1. 6-1 What is a Business Model? Model –A model is a plan or diagram that’s used to make or describe something. Business Model –A firm’s business model is its plan or diagram for how it competes, uses its resources, structures its relationships, interfaces with customers, and creates value to sustain itself on the basis of the profits it generates. –The term “business model” is used to include all the activities that define how a firm competes in the marketplace.

2. 6-2 What is a Business Model? A business model involves:  Customers  Competitors  Offering  Activities and organization  Ressources  Factor and production input suppliers

3. 6-3 What is a Business Model?

4. 6-4 Market /Industry Customers –Are long term or short term –How does the firm cooperate with the customer? –Do they share knowledge ? Or just simply transaction of goods and services for money ? Competitors –Existing competitors identified and understood. –Competitors may be suppliers of substitute product –Business model describe how most important and competitors affect the business.

5. 6-5 Market /Industry Competitors : factors affecting the business Scale and size Product range and innovation Degree of differentiation Cost structure. Location Value chain configuration Organizational structure Ability to switch costs

6. 6-6 Offerings Service or physical product offered at a certain cost. Should understand the function of product : which customer´s need is going to fulfill or could fulfill? Ex: A car may satisfy transport needs but it may satisfy the needs of people to be identified in a certain way Function define the reason d´ être. Breakfirst Mackdonald, better use of facilities before lunch.

7. Services vs Product Product are easy to define Services are reffered to as work achievement to solve a problem for the customer –Mending a broken bicycle –Serving a meal Services are immaterial, cannot be resold or stored Require interraction buyer-seller

8. Offerings Customer perceive products subjectively. Managing customer´s perceiptions is important. Ex: Microsoft and Sun are dif from customers perspective even if they are offering the same product. Customer may associate the product with : Poor quality Reliability Safety Responsibility Boredom Youth Innovation Cost

9. Activities and organization Producing offering requires activities. Chain of internalized activities should be addressed Help understand why organization has a particular offering and performance Affect cost and quality of product. Organization structure, communication, control and degree of decentralization.

10. Activities and flow of activities

11. Activities : Boundaries and relations to external stakeholders Management of the following should be addressed : –Key issues : – interface firm -customer –Interface firm-suppliers –Interface firm-alliance partners –Which are the important relations? –What type of interractions ? –Which employees communicate ? –Insourcing and outsourcing

12. Activities : Drivers of cost and differentiation –Identify factors driving costs. –Identify factor driving customer-perceived quality and differentiation. –Differentiation is based on :  Extended functionality  Better technology  Advanced skills –Drivers are valuable: guides investment decisions, sourcing strategies and where to allocate organization energy, knowledge and commitment

13. Organization Division of labors  How work is divided between departments and individual within department as well.  Should each dep specialise on a specific task or should generally competent to conduct any task.  Should be based on the input ( competence) or on the objective of the task ( product)

14. Organization Division of responsabilities –Vertical dimension of the organization –How many hierarchical level are there between the executive and operative staff? –What is in the manager´s responsibility?

15. Organization Means of control and coordination Sales Budget cost

16. Organization Location and pattern of communication Location, physical network of activities and departements are important. Proximity to strategic customers and suppliers Proximity to strategic ressources and technical centers (universities)

17. Ressources and competencies Strategic and potentially strategic ressources should be identified and their values assessed as well as their interrelations. Types of ressources : Physical Financial Human Organizational Tangible and intangible

18. Factor markets and suppliers Understand the origin of resources Understand supplier and the relations with them and factor conditions. Sources : able to access to labor and skills –Source component from trustworthy supplier –Access core of labor highly skilled, able to learn and stay with for a long time(relocation of computer programming to India) Reliable supplier Preventing dependency on supplier while keeping close productive relationship.

19. Factor markets and suppliers Good relation stimulate learning and knowledge sharing buyer-supplier. BUT, supplier could recognize the value of its input and raise the price. Able to access capital (funding)

20. Conclusion A business model should identify : Important external sources of production Input and factor ressources How inputs reacte to other resources and activities Position of the offering in relation to the market