Strategic Business Model Design Process
Lesson 1 – Introduction
– Key features of a successful business model: Successful business models are backed by a business model that: a) offers a unique, relevant, and hard-to-imitate value proposition b) is aligned with market evolution trends c) is able to generate an ‘attractive’ profitability d) it is promptly able to transform itself and adapt through continuous innovation and the development of virtuous mechanisms
– Every organization/company builds its strategy on a business model. Examples: family business, non-profit companies, start-ups, local companies…
Strategy and Business Modeling
– Difference between Strategy and business modeling: While business modeling could be defined as the way a company produces value for customers and turns revenues into profit, strategy is defined as the research of the best fit between business objectives, resources, and the external environment to get a sustainable competitive advantage.
– Connection between strategy and business modeling: The business model is a tool to better define, implement, evaluate ex ante, in progress, or ex-post, and eventually redefine the business strategy. Furthermore, a business model combines the main aspects of the strategy: key resources available, key activities that these resources are called to play, strategy products, and external factors. Strategy and tactics are different issues: strategy refers to the choice of a business model applied by the firm to pursue its mission and compete in the market, on the other hand, tactic refers to the residual choices that companies could make taking into consideration the business model adopted.
– Distinctive aspects of the business model to achieve strategic results: If the firm anticipates and satisfies market expectations thanks to an effective value proposition, the strategic result could be the consistent and growing revenue streams. An accurate management and monitoring of the business key processes along with a capability to develop a network with external actors that are crucial to sustain the VP by the firm could lead to the cut of management costs (strategic result). The identification of competencies and resources where the firm should focus its investments while considering long-term market evolutions could lead to the following strategic results: competitive advantage and higher profitability.
Lesson 2 – The Business Model Canvas
– The Business model canvas is a tool to analyze the business model of any organization, providing at the same time the elements requested to design and transform the business model itself. It is based on 9 building blocks. 1) Customer Segments: different groups of people an enterprise aims to reach and serve. Examples: mass market, segmented market, multi-sided markets, niche market (each customer needs different specific needs), diversified market. 2) Value Proposition: must answer questions like: what value do we deliver to our customers? Which problems are we solving? Which needs are we satisfying? Examples: newness, personalization, design, price, performance… 3) Channels: how the company reaches its customers. Examples: direct, indirect, owned, partner (web sales, own stores, partner stores, wholesaler) 4) Customer relationship: type of relationship the customer and the company are going to have. Examples: personal assistance, self-service, automated services, communities, co-creation. 5) Revenue Streams: cash generated by the company from each customer segment. Examples: sales revenues, usage fees, brokerage fees, licensing, advertising, subscription fees, lending/renting/leasing. Two pricing mechanisms: fixed pricing or dynamic pricing. 6) Key Resources: the most important assets to make the business work. Examples: physical, intellectual, financial, human. 7) Key activities: most important activities the company must do to make its business model work. Examples: production, problem-solving, platform/network. 8) Key partners: suppliers and partners that make the business work. Examples: strategic alliances between non-competitors, cooperation: (strategic partnerships, joint ventures, buyer-supplier relationships) 9) Cost structure: costs required. Examples: cost structure types (fixed costs, variable costs) economies types (economies of scale / scope).
Lesson 3 – Business Model Design Process
– Osterwalder and Pigneur propose a generic business model design process adaptable to whatever organization’s specific needs
1) Mobilize: create awareness of the need, set project activities, test preliminary business ideas, plan, assemble the team. Threats: inadequate team or overestimating the value of initial ideas. Story-telling can be particularly useful in a business pitch. 2) Understand: the context where the business model will evolve. Key activities: scan environment, study potential customers, interview experts, research what has already been tried, collect ideas and opinions. Threats: over-reaching disconnect between research and objectives, pre-commitment to a certain idea. + Key activities: evaluate the business model, look behind the status quo, look behind existing clients and demonstrate the achievement. 3) Design: it has the goal of generating and testing viable business model options then selecting the best. Key activities: brainstorming, prototype, test, and select. Critical success factors: co-creation, exploring multiple business model ideas. Threats: ‘falling in love’ with the ideas too early, rejecting disruptive models to avoid fundamental changes.4) Implement: implement the BM prototype in the field. Key activities: communicate, involve, and execute. Critical success factors: project and change management skills, ability to adapt to the BM. Threats: weak or fading momentum and incoherent execution. 5) Manage: adapt and modify the BM in response to market reactions, it is necessary to set up the management structures to continuously monitor, evaluate and adapt or transform the BM. Key activities: scan the environment, continuously assess your BM, rejuvenate or rethink your BM… Critical success factors: long-time perspective, governance, and proactiveness. Threats: becoming a victim of your success, failing to adapt, shrinking innovation.
– When the fifth phase ends: companies need to innovate, it is a continuous process.
Lesson 4 – Business Model Patterns and Digital Transformation
Patterns
– Osterwalder and Pigneur have identified 5 different business model patterns (these aren’t the only ones, there are 55 different patterns).
1) Long-tail: focuses on offering a large number of niche products, each of which sells relatively infrequently. Features required: low inventory costs and strong platforms to make niche contents immediately available to interested buyers. 2) Multi-sided platforms: these create value bringing together two or more distinct but interdependent groups of customers. Such platforms are of value to one group of customers only if the other group of customers is also present. The platform creates value by facilitating interactions between different groups. 3) Free: in this BM at least one substantial customer segment is able to continuously benefit from a free-charge offer. It can be free because no paying customers are financed by another customer segment (Spotify). 4) Open: these BMs can be used by companies to create and distribute value by systematically collaborating with outside partners. Outside in: exploiting external ideas within the firm. Inside out: providing external parties with ideas or assets lying idle within the firm. 5) Unbundling: these BMs are based on an ideal, and in some cases real, separation between activities concerning three areas: a) Customer relationships, b) product innovation c) infrastructures (e.g. outsourcing)
Digital Transformation (mobile, internet, and social media)
– Process of using digital technologies to create new – or modify existing – business processes, culture, and customer experiences to meet changing business and market requirements. DT is in our everyday life and it is definitely the main mega-trend of our times. Customers are getting used to getting what they want almost exactly at the moment they need it. Disruption of information flows: global data and communication flows are growing very fast, it is a unique opportunity for companies to grow exponentially. (e.g. Netflix and Blockbuster). It has allowed for innovation (e.g. the ice business). Many companies claim that BM innovation is the main source of comp. advantage. Unicorn: >1b