Business Models

1. Dr Jovo Ateljevic, University of Banja Luka Business Models Odessa, Nov. 2010

2. 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) Dr Jovo Ateljevic, University of Banja Luka

3. Some 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)

4. 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)

5. More specifically BM is about 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 Dr Jovo Ateljevic, University of Banja Luka

6. 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 Dr Jovo Ateljevic, University of Banja Luka

7. Developing Business model (concept) Dr Jovo Ateljevic, University of Banja Luka

8. Value 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 Dr Jovo Ateljevic, University of Banja Luka

9. Value proposition: an example Dr Jovo Ateljevic, University of Banja Luka

10. Business concept -compelling 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 Dr Jovo Ateljevic, University of Banja Luka

11. American Express Magretta, J. 2002:86, HBR, May. Dr Jovo Ateljevic, University of Banja Luka

12. American Express: The key value propositions • American Express makes it easier, safer and more rewarding for consumers and businesses to purchase the things they need… Dr Jovo Ateljevic, University of Banja Luka

13. The concept statement: BIONES (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? Dr Jovo Ateljevic, University of Banja Luka

14. The 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’. Dr Jovo Ateljevic, University of Banja Luka

15. 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_Faxk04c Dr Jovo Ateljevic, University of Banja Luka

16. Dr Jovo Ateljevic, University of Banja Luka

17. Dr Jovo Ateljevic, University of Banja Luka

18. 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 Dr Jovo Ateljevic, University of Banja Luka

19. Important aspects of business model • Customers management • Product and services portfolio • Processes and activities • Resources capabilities and assets • Suppliers and business networks • Financial viability Dr Jovo Ateljevic, University of Banja Luka

20. Product and services portfolio • 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 Dr Jovo Ateljevic, University of Banja Luka

21. Resources capabilities and assets • 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 Dr Jovo Ateljevic, University of Banja Luka

22. Suppliers and business networks • 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 Dr Jovo Ateljevic, University of Banja Luka

23. Financial 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 Dr Jovo Ateljevic, University of Banja Luka

24. E-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) Dr Jovo Ateljevic, University of Banja Luka

25. Determinants of E-C/B success • 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) Dr Jovo Ateljevic, University of Banja Luka

26. Typology 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) Dr Jovo Ateljevic, University of Banja Luka

27. Revenue models Methods of generating income 4 an org • Sales • Transaction fees • Subscription fees • Advertising fees • Affiliate fees • Other revenue sources www.espn.go.com Dr Jovo Ateljevic, University of Banja Luka

28. Revenue models – publisher example 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. Dr Jovo Ateljevic, University of Banja Luka

29. 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 possibilities www.digitalenterprise.org/models/models.html http://www.alis.gov.ab.ca/ce/cp/oi/video/video.html Dr Jovo Ateljevic, University of Banja Luka

30. Business model vs. business strategy vs. business plan • BM isn't the same thing • Competitive strategy means doing better than your rivals • Differences? Dr Jovo Ateljevic, University of Banja Luka

31. 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.

32. In the nutshell http://www.youtube.com/watch?v=hst_Faxk04c Dr Jovo Ateljevic, University of Banja Luka

33. 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 Dr Jovo Ateljevic, University of Banja Luka

34. Mission 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 Dr Jovo Ateljevic, University of Banja Luka

35. What is your vision for your 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 Dr Jovo Ateljevic, University of Banja Luka