temo lesson four spring 2011
TRANSCRIPT
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Business Models
TEMO Spring 2011
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Introduction and overview
Chapter 1
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Definitions
A business model is aframework for makingmoney .
It is the set of activities thata company performs tocreate customer value andearn a profit .
A strategy is a framework for desired performance .
It is a cluster of decisionsabout what goals topursue , what actions totake and how to useresources to achieve goals.
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Determinants of Profitability
Resources PositionsActivities
Profitability
FIRM-SPECIFIC FACTORS
INDUSTRY FACTORS Competitive forces Cooperative forces Macro environment
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Industry Factors
Competitive forces [rivals, suppliers, customers, potentialnew entrants, complementors, substitute products]
Cooperative forces [cooperation and alliances withcompetitive forces]
Macro environment [culture of surrounding society,government and monetary policies, legal systems andtechnological change]
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Firm-Specific Factors
Positions [A companys position within an industry consist of customer value, market segments, sources of revenue,relative positioning and price]
Activities [A companys activities are the sum of whichactivities it chooses to perform, how it performs them, andwhen it performs them]
Resources [A companys resources are its assets. The abilityof turning a specific combination of assets into customervalue is the competence or capability of the company]
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Critical Industry Value Drivers
In almost every industry, there are certain factors that
have a significant impact on cost or differentiation - andconsequently on the profitability.These factors are called critical industry value drivers .
To determine critical industry value drivers it is
necessary to identify primary influencers of cost andprimary influencers of differentiation.
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Components of a Business Model
Resources
Costs
ProfitabilityActivities Positions
Industry
Factors
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Customer value and relative positioning
Chapter 2
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Customer ValueHigh
Low
Differentiation
Cost
Low High
I II
IV III
Are superior to benefits of competitors products andare offered at a lower costthan competitors prices
Are superior to benefits of competitors products
Are identical to benefits of competitors products butare offered at a lower costthan competitors prices
Are identical to benefits of competitors products
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Differentiation and its determinants
Product features [properties, specifications] Brand-Name Reputation [perception, appreciation, street
credit]
Network Size[distribution, number of customers]
Timing [first movers] Location [availability, ease of access, locations reputation] Service [comfort, one-stop shopping]
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Low Cost and its determinants
Economics of scale [per-unit cost] Factor costs [costs of inputs] Industry-specific cost drivers [idiosyncratic costs]
Efficiency [business processes] Economics of learning [knowledge and experience] Agency costs [waste of time and resources]
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Determinants of Relative Positioning
Substitutes
Complementors
Rivalry
Buyers
Suppliers
Threat of Entry
RelativePositioning
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Connected activities for a profitable business
model
Chapter 5
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Business Systems
Value Chain (manufacturing industries) Value Network (mediating industries) Value Shop (consulting services)
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Business Systems and Task Interdependence
SEQUENTIALPERFORMANCE
POOLED PERFORMANCE
RECIPROCALPERFORMANCEVALUE SHOP
Overall company performance isthe sum of performance of the
individual function ordepartment.
VALUE CHAINThe predetermined activities performed by eachfunction or department of the company are sequentiallyinterdependent.
VALUE NETWORKThe individual performance of eachfunction or department and the overallperformance of the company are fullydependent on network externalities.
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Business System of a Manufacturing Company
Upstream Downstream
R&DProductDesign
Operations Marketing Distribution
SophisticationPatents
FunctionAestheticsQuality
AssemblyLocationProcurementPurchasingLogistics
PricingAdvertisingPromotionPackagingBrand
ChannelsWarehousingTransport
CustomerSupport
Human Resource Management
WarrantySpeedQualityPrices
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Value Systems
Supply Chains From raw materials to consumers Vertical Linkages Backward vertical integration
[upstream], forward vertical integration
[downstream], tapered integration [sampling],captive input [self-sufficiency]
Strategic Alliances From causal agreements to jointventures
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Value System for Makers of PC
Microprocessors
Upstream Downstream
Appliedmaterials
IntelAMD
Motorola
DellHP
IBMRetailers
BusinessesConsumers
SemiconductorEquipment
ManufacturersMicroprocessor
MakersComputer
Makers DistributorsComputer
Users
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Competitive Advantage and ConnectedActivities
Resources
Costs
Activities
Industry Factors Competitive and macro forces Cooperative forces Industry value drivers
Positions Customer value Market segments
Revenue sources Relative positioning Price
Profitability
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Resources and capabilities: The roots of
business models
Chapter 6
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Resources and Assets
Tangible Assets Physical (buildings, plants andequipment) or financial (cash).
Intangible Assets Non-physical or non-financial
(such as patents, brands, copyrights, databases,and relationships with customers).
Human Assets Skills and knowledge of employees.
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Capabilities and Competences
The ability or capacity to turn resourcesand assets into customer value and profitsis the competence or capability of thecompany.
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VRISA Analysis
Attribute
Value
Rareness
Imitability
Substitutability
Appropriability
Key Questions
Does the resource provide customer withsomething that they value?
Is your company the only one with thatcapability? If not is the level of capabilityhigher than that of competitors?
Is the resource difficult to imitate?
Is the resource difficult to substitute? Cananother resource offer customers the samevalue?
Can we make money from the resource?
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Competitive Consequences
Competitive consequence
Sustainable competitive advantage
Temporary competitive advantage
Competitive parity
Competitive disadvantage
Characteristics of Resources
V R I S A
+ + + + +
+ +/- +/- +/- +
+ - - - -
- - - - -
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Familiarity MatrixUnfamiliar
Familiar
Market
TechnologyFamiliar Unfamiliar
Internal development of technological resources
Strategic collaboration withcoopetitor that is familiar with themarket (co-marketing, joint venture)
Venture capital
Educational acquisition
Internal window on technologyand market
Internal technological andmarketing development
Acquisition
Internal development of marketingresources
Strategic collaboration withcoopetitor that is familiar with
technology (licensing, joint venture)
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