IT and the Contemporary

Manager
Business Model Development
By:
Dr. Ben Kwofie
Introduction
• WHAT IS A BUSINESS MODEL?
• A business model describes the rationale of how an organization creates,
delivers, and captures value
• Can be developed by new and existing businesses
• To create a business model for a new or existing business, a series of activities
must be performed

• WHAT ARE THE BUILDING BLOCKS OF A BUSINESS MODEL?

• 9 Building Blocks
• Customer Segments, Value Proposition, Channels, Customer Relationships, Revenue Streams,
Key Activities, Key Resources, Key Partners, Cost Structures
Customer Segment
Customer Segment – Questions
• For whom are we creating value?
• Who are our most important customers?
Customer Segment
• The defines the different groups of people or organizations an enterprise
aims to reach and serve
• Customers (profitable) are the heart of any business model.
• No company can survive for long without them.
• Need to be appropriately satisfied
• To do so, distinct segments with common needs, common behaviors,
or other attributes need to be identified.
• Customer segments may be large or small. The larger the better
• A business model may define one or more segments
• Its important to determine which to serve or ignore
• Business models are carefully designed around a strong understanding of
specific customer needs or problems.
Customer Segments (2)
• Customer groups represent separate segments if:
• Their needs require and justify a distinct offer
• They are reached through different Distribution Channels
• They require different types of relationships
• They have substantially different profitabilities
• They are willing to pay for different aspects of the offer
Customer Segment – Types
• Mass Market
• Niche market
• Segmented market
• Diversified market
• Multi-sided platforms/multi-sided markets
Value Proposition
Value Propositions – Questions To Ask
• What value do we deliver to the customer?
• Which one of our customer’s problems are we helping to solve?
• Which customer needs are we satisfying?
• What bundles of products and services are we offering to each
Customer Segment?
Value Propositions
• The describes the bundle of products and services that create value for a
specific Customer Segment
• Reason why customers turn to one company over another.
• It solves a customer problem or satisfies a customer need.
• Each Value Proposition consists of a selected bundle of products and/or
services that caters to the requirements of a specific Customer Segment.
• In this sense, the Value Proposition is an aggregation, or bundle of, benefits
that a company offers its customers
• Some value propositions may be innovative and offer a new or disruptive
offer.
• Others may be similar to the existing market offers, but with added
features and attributes
Value Proposition – Types
• Newness
• Performance
• Customization
• Getting the job done
• Design
• Brand/status
• Price
• Cost reduction
• Risk reduction
• Accessibility
• Convenience
Channels
Channels – Questions to ask
• Through which Channels do our Customer Segments want to be
reached?
• How are we reaching them now?
• How are our Channels integrated?
• Which ones work best?
• Which ones are most cost-efficient?
• How are we integrating them with customer routines?
Channels
• Channels describe how a company communicates with and reaches
its Customer Segments to deliver the Value Proposition
• Businesses interface with their customers through Communication,
distribution, and sales Channels Channels are customer touch points
that play an important role in the customer experience.
• Channels serve several functions, e.g.:
• Raise awareness among customers about a company’s products and services
• Help customers evaluate a company’s Value Proposition
• Allow customers to purchase specific products and services
• Deliver a Value Proposition to customers
• Provide post-purchase customer support
Channels – Types of Channels
• Direct or Indirect
• In-house Sales force, website, retail stores owned/operated by
• Owned or Partner
• Wholesale distribution, retail, website
• Channel Phases
• Awareness
• Evaluation
• Purchase
• Delivery
• After sales
Customer Relationships
Customer Relationships
• Customer Relationships describes the types of relationships a
company establishes with specific Customer Segments
• A company should clarify the type of relationship it wants to establish
with each Customer Segment.
• Relationships can range from personal to automated.
• Customer relationships may be driven by the following motivations:
• Customer acquisition
• Customer retention
• Boosting sales (upselling)
Customer Relationship - Questions To Ask
• What type of relationship does each of our Customer Segments
expect us to establish and maintain with them?
• Which ones have we established?
• How costly are they?
• How are they integrated with the rest of our business model?
Customer Relationships – Types
• Co-creation
• Personal assistance
• Dedicated personal assistance
• Self-service
• Automated services
• Communities
Revenue Streams
• Revenue Streams represents the cash a company generates from each
Customer Segment (costs must be subtracted from revenues to create profits)
• A business needs to know what value each Customer Segment truly will pay for
• A business can generate one or more Revenue Streams from each Customer
Segment.
• Each Revenue Stream may have different pricing mechanisms, such as fixed list
prices, bargaining, auctioning, market dependent, volume dependent, or yield
management.
• A business model can involve two different types of Revenue Streams:
• Transaction revenues - one-time customer payments
• Recurring revenues - ongoing payments to either deliver a Value Proposition to customers or
provide post-purchase customer support
Revenue Streams – Questions
• For what value are our customers really willing to pay?
• For what do they currently pay?
• How are they currently paying?
• How would they prefer to pay?
• How much does each Revenue Stream contribute to overall
revenues?
Revenue Streams - Types
• Asset sale
• Usage fee
• Subscription fee
• Lending/Renting/Leasing
• Licensing
• Brokerage fees
• Advertising
Revenue Streams – Types of Pricing
mechanism
• Fixed and
• List price, product feature dependent, customer segment dependent &
volume dependent
• Dynamic
• Negotiation (bargaining), yield management, real-time-market & Auctions
Key Resources
• Key Resources describes the most important assets required to make a
business model work
• Every business model requires Key Resources. These resources allow an
enterprise to:
• create and offer a Value Proposition,
• reach markets, maintain relationships with Customer Segments, and earn revenues.
• Different Key Resources are needed depending on the type of business
model
• e.g. a microchip manufacturer requires capital-intensive production facilities,
whereas a microchip designer focuses more on human resources.
• Key resources can be:
• physical, financial, intellectual, or human.
• owned or leased by the company or acquired from key partners.
Key Resources - Questions To Ask
• What Key Resources do our Value Propositions require?
• Our Distribution Channels?
• Customer Relationships?
• Revenue Streams?
Key Resources – Types
• Physical
• Intellectual
• Human
• Financial
Key Activities
• Key Activities describe the most important things a company must
do to make its business model work
• Each business model requires a number of Key Activities.
• Most important actions a business must take to operate successfully.
• Required to create and offer a Value Proposition, reach markets, maintain
Customer Relationships, and earn revenues.
• Key activities also differ in terms of business model type
Key Activities – Questions To Ask
• What Key Activities do our Value Propositions require?
• Our Distribution Channels?
• Customer Relationships?
• Revenue streams?
Key Activities - Types
• Production
• Problem solving
• Platform/Network
Key Partners
• Key Partnerships describes the network of suppliers and partners that
make the business model work
• Businesses establish partnerships for different reasons
• Partnerships are becoming a essential component of many business
models.
• Companies create alliances to optimize their business models, reduce risk, or acquire
resources.
• Four types of partnerships can be identified:
• Strategic alliances between non-competitors
• Coopetition: strategic partnership between competitors
• Joint ventures to develop new business
• Buyer-supplier relationships to guarantee reliable supplies
Key Partners – Questions To Ask
• Who are our Key Partners?
• Who are our key suppliers?
• Which Key resources are we acquiring from partners?
• Which Key activities do partners perform?
Key Partners - Types
• Optimization and Economies of scale
• Reduction of risks and uncertainty
• Acquisition of particular resources and activities
Cost Structure
• Cost Structure describes all costs incurred to operate a business
model
• Describes the most important costs incurred while operating under a
particular business model.
• Creating and delivering value, maintaining Customer Relationships,
and generating revenue all incur costs.
• Such costs can be calculated relatively easily after defining Key
Resources, Key Activities, and Key Partnerships.
• Some business models, though, are more cost-driven than others.
• So-called “no frills” airlines, for instance, have built business models entirely
around low Cost Structures
Cost Structure – Questions To Ask
• What are the most important costs inherent in our business model?
• Which Key Resources are most expensive?
• Which Key Activities are most expensive?
Cost Structure - Types
• Cost driven
• Value driven
• Fixed cost
• Variable cost
• Economies of scale
• Economies of scope
CONCLUSIONS
QUESTIONS