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What is a Business Model?. Model A model is a plan or diagram that’s used to make or describe something. Business Model

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what is a business model
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.

6-1

what is a business model1
What is a Business Model?

A business model involves:

Customers

Competitors

Offering

Activities and organization

Ressources

Factor and production input suppliers

6-2

market industry
Market /Industry

Customers

  • Are long term or short term
  • How does the firm cooperate with the customer?
  • Do theyshareknowledge ? Or just simplytransaction of goods and services for money ?

Competitors

  • Existingcompetitorsidentifiedand understood.
  • Competitorsmaybesuppliers of substituteproduct
  • Business model describe how most important and competitorsaffect the business.

6-4

market industry1
Market /Industry

Competitors : factors affecting the business

  • Scale and size
  • Product range and innovation
  • Degree of differentiation
  • Coststructure.
  • Location
  • Value chainconfiguration
  • Organizationalstructure
  • Ability to switch costs

6-5

offerings
Offerings
  • Service or physicalproductoffered at a certaincost.
  • Shouldunderstand the function of product: whichcustomer´sneed is going to fulfill or couldfulfill?
        • Ex: A carmaysatisfy transport needs but it maysatisfy the needs of people to beidentified in a certainway
  • Functiondefine the reason d´ être.
        • BreakfirstMackdonald , betteruse of facilitiesbefore lunch.

6-6

services vs product
ServicesvsProduct
  • 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
offerings1
Offerings

Customer perceive products subjectively.

Managingcustomer´sperceiptions is important.

Ex: Microsoft and Sun aredif from customersperspectiveeveniftheyareoffering the same product.

Customer mayassociate the product with :

Poorquality

Reliability

Safety

Responsibility

Boredom

Youth

Innovation

Cost

activities and organization
Activitiesandorganization
  • Producingofferingrequiresactivities.
  • Chain of internalizedactivitiesshouldbeaddressed
  • Help understand why organization has a particularoffering and performance
  • Affectcost and quality of product.
  • Organization structure , communication , control and degree of decentralization.
activities boundaries and relations to external stakeholders
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
activities drivers of cost and differentiation
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
organization
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)
organization1
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?
organization2
Organization

Means of control and coordination

  • Sales
  • Budget
  • cost
organization3
Organization

Locationandpatternofcommunication

  • Location , physical network of activities and departements are important.
  • Proximity to strategic customers and suppliers
  • Proximity to strategic ressources and technical centers (universities)
ressources and competencies
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
factor markets and suppliers
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.
factor markets and suppliers1
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)
conclusion
Conclusion

A business model shouldidentify :

  • Importantexternalsources of production
  • Input and factor ressources
  • How inputs reacte to otherresources and activities
  • Position of the offering in relation to the market