18.04.23 Dr Jovo Ateljevic, University of Banja Luka

Business Models Business Models

Odessa, Nov. 2010

Why businesses fail?Why businesses fail?

• Business fails despite:– the presence of market opportunities,– novel business ideas, adequate resources, and– talented entrepreneurs.

• A possible cause is the underlying model driving the business.– Not well conceived and executed– Lack of compelling story, or reason to exist – when the numbers don’t make sense (e.g.

unbalanced business costs)

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

18.04.23

Some definitionsSome definitions

• BM is associated with the ‘‘new economy.’’• It’s the organisation’s core logic for creating value... a good

BM highlights the distinctive activities and approaches that enable the business success –to attract customers, employees,

and investors, and to deliver products and services profitability (Linder & Cantrell 2000:2)

• BM is “a blueprint of how a company does business...” • It is a conceptual tool that contains a set of elements and

their relationships and allows expressing a company’s logic of earning money… (Osterwalder et al. 2004)

Foundation level issues of a BM Foundation level issues of a BM

• How to create value• For whom create value• Internal source of advantage• How position in marketplace• How make money• Time, scope, size ambitions

(entrepreneur)

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

More specifically BM is about More specifically BM is about how to :how to :

• define markets/customers • define and differentiate product

offerings • acquire and keep customers • market activities (promotion and

distribution strategy) • define the tasks to be performed • configure resources • It is about (telling) a good story

Developing business concept Developing business concept

• A concise description of an opportunity containing FOUR essential elements– Customer definition – The value proposition (benefits) and

compelling story – Products/ services– Distribution channel

• Elevator pitch – a clear and concise statements spelled in 10-15 seconds

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

Developing Business model Developing Business model (concept)(concept)

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

Value propositionsValue propositions

• Value propositions (what does the customer value?)– Product / services features, not same as

benefits! (e.g. premium hey for race horses) • Delivering of value propositions (e.g. Amazon :

– Excellent search facilities– Large range of books – Accessibility – Fast delivery– Ongoing development of search techniques and

technologies

Value proposition: an example Value proposition: an example

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

Business concept -compelling Business concept -compelling story- important questions story- important questions

• Why should anyone be interested in this concept?

• What problems does it solve – If the problem has to be explained then a

real need has not been identified

• Simple statements would help – I get that. That make sense. Why don’t I think of it. See the example, American Express

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

American ExpressAmerican Express

Magretta, J. 2002:86, HBR, May.

American Express: The key American Express: The key value propositions value propositions

• American Express makes it easier, safer and more rewarding for consumers and businesses to purchase the things they need…

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

The concept statement: BIONES The concept statement: BIONES (artificial nerves)example (artificial nerves)example

• Developed by Alfred Mann Institute for Biomedical research (University South Carolina) the purpose to re-animate paralyzed mussels through electronic simulation

• BIONNIX, the proposed company, is studding treatment of pressure ulcers in patients who’re in coma. The following questions must be answered to create the concept statement

• 1)Who is being helped? Who’s the primary customer? • 2) What’s the market burning problem, or big pain?

(must-solved problem)• 3) What emotions does the pain evoke?• 4) what is the company tag’s line? •

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

The Concept StatementThe Concept Statement

‘BIONNIX is the leading implantable electrotherapeutic medical device company for hospitals and nursing homes seeking a way to more cost-effectively and conventionally treat pressure uncles in immobile patients. BIONNIX will manufacture, sell, and support products that provide patients with and effective, easy, and painless solution to it’. 18.04.23

Dr Jovo Ateljevic, University of Banja Luka

Building a BM Building a BM

• Stage 1: Identify the entrepreneur's position in the value chain (next Figure)

• Stage 2: Determine who pays whom • Stage 3: Calculate the impact of the

customer (hard to change habits)• Stage 4: Identify multiple revenue

streams • http://www.youtube.com/watch?

v=hst_Faxk04c18.04.23

Dr Jovo Ateljevic, University of Banja Luka

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

Sources for opportunities for BM Sources for opportunities for BM

• Reposition the company on the value chain (look for niches)

• Reinvent the value chain (see success stories in other sectors)

• Redefine value-added – Don’t do things exactly the way everyone does

• Redefine distribution – find out where customers are and go there

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

Important aspects of Important aspects of business modelbusiness model

• Customers management • Product and services portfolio • Processes and activities• Resources capabilities and assets • Suppliers and business networks• Financial viability

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

Product and services Product and services portfolioportfolio

• What does the organisation offer to its customers?

• Product life cycle (PLC)• Two main components of PLC (the

product position and its innovation)• Where existing product/services are

situated • Innovation • Future sustainability

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

Resources capabilities and Resources capabilities and assetsassets

• efficient, appropriate processes and activities• appropriate and timely access to resources of all

types• Tangible (physical assets, financial assets),

intangible (band name, reputation, intellectual property)

• HR is a vital element – IT skills, recruitment, in-house training or outsourcing, motivation

• Questions:– What resources assets and capabilities we need to create

vales for our customers – Should it be built in house or provide from outside

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

Suppliers and business Suppliers and business networksnetworks

• Organisations rely on other organisations to contribute in many ways to create values

• It is strategic business network (suppliers, outsourced activities, customers)

• For virtual organisations built its core competence and capabilities through strategic alliances and networking

• The key consideration for management:– To deliver values what kind of relationship we need with

other org– How to find suitable partners and manage the relevant

strategic business network

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

Financial viabilityFinancial viability

• Essential for any BM • Four components of BM financial

viability– Profitability and sustainability– Source of revenues (income steams) – Consideration of the costs incurred– An understanding of the risks associated

with the BM

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

E-business modelsE-business models

• Emergence of the internet has fundamental influence on the organisation design

• Rethink of BMs and understanding of emerging BMs • new and unfamiliar possibilities (business models)

are opened: – New communication channels – New way of procurements of goods/services– New way of distribution (digital goods/services) – Emergence of new businesses did not exist before

(Amazon, eBay)

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

Determinants of E-C/B Determinants of E-C/B successsuccess

• Profitability • Planning • Re-engineering of processes • Management of knowledge resources• Developing and sourcing capabilities • Proactive uptake of technology • IT and e-business governance processes• Most e-bus have more than one e-bus models

(yahoo, MSN – ad and portal)

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

Typology of e-BMsTypology of e-BMs

• E-shop, e-retailing www.lastminute.com • E-procurement –e-tendering & procurement• E-malls – www.indigosquare.com • E-auctions – www.ebay.com • Virtual communities – www.ivillage.co.uk , Oprah www.oprah.com/index

• collaboration platforms (yahoo)• Third-party marketplace (e-hub b2b)• Value-chain integrators (range of services) http://www.e2open.com/

• Value-chain service providers (specific part of the value chain www.ups.com

• Information brokerage – provide info 4 customers• Trust and other services – www.truste.org (authentication of

services provided on the web)•

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

Revenue modelsRevenue models

Methods of generating income 4 an org• Sales • Transaction fees • Subscription fees • Advertising fees • Affiliate fees • Other revenue sources www.espn.go.com

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

Revenue models – publisher Revenue models – publisher exampleexample

1. Subscription access to content.2. Pay-per-view access.3. CPM on site display advertising. Cost per thousand

4. CPC advertising on site. http://www.adtoll.com/

5. Sponsorship of site sections, content... http://www.securityinfowatch.com/advertise/website_sponsorships.jsp

http://www.oscar.org.uk/about/sitesponsor.htm

6. Affiliate revenue (CPA or CPC). Costs per acquisition or cost per click

7. Subscriber data access for e-mail marketing.8. Access to customers for research purposes.

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

For managers/ entrepreneurs For managers/ entrepreneurs • Good BM does not necessarily mean a

successful business • There is an infinite number of ways to combine

elements for a functional BM • Sound BM does not guarantee business success • BM must be implemented via particular strategy

and managed effectively • The main purpose of BM is to provide coherent

framework for managers to think thorough main elements and to avoid overlooking something vital

• New technologies offer new possibilitieswww.digitalenterprise.org/models/models.html

http://www.alis.gov.ab.ca/ce/cp/oi/video/video.html

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

Business model vs. business Business model vs. business strategy vs. business plan strategy vs. business plan

• BM isn't the same thing• Competitive strategy means doing

better than your rivals• Differences?

Strategy vs. B. Model vs. B. Plan Strategy vs. B. Model vs. B. Plan

• The business model is then how you plan to achieve the strategy, business, these terms often get used somewhat interchangeably. A business strategy is a high level plan

• such as, "To open five upscale stores in next five years, each located in high end malls in wealthy communities and averaging 1,500 square feet. The well trained sales staff, will cultivate relationships with our customers, throwing private invite only events throughout the year." The model should have more detail than the strategy. Finally, you get to the plan, which is the most detailed. The plan is usually by month and by year and would include sales figures and estimated costs. The plan usually shows how much profit the business will generate, and how those profits will increase over time. If the business is borrowing start up costs, it will need to show the repayment of those funds. All three are used to raise funds for starting a business. You basically want the lender or investor to understand your goals, know how you plan to achieve them and what profit will be generated if you are successful.

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

In the nutshell In the nutshell

http://www.youtube.com/watch?v=hst_Faxk04c

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

Reading material Reading material

• Osterwalder, A. (2004), How to describe and improve your Business Model to compete better (found on webCT)

• L. Willemstein, T. van der Valk, M.T.H. Meeus (2007) Dynamics in business models: An empirical analysis of medical biotechnology firms in the Netherlands, Technovation 27 221–232 (on webCT)

• Kathleen R. Allan (2006), Launching New Venture, An Entrepreneurial Approach, New York: Houghton Milton

• Author’s teaching/consultancy experience• Online material

Mission StatementMission Statement

• How to Come up with a Mission Statement?– A mission statement is your vision for

the company– the essence of your business in one or

two sentences,– the purpose of your business as well

as to whom your product or service is targeted

– For other to learn more about you

18.04.23Dr Jovo Ateljevic, University of

Banja Luka

What is your vision for your What is your vision for your company? company?

• Key questions to ask:• What type of company is it? • What is the purpose of your business?

– Begin with an active verb

• What benefits do you provide? • Who are your customers?

– Anyone who buys your product or service is not an acceptable answer

18.04.23Dr Jovo Ateljevic, University of

Banja Luka