A bit about Business Models

Determinants of performance
Business Model Components and linkages

Change
Properties Underpinnings

Dynamics

Performance

Environment
Competitive Macro
2

Commerce Matrix
C2B
Consumer Priceline.com

C2C
eBay

From
Business VerticalNet Amazon.com

B2B
Business

B2C
Consumer

To
3

Successful Business Model

Customer value

Scope
Pricing Sources of revenue Connected activities Capabilities

Implementation
Sustainability
4

Critical Business Model Questions

Component of business model 1. Customer value 2. Scope Question for all business models Is the firm offering its customers something distinctive or lower cost than its competitors? To which customers (demographic and geographic) is the firm offering this value? What is the range of products/services offered that embody this value? How does the firm price the value? Where do the dollars come from? Who pays for what value and when? What are the margins in each market and what drives them? What drives value in each source.

3. Pricing 4. Revenue source

Critical questions for a business model (continued)

5. Connected activities Which set of activities does the firm have to perform to offer this value and when? How connected (in cross section and time) are these activities? 6. Implementation What organizational structure, systems, people and environment does the firm need to carry out these activities? What is the fit between them? 7. Capabilities What are the firm's capabilities and capabilities gaps that need to be filled? How does a firm fill these capabilities gaps? Is there something distinctive about these capabilities that allows the firm to offer the value better than other firms and that makes them difficult to imitate? What are the sources of these capabilities? What is it about the firm that makes it difficult for other firms to imitate it? How does the firm sustain its competitive advantage?

8. Sustainability

Business Model Dynamics

Blocking Strategies
unique

capabilities barriers to entry

Run Strategies
changing

the playing field cannibalization

Teaming Strategies
strategic high

alliances

risk
7

Appraising a Business Model

Component of business model Benchmark questions Rank

1. Customer value Is customer value distinct from that of competitors? If not, is H/L the firm's level of it higher than that of competitors? Is the firm's rate of increase in customer value high, relative to that of competitors? 2. Scope Is the growth rate of market segments high? Is firm's market share in each segment high relative to competitors'? Is potential erosion of products high? If so, in what segments? 3. Price Is the quality-adjusted price low? H/L H/L 4. Revenue source Are margins and market share in each revenue source high? Are margins and market share in each source increasing? Is firm's value in each market distinctive? If not, is the level of it higher than that of competitors? H/L

Appraising a Business Model (cont)

Component of business model 5. Connected activities Benchmark questions Extent to which activities: Are consistent with customer value and scope? Re-enforce each other? Take advantage of industry success drivers? Are consistent with firm's distinctive capabilities. Make the industry more attractive for the firm? 6. Implementation Is the quality of the team high? 7. Capabilities Extent to which firm's capabilities: Are distinctive Are nonimitable Are extendible to other product markets 8. Sustainability Has the firm been able to maintain or extend its lead in its industry. H/L H/L H/L Rank H/L