WHY BUSINESS MODELS MATTER CIS 424 Based on Tab 4 Article by Joan Magretta
WHY BUSINESS MODELS MATTER • One of “THE” buzzwords of the dot com era • http://www.businessplanarchive.org/ • The grave yard of the dot coms • Lewis says, that , “You didn’t need a strategy, or a special competence, or even customers – all the business needed was a model that promised wild profitability”
WHY BUSINESS MODELS MATTER • So what did this idea spawn? • GBF • An absurd amount of venture capital • Unparalleled IPO success • $110 stock price for a company that has an operating deficient of $1.5 billion • Inflationary salary and bonus trends • Criminals – Enron, Adelphi, World Com
WHY BUSINESS MODELS MATTER • AND, a great deal of criticism that models do not matter • So, I ask you, and desire your opinion: • Do they matter anymore??? • Do we even have a working definition of what they are?
WHY BUSINESS MODELS MATTER • Magretta says that creating a business model is a lot like writing a new story. • All new stories are really version of old ones • And…Business models are versions of the generic value chain which has two parts • Making something • Selling something
WHY BUSINESS MODELS MATTER • Despite the recent economic downturn, there are unlimited opportunities within the real estate industry to create wealth, cash flow, and jobs. To take advantage of these opportunities, real estate professionals must be committed to do different things, not do things differently. They must develop a new business model focusing on clients, capital, talent and knowledge. Each of these elements is equally important and central to finding solutions. Companies embracing change can strengthen their market position and capture more than their fair share of opportunities. Real estate firms failing to change their business model will dramatically increase the availability of talent and clients.(Christopher Lee, writing in the Journal of Property Management)
WHY BUSINESS MODELS MATTER • While collaboration has become almost routine for developing product or service solutions that span multiple technologies, only a handful of companies have made co-development an integral element of their business models, building a strategy for continuous cross-enterprise development. These companies have grasped that R&D strategy has become inseparable from value-chain participation strategy, and have developed processes for forming and managing deep collaborative relationships. Their co-development model has three levels: 1. a strategy for development chain design, 2. process and governance structures that define how the partners will work together, and 3. information technology that effectively supports collaborative development. (Mark Deck and Mark Strom writing for Research Technology Management)
WHY BUSINESS MODELS MATTER • Thomas P. D'Angelo, senior vice president of finance and controller of priceline.com, designed the complex financial transaction that underpins priceline's revolutionary business model and created the company's finance and accounting framework. D'Angelo joined the company in October 1997 as the groundwork for the unique Internet-based endeavor was taking place. He was wooed away from Direct Travel, Inc., a $200 million travel agency where he was CFO. D'Angelo applied his knowledge of the traditional travel agency model for airline tickets and adapted it to the unique nature of the Name Your Own Price model. He used his prior experience to show how to build a comprehensive accounting and finance function that would accommodate a start-up on the fast track. Now that priceline.com is forging ahead, he would like to share some of the lessons he has learned. (Kathy Williams writing for Strategic Finance)
WHY BUSINESS MODELS MATTER • Does a international company have the same business model regardless of where they are located • How about US companies that have franchises all over our country? • Is it safe to say that a business model can be changed on an ongoing basis?
WHY BUSINESS MODELS MATTER • The author also states that a business plan to be successful must pass two tests, • The Narrative test (Priceline groceries and gas) • The Numbers Test (Webvan – groceries)
WHY BUSINESS MODELS MATTER • When one or both tests fail, an organization should revisit their strategy. • Competition is the driving force that determines when organizational strategy should be revisited. Walmart – a new business model or a strategy? Lower prices – increased profits – more than just volume – physical amenities gone, bigger stores to handle more people, fewer salespeople so that the customer is empowered.
WHY BUSINESS MODELS MATTER • Walmart has the same business model as Kmart, but has been so much more successful, that is strategy!!! • Chose to serve a different group of customers • Chose to do it in a different set of markets
WHY BUSINESS MODELS MATTER • Target – another success story • Their strategy is based on • Style • Fashion Did not try to be all things to all people
WHY BUSINESS MODELS MATTER • Dell Computer – Michael Dell • Created a business model, direct sales via telephone and Internet • JIT • Very Unique but…competition tried to do the same thing, so… • Dell expanded product line