Chapter #6 - Developing an effective business model

A business model's two potential fatal flaws

1. A complete misread of the customer 2. Utterly unsound economics (spend more $ than you are bringing in)

Business concept blind spot

A business concept blind spot prevents a firm from seeing an opportunity that might fit its business model

A business model's four major components 2. Strategic Resources

A firm is not able to implement a strategy without resources, so the resources a firm has affect its business model sustainability. Most important strategic resources are a firm's core competencies and strategic assets 1. Core competencies: a core competency is a resource that serves as a source of a firm's competitive advantage. Ex. Sony's competence in miniaturization - abilities! 2. Strategic assets: anything rare and valuable that a firm owns

Business Model

A firm's business model is its plan or diagram for how it intends to compete, use its resources, structure relationships, interface with customers, and create value to sustain itself on the basis of the profits it generates.

A business model's four major components 1. Core Strategy

How a firm competes relative to its competitors. Elements: 1. Mission statement: a firm's mission describes why it exists and what its business model is supposed to accomplish - what is your purpose for being in business? 2. Product/market scope: defines the products and markets on which it will concentrate 3. Basis for differentiation = why should we buy from you rather than from your competitor? Cost leadership strategy vs. differentiation strategy

A business model's four major components 3. Partnership Network

New ventures do not have the resources to perform key roles, so they build a partnership network that includes suppliers and other key relationships a. Suppliers: company that provides parts of services to another company. Intel is Dell's supplier for computer chips b. Other key relationships: Firms partner with other companies to make their business models work. An entrepreneur's ability to launch a firm that achieves a competitive advantage may hinge as much on the skills of the partners as on the skills within the firm itself.

Business Model Innovation

Refers to initiatives such as those undertaken by Michael Dell when he established the firm now know as Dell Inc. that revolutionized how products are sold in an industry -A firm's business model takes it beyond its own boundaries

Supply Chain Management

Supply chain management refers to the flow of all information, money, and material that moves through a product's supply chain. The more efficiently an organization can manage its supply chain, the more effectively its entire business model will perform.

A business model's four major components 4. Customer Interface

The way a firm interacts with its customer hinges on how it chooses to compete. Ex. amazon sells books over the internet while Barnes sells at a bookstore. Elements: a. Target Market: firm's target market is the limited group of individuals or businesses that it goes after or tries to appeal to b. Fulfillment and support: the way a firm's product or service reaches its customers. It also refers to the channels a company uses and what level of customer support it provides c. Pricing structure: Pricing models vary, depending on a firm's target market and its pricing philosophy

Value Chain

a. The value chain shows how a product moves from the raw-material stage through manufacturing and distribution to the final consumer. The value chain helps a firm identify opportunities to enhance its competitive strategies and to recognize new business opportunities b. By studying a product's or service's value chain, an organization can identify ways to create additional value and asses whether it has the means to do so c. Value chain analysis is also helpful in identifying opportunities for new businesses and in understanding how business models emerge

Core competency

core competency is something that a firm does particularly well. It is resource or capability that serves as a source of a firm's competitive advantage over its rivals

Discuss the importance of having a clearly articulated business model

it serves as an ongoing extension of feasibility analysis, continually asks does this business make sense?, it focuses attention on how all the elements of a business fit together, it describes why the network of participants who are needed to make a business idea viable would be willing to work together, and it articulates the core logic of a firm to all its stakeholders