Understanding Business Models

1. Understanding Business Models Key Learning Objectives for Chapter 1: Understand the concept of a business model Learn how to analyze the three components of a business model – strategy, capabilities, and value – through a business model audit Understand the different ways that business models can evolve and recognize potential drivers of business model evolution

2. 1990 年代末期，由於 Internet 的快速崛起，造成了 dot.com 的氾濫 • 泡沫化  no sustainable profits • Uses “jump-on-the-ball” approach to formulate strategy • Business model 被譏笑為 “half-baked plan” • 但是 Business model 真的這麼不堪嗎？

3. 討論議題： • 如何評量一個企業？尤其是新成立的數位公司。 • 或許需要 new business metrics 來計算經濟價格（例如，企業評價；研究上，或許可以考慮"資訊評價” 資訊中心的”成本“還是”收益”？） • Internet 的發展和潛能已經全部發揮了嗎？新的 business model 還不斷的出現（同一產業或者跨產業） • 大廈管理公司與農會、產地公會的結合。 • Yelp：美國最大的線上 users’reviews 網站。 • New York Attorney General Busts 19 Companies For Writing Fake Yelp Reviews: 罰金約 35萬美金 • 影響交易秩序！　三星「寫手門」案　公平會罰千萬元

4. Business Model Framework and Definition

5. Successful strategies define how a company plans to achieve a distinctive and unique position that “woos customers from established players or draws new customers into the market”. • 在 Free Business Models 中的吉利刮鬍刀的興起 • Capabilities enable a company to execute current strategy while also providing a platform for future growth. They define the resources needed to execute strategy and, in doing so, define the cost model of an organization. • IT 部門的成本模式為何？

6. Value defines “what that move is worth” • The financial returns for business owners and investors • Stock price and market value. • 討論議題： • 想一下您的組織的價值為何？ • 若是公家機構呢？教育單位（學校）？公益團體呢？ • IT部門的獲利模式？ • 把IT部門當做企業來經營，CIO各有所表

7. Analyzing Strategy • Strategy: a series of choices that determine the opportunities you pursue and the market potential of those opportunities. • Market positioning determines the choice of customers to serve, the needs and expectations that will be met, and the channels that will be used to reached those customers. • Product positioning determines the products and services to offer, the features of those offerings, and the price that will be charged.

8. Analyzing Strategy • Business network positioning determines the role an organization plays and the activities it performs within an extended network of suppliers, producers, distributors, and partners. • Boundary positioning determines markets, products, and businesses that will NOT be pursued. • App 化，to be or not to be. （談談已經有 Apps 的學生）

9. A business model strategy audit includes analysis in the following 4 areas: • examine the current situation systematically and in its entirely. • Access Business Context (ie. boundary positioning) • Analyze Customers (ie. Market positioning) • Analyze Competitors and Substitutes (ie. Product positioning) • Access the Business Network

10. A business model strategy audit includes analysis in the following 4 areas: • Access Business Context (ie. 分析外在環境) • Begin by asking: “What business are we in?” • Examine industry and competitive dynamics and consider relevant demographic, economic, political, regulatory, and societal factors that influence (or could influence) the business. • Identify key trends that will either positively or negatively impact the industry and any disruptors (technology, regulatory changes, etc.) that could be a source of opportunity or threat. • Identify specific opportunities to pursue (or NOT)

11. A business model strategy audit includes analysis in the following 4 areas: • Analyze Customers • Identify pressing problems customers face and evaluate how a company’s current products and services, as well as those under development address those problems. • Market research • Internal customer information (ex. CRM) • Get a first-hand perspective by talking with observing customers

12. A business model strategy audit includes analysis in the following 4 areas: • Analyze Competitors and Substitutes • At this point, it is helpful to analyze alternatives customers have for meeting their needs • Which firms provide those alternatives? • What makes one company’s product or service offerings different from other offerings? Do these differences matter to customers? • How much are customers willing to pay? How do prices differ from one competitor to another? • Do competitors possess proprietary knowledge, assets, or intellectual property that serve as barriers to entry? • What market share do different competitors have and how are these shares changing over time? • Are there new entrants that offer radically different business models or offerings?

13. A business model strategy audit includes analysis in the following 4 areas: • Access the Business Network • shift from “value chain” to “value network” • Analyze the followings: • What activities do different players perform and what are the relationships among the various players? • How powerful are individuals and organizations that control key activities, resources, or capabilities required to execute strategy?

14. A business model strategy audit includes analysis in the following 4 areas: • Access the Business Network • How is the network organized? • (1) All activities can be incorporated within a single company; (2) Selective sourcing partnerships; and (3) A “community” can be created within which a firm retains only those activities that (a) are considered a “core competency” or (b) are required to manage, coordinate, and control value chain activities within and across organization boundaries • Business Network Relationships: (1) Transaction: Discrete exchange of goods, services, and payments; (2) Contract: Prior agreement governs exchange; and (3) Partnership: Shared goals and processes for achieving them

15. A business model strategy audit includes analysis in the following 4 areas: • 討論議題： • 學校還需要提供學生 email 帳號服務嗎？以及其衍伸的影響？

16. Successful strategies define how a company plans to achieve a distinctive and unique position that “woos customers from established players or draws new customers into the market”. • Capabilitiesenable a company to execute current strategy while also providing a platform for future growth. They define the resources needed to execute strategy and, in doing so, define the cost model of an organization. • Value defines “what that move is worth” • The financial returns for business owners and investors • Stock price and market value.

17. A business model capability audit includes analysis in the following 4 areas: • Analyze processes and infrastructure • In-depth evaluation of core processes that • Produce products; delivery services; • Acquire and serve customers • Manage relationships with key stakeholders • Deliver a continuous stream of new products, services, and innovation • Also, examine end-to-end support processes • Do they enable efficient and effective strategy execution? • Do people and partners at all levels have the information needed to coordinate and control end-to-end processes and the infrastructure required to support them? • Are operations best in class in terms of speed, quality, cost, and productivity?

18. A business model capability audit includes analysis in the following 4 areas: • Analyze people and partners • How easy or difficult is it to attract, develop, motivate, and retain expertise needed to carry out activities and coordinate and control operations? • Does the company have the reputation and image required to attract and retain top talent? • Do culture and incentives enable leaders to engage and inspire? • Have leaders developed clear performance targets, measurement systems, rewards, and punishments that ensure transparence and fairness?

19. A business model capability audit includes analysis in the following 4 areas: • Analyze organization and culture • Have people been grouped into work units and do they have the accountability and decision-making authority needed to do their work, make decisions, and meet performance targets? • Are roles, responsibilities, and authority clear and are mechanisms in place for coordinating work across units? • ex. 10萬元以下的採購，准假的原則等 • ex. 跨部門的協調機制

20. A business model capability audit includes analysis in the following 4 areas: • Analyze organization and culture • Does the informal culture support or hinder individuals and groups as they attempt to fulfill their roles and responsibilities? • ex. 公開建議改進方案？ • Do shared vision and values enable people and partners to work together to achieve shared goals? • ex. 推動個資保護的共同 vision 為何？ • Does everyone understand the boundaries for decision making and action beyond which they must not cross?

21. A business model capability audit includes analysis in the following 4 areas: • Evaluate leadership and governance • Effective leaders use governance structures and systems to balance the creativity and vision needed to set goals and prioritize investments with discipline needed to execute and deliver results. • Governance systems include strategic controls (scanning the environment, defining strategic position, setting goals, and prioritizing projects and investments); operating controls (defining short-term objectives and controlling current business operations and projects); effective risk management (identification and management of key risks); and effective development and management of the shared values and culture that guide decisions and actions.

22. A business model capability audit includes analysis in the following 4 areas: • Evaluate leadership and governance • Have leaders communicated a compelling and clear vision for the future that unites people and partners around common goals? • Do leaders at all levels balance creativity and innovation with disciplined execution? • Can they set goals and deliver results? • Are leaders well connected and have they demonstrated a track record of success? • Are there a high-performing board of directors and an executive team that closely monitor strategic and operating performance? • Do the board and executive team have systems in place to identify and manage risks while also ensuring that the organization’s culture and values guide decisions and behavior at all levels?

23. Successful strategies define how a company plans to achieve a distinctive and unique position that “woos customers from established players or draws new customers into the market”. • Capabilities enable a company to execute current strategy while also providing a platform for future growth. They define the resources needed to execute strategy and, in doing so, define the cost model of an organization. • Valuedefines “what that move is worth” • The financial returns for business owners and investors • Stock price and market value.

24. Analysis of business value include • Financial ratios such as the DuPont Formula (next page) • Also, the drivers of value creation • Drivers identified during the strategy and capability audit.

25. Using the DuPont Formula to Deconstruct ROE

26. A business model value audit includes analysis in the following 3 areas: • Identify internal and external stakeholders • What do they require and what are they able to (or willing to) provide? • Can the company attract, retain, and motivate key customers and are these customers willing and able to pay? • How do the interests of other stakeholder groups (e.g. employees, partners, government, society) influence a company’s ability to attract and serve customers? • What are the objective and subjective benefits that each of the key stakeholders (or stakeholder groups) receive from doing business with the company?

27. A business model value audit includes analysis in the following 3 areas: • Identify business drivers and alignment • SWOT analysis: What are the key opportunities and threats identified during the strategy audit? What are the key strengths and weaknesses identified during the capability audit? • From the SWOT analysis, identify key revenue, cost, and asset efficiency drivers and develop a business model dashboard that reflects linkages and alignment among various components.

28. A business model value audit includes analysis in the following 3 areas: • Develop the financial model and determine financing needs • What assumptions have been made about the drivers of revenue, costs, and asset efficiency? • How much uncertainty is there in these assumptions? • How do changes in these assumptions based on best-case/worst-case scenarios change the economics of the business? • Translate the financial model into “values”. (e.g. In for-profit firms, calculate ROE, etc.) • How does the economic value delivered by a business relate to the market value expectations of stakeholders? • Are there any fatal flaws in the business model? If so, how should these problems be addressed?

29. Analyzing Business Model Linkages Are we creating sustainable advantage?

30. Evolving Business Models • There are four key approaches to evolving a business model • Enhance: Incremental improvements to an existing strategy or capability • Expand: Launch new product categories, enter new markets, or expand capability • Explore: Launch new businesses and build new capabilities • Exit: Exit a product or market or outsource a capability

31. Evolving the Amazon.com Business Model (1995-2000)