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Defining the Business Model

Organisations need to define their unique business model by making clear, strategic decisions An organisation’s business model is fundamental to the business’ direction, growth and sustainability. Defining the Business Model. A business model consists of 3 unique components:

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Defining the Business Model

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  1. Organisations need to define their unique business model by making clear, strategic decisions An organisation’s business model is fundamental to the business’ direction, growth and sustainability Defining the Business Model • A business model consists of 3 unique components: • WHO is our target consumer? • Customer segment • Geographic region • Size / value / volume • WHAT are we offering our consumer? • Product / service definition • HOW do we deliver our product / service? • Acquisition, Organic Growth or Strategic Alliance • Distribution channels / platforms • Marketing 2

  2. An organisation’s Value Chain includes all activities undertaken in producing their output These consist of Primary and Support activities undertaken in producing its goods or services SUPPORT ACTIVITIES FIRM INFRASTRUCTURE HUMAN RESOURCE DEVELOPMENT FINANCE / ACCOUNTING / PAYROLL TECHNOLOGY DEVELOPMENT INBOUND LOGISTICS OUTBOUND LOGISTICS SALES & MARKETING SERVICE OPERATIONS PRIMARY ACTIVITIES Value Chain Analysis • An organisation needs to determine which activities it must be involved in to deliver a product or service • A decision can then be taken on how best to accomplish those activities (internally or externally) • This decision will be based on degree of standardisation versus specialisation required 2

  3. Organisations need to develop a clear understanding of the environment in which they operate and intend to compete Various factors and drivers need to be analysed to best position and contextualise the offering, product or service Defining the Market, Industry, Supplier and Competitive Factors • Define the market and industry boundaries • Map the key players - identify who is doing what (note that certain players can take on multiple roles) • Clarify whether the analysis is from the perspective of an incumbent or an entrant • Assess the power of each to influence price, cost and volumes. Porter’s Five Forces • Gauge which of the five forces pose a threat and to what extent • Assess how those key forces are likely to change over time, by considering the actions / responses of each group • Third, identify specific actions you can take to reduce the threats posed by these particular forces or to leverage them to your advantage 2

  4. Organisations need to develop a clear understanding of the environment in which they operate and intend to compete Various factors and drivers of the opportunity need to be analysed to best position the offering, product or service Defining Critical Market, Industry and Team factors Seven Domains: • Define and gauge the three critical parameters of Market (buyers), Industry (sellers) and Team • Are the Market and Industry attractive? • Consider both Macro and Micro factors in determining attractiveness of opportunity • Does the opportunity offer compelling customer benefits as well as sustainable competitive advantage? • Does the team have the experience, capabilities and network to deliver results? • A low count on one parameter might be mitigated by a higher count / combination of others 2

  5. Value Curve - News Delivery Newspaper 10 8 6 PERFORMANCE Online 4 Radio 2 TV 0 Portability Information Coverage Accessibility Price PARAMETER Value Curve - Hardcopy News Delivery 10 8 6 Guardian PERFORMANCE Newsweek 4 Express FT 2 0 Price GeneralContent Specific Content Frequency PARAMETER Value Curves and Value Proposition Value Curves can identify product / service’s unique Value Proposition relative to those of competitors’ / substitutes Parameters used must be relevant and prioritised based on research of customer requirements and pain points • Can be defined and conducted at various levels and parameters from Macro to Micro • Once identified, prioritised and compared to competitors, can be used to focus resources and capabilities to optimally position and support the service and ensure competitive advantage • Considerations might include: • What factors can be reduced below the industry standard? • What factors can be eliminated that the industry has taken for granted? • What factors should be raised beyond the industry standard? • What factors should be created that the industry has never offered? • Also helps provide early identification of future threats and competitor dynamics – eg. greater quality of portable online media platform might mitigate / pose threat to current superior benefits of newspapers on that parameter

  6. The Body Shop - Illustrative Example The Body Shop PERFORMANCE Cosmetic’s Industry Price Packaging & Hi-Tech Glamorous Natural "Ethical" Advertising Scientific Image Ingredients Concerns Image PARAMETERS Value Curves and Value Proposition Value Curves can identify product / service’s unique Value Proposition relative to those of competitors’ / substitutes Parameters used must be relevant and prioritised based on research of customer requirements and pain points • The Body Shop made clear decisions regarding: • What factors could be reduced below the industry standard? • What factors could be eliminated that the industry had taken for granted? • What factors should be raised beyond the industry standard? • What factors should be created that the industry had never offered? • In so doing, The Body Shop created a unique business model, brand and position that ensured an sustainable competitive advantage • The Body Shop’s robustbusiness modelandunassailable position was evidenced by L’Oreal’s acquisition of it in 2006 • Despite being an established, extremely well-resourced competitor L’Oreal had been unable to compete against The Body Shop’s values and positioning…..whether The Body Shop’s values were compromised by its acquisition, however, is a different matter!

  7. Organisations need to deliver clear benefits / solutions to their customers’ pain / problems These benefits need to be “better” than available alternatives and more sustainable than potential direct competitors’ Sources Growth / Sustainability • What have we got, what do we need, how can we attain it? • Grow Pros – engender team dynamics / buy-in of constituents, embed organisational culture Cons - slow time to market, not aligned with core competencies • Acquire Pros – time-to-market, existing customer base, separate to avoid “contamination” of core capabilities Cons – integration issues, fair valuation • Ally Pros – value-adding synergies (1 + 1 = 3), new market entry, competitive advantage Cons – cultural integration / working practices, non-aligned incentives 2

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