure The Cost Structure describes all costs incurred to operate a

business model;

Two forms of cost-structures most commonly observed:• Cost-driven: focus is on minimising costs wherever possible. This

approach aims at creating and maintaining the leanest possible Cost Structure, using low price Value Propositions, maximum automation, and extensive outsourcing. E.g.. No-frill airlines like Deccan etc.

• Value-driven:Some companies are less concerned with the cost implications of a particular business model design, and instead focus on value creation. Premium Value Propositions and a high degree of personalized service usually characterize value-driven business models. E.g. Luxury hotels, with their lavish facilities and exclusive services, fall into this category

Example: the “Facebook” Model

Mark Zuckerberg, Chris Hughes, and Dustin Moskovitz, saw the “Facebook”, the University directory of sorts, in need of expansion and improvement. Facebook.com is on online database of everything the old paper facebooks had and more.

•Selecting the Customer

segment

•Selecting the Value

Proposition

•Key activities

•Customer Relationships

•Distribution and Promotion

channels

•Planning the Revenue Stream

•Deciding the key Resources

Zuckerberg developed a personal niche for his site in making it specifically for high school (recently), college and university communities, primarily in the United States.




segment

•Key activities


Proposition



channels



•In the beginning, Facebook was the only brand of these sites that was for students and students only. •The profile is was makes up the users’ personal sites. •The friends feature is one of the major ways that students are able to become connected through the site.•The other way that the site connects students is through the groups feature.




segment

•Key activities


Proposition



channels



•Started as a a site to connect college students ;•It capitalized greatly in forming a very real online social network.•The utility that Facebook creates for its customers is essential in creating traffic.•Networking is very important in college and Facebook helps students to establish these with little effort on their part




segment

•Key activities


Proposition



channels



•Facebook gained popularity in US universities as it allowed easier interaction between the old and new students.•Facebook acquires customers as students realize their personal need for online networking;•Keeping the customers is a very easy task once they are on Facebook. Users continue to visit the site to partake in one of the newest activities,




segment

•Key activities


Proposition



channels



•Distribution: primarily through the Internet. This is common with other social networking sites as well.•Promotion: Facebook started as an online directory of Harvard students, Within a month Facebook was available at Columbia, Stanford, and Yale and by the summer The promotion of the site has been mostly by word of mouth. Publicity in the media has also helped the company’s promotion along.




segment

•Key activities


Proposition



channels



•Advertising: Advertisements on Facebook are very valuable considering the amount of traffic the site is able to generate.•Facebook offers three different ways to advertise: banner ads, sponsored groups, and text announcements.




segment

•Key activities


Proposition



channels



•The major resources of Facebook are the servers that keep the site running despite the heavy amounts of traffic. These servers are very essential because the services and operations of Facebook depend solely on the website. A down server could result in the loss of millions of page hits.

Example: Apple iPod/iTunes Model Apple launched the iPod portable music

player in 2001, and although Apple was not the first entrant, it quickly became the market leader; owing to its model:

• iPod worked in conjunction with iTunes software. This enabled users to transfer music and other content to and from a computer. The software also provides a seamless connection to Apple’s online store so users can purchase and download content. It allowed customers to easily search, buy, and enjoy digital music.

• Also, to make this value proposition possible, Apple had to negotiate deals with all the major record companies to create the world’s largest online music library.

Example: Xerox 914 Copier The 914 copier, introduced by Xerox in 1959, used the relatively

new electrophotography process, which is a dry process that avoids the use of wet chemicals. In seeking potential marketing partners, Xerox repeatedly was turned down by the likes of Kodak, GE, and IBM, who had concluded that there was no future in the technology as seen through the lens of the then-prevalent business model.

While the technology was superior to earlier copy methods, the cost of the machine was six to seven times more expensive than alternative technologies.

The new model leased the equipment to the customer at a relatively low cost and then charged a per copy fee for copies in excess of 2000 copies per month.

Case in Point:

Disney around the World

Application of Strategy and Business Models

Introduction

Started by Walt Disney, company was initially an Animation Studio

The company is credited with not Inventing the Amusement Parks, rather Re-Inventing the concept

Diverged into a Amusement Parks known as “Theme parks” with mixed success

Company is known to promote “Creativity” and “Individuality”

Peer Pressure rather than complex policies guide Employee Performance here

Journey and Lessons Anaheim, California, 1955o Built on a very large areao Adults : Children ratio = 3:1 on popular rideso $8mn investment was recovered very early, Inspite

the entry fees being twice the other parks World Disney Resort, Orlando, Florida,

1971, 1982, 1989 and 1998o Model migrated successfully from West to the

East Coast in USA due to Homogenous Populationo Disney Branched out into Hotels, Merchandise and

Retailing Businesso The key Factor was the Introduction of Breathtaking

Rides

Journey and Lessons

Tokyo Disneyland, 1983 and Tokyo DisneySea, 2001o Saw a successful carry of the “Americanized”

model of Disney into Japan (Minimum Adaptations)

o Successful due to high population of Tokyo and the Japanese “Fetish” for American Culture

Disneyland Paris, 1992o The Successful “Americanized” model of Disneyland

Failed Miserably in Pariso Still indebted to the tune of $2.71 bn., due to the

following reasons:

Journey and Lessons Disney not selling Wine No preference to Local Food Culture Imperialism (Minimum Adaptations) Not enough utilization of Travel Agents

Hong Kong Disneyland Resort, 2005o Having “stunned” by the criticism of

Disneyland in Paris, company took a cautious approach here

o They Adapted their model of Business to Chinese Cultural sensitivities by the following ways Designing the park according to Feng Shui

Journey and Lessons Hamburger being customized to Local Tastes Signage were in English, Traditional Chinese and

Simplified Chinese Rides designed to resemble Asian Jungles

o This model tried to find “Optimum Balance” between Tokyo and Paris model, although space was a concern

Shanghai, 2010 (Yet to be operational)o Disney seeks to take advantage of China’s 1.25

Bn. strong populationo Shanghai is the most populous city and the

Financial Capitalo Shanghai would be different from Hong Kong, in

terms of its lack of International Influence like Hong Kong

Conclusion

International Expansion has been the prime growth Driver for Disney

The company has to learn from its mistakes and has to “Adapt” its Business Model according to the Local Customs

In countries like China where Disney Characters are not so popular, the company has to educate the local Population

The company would have to constantly Innovate to Fend off rivals even where it is successful

Conclusion

Moral of the Story:

Vision and Mission which are Long Term Objectives of the Organization

However, Strategy and Business Model which are made to fulfill these Objectives, are relatively Short Term and Flexible

Strategies have to be Tweaked according to several Internal and External Factors, which are necessary for a Business to stay Profitable

Case Discussion Questions

1. What is Disney’s Core Competence and Distinctive Competence?

2. What is Disney’s Business Model? Is this model transferable?

3. Is Amusement Park a Global Industry? Why or Why Not?

4. What mistakes has Disney made in its domestic and International Operations?

5. What Strategy should Disney Adopt in Shanghai?

Thank You

Relevant Questions Please

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