M01L04

Business Structure and Modeling

Slide: 1

Looking at business

structure as apposed to

organizational structure!

M01L04

Organizational Structure Focuses On How A Business Organizes People to Add

Value

Slide: 2

M01L04

Business Structure and Modeling Focuses On How To Design The Business To Add

Value

Slide: 3

M01L04 Slide: 4

Customer Segments

Key Activities

Key Resources

Key PartnershipsCost Structure

Value Propositions

Channels

Customer Relationships

Revenue Streams

Building Blocks of a

Business Model

While there are many visual forms of a business model, all will create a similar pattern. They look at partners, customers, actions necessary to add value, how to deliver product or service, etc. This is done to be able to structure the business for success necessary for growth and sustainment.

M01L04

Let’s Create ValueFirst comes an idea… come up with an idea

Second comes a market… identify the market

Next comes the high level value that your product will provide the market

Slide: 5

M01L04

The Value Proposition creates value for a Customer Segment through a distinct mix of elements catering to that segment’s needs. Values may be quantitative (price, speed of service etc.) or qualitative (design, customer experience etc.)

Value Proposition

Price

Speed of

Service

Quantitative

Customer Experienc

e

Design

Qualitative

Slide: 6

M01L04

Elements of the Value Proposition –

Newness◦ Customer did not perceive a need◦ Often technology related

Performance◦ Traditionally the path to value◦ Becoming less effective

Customization◦ Tailoring products to specific needs

Mass production and customer co-creation Getting the job done

◦ Helping customers do their job Design

◦ Difficult element to measure

Brand/status Price

◦ Similar value at a lower price◦ Lower value at a lower price

Cost reduction◦ Helping customers reduce costs

Risk reduction◦ Reduction in risk of purchase or ownership

– used car insurance Accessibility

◦ Providing to customers who did not previously have access

Convenience/usability◦ Easier to use or acquire

Slide: 7

M01L04

The different groups of people or organizations an enterprise aims to reach and serve

Customer Segments

Customer Segments

Slide: 8

M01L04

Customer SegmentsFor whom are we creating value?Who are our most important customers?

Types of markets◦ Mass market

Value propositions, distribution channels, customer relationships all focus on one large group Example: consumer electronics

◦ Niche market Value propositions, distribution channels, customer relationships all tailored to specific requirements of a

specific market Example: car part manufacturers

◦ Segmented Slight differences in value propositions, distribution channels, and customer relationships

Example: banks◦ Diversified

Value propositions, distribution channels, customer relationships all tailored to specific unrelated markets Example: Amazon’s IT infrastructure – retail sales services and cloud computing services

◦ Multi-sided platforms Focus on two or more interdependent customer segments

Example: credit card company – focus on card holders and businesses that accept the card

Slide: 9

M01L04

The channels building bloc describes how a company communicates with and reaches its customer segments to deliver a Value Proposition

Channels

ChannelsSlide: 10

M01L04 Slide 11

ChannelsHow the company communicates with and reaches It’s Customer Segments to deliver value

Channel types◦ Company channels

Direct Sales force Web sales

◦ Partner channels Indirect

Own stores Partner stores Wholesaler

Channel phases◦ Awareness – how do we raise awareness◦ Evaluation – how do we help customers evaluate our organization’s Value Proposition◦ Purchase – How do we allow customers to purchase specific products and services◦ Delivery – how do we deliver a Value Proposition to our customers◦ After sales – how do we provide post-purchase customer support

M01L04

The customer relationships block describes the TYPES of relationships you establish with various customer segments

Customer Relationships

Customer Relationships

Slide: 12

M01L04 Slide 13

Customer RelationshipsWhat are the types of relationships establishedwith specific customer segments?

Personal assistance◦ Human interactions

Dedicated personal assistance◦ Dedicating a customer rep specifically to an individual client◦ Normally develops over a long period of time

Self-service◦ No direct relationship with customers◦ Develops means for customers to help themselves

Automated services◦ A more sophisticated form of customer self-service◦ Automated interactions generally created or used

Communities◦ Means for allowing customers to connect with each other and the company◦ Exchange of ideas between customers◦ Allow companies to better understand customer needs

Co-creation◦ Ability for customers to create or recommend product attributes and

modifications

M01L04

Revenue streams represents the cash you generate from EACH customer segment. This must be identified as earnings thus cost must be subtracted from revenue.

Revenue Streams

Revenue Streams

Slide: 14

M01L04 Slide 15

Revenue StreamsRemember, price is not the key here, Value is. The question is what value are your customers willing to pay for and how much will they pay?

Questions to ask: What do they currently pay? How are they paying? How would they prefer to pay? How much does each revenue stream contribute to the

overall revenue?

M01L04 Slide 16

Ways to Generate Revenue Streams

Asset Sale◦ Selling ownership rights to a physical product.

The most widely understood method Usage Fee

◦ Focused on service The more a service is used the more the customer pays

◦ Subscription Fee Selling continuous access to a service

◦ Lending/Renting/Leasing Temporary but exclusive right to use an asset

Fixed return on the use for the period of time Licensing

◦ Use of protected intellectual property in exchange for a fee Brokerage Fee

◦ Intermediation services on behalf of two or more parties Advertising

◦ Fees for promoting a particular product, service, or brand Moving from just media to software and service providers as well as product providers

M01L04 Slide: 17

Pricing Mechanisms

Fixed Menu PricingPredefined prices are based on static variables

Dynamic PricingPrices change based on market conditions

List Price◦ Fixed prices for individual product,

services, or other Value Propositions Product feature dependent

◦ Price depends on the number or quality of Value Proposition features

Customer segment dependent◦ Price depends on the type and

characteristic of a Customer Segment Volume dependent

◦ Price as a function of the quantity purchased

Negotiation (bargaining)◦ Price negotiated between two or more

partners depending on negotiation power and /or negotiation skills

Yield management◦ Price depends on inventory and time of

purchase (normally used for perishable resources such as hotel rooms or airline tickets

Real-time-market◦ Price is established dynamically based on

supply and demand Auctions

◦ Price determined by outcome of competitive bidding

M01L04

Most important assets required to make a business work are considered key resources. They are the ones which allow the creation and deliver of the Value Proposition. Affect not only VP but distribution channels, customer relationships, and revenue streams

Key Resources

Key Resources

Slide: 18

M01L04 Slide 19

Key ResourcesKey resources can be physical, financial, intellectual, or human. They can be owned or leased by the company or acquired from key partners

Physical Buildings, vehicles, machines, systems, point-of-sales systems, and distribution

networks Intellectual

Brands, proprietary knowledge, patents, copyrights, partnerships, and databases. Difficult to develop but can be valuable in value chain (big data links)

Human Critical in knowledge-intensive and creative industries

Financial Resources or guarantees – cash, lines of credit, stock option pools for hiring talent

Online Databases

Agency Websites

Listserv Subscriptions

Mailing Lists

Agency Contacts

What Are Your Key

Resources

M01L04

The most important things a business must do to make its business model work. They are required to create and offer a Value Proposition, reach markets, maintain Customer Relationships, and earn revenues. They differ based on business model type.

Key Activities

Key Activities

Slide: 20

There are different

categories of Key Activities

M01L04 Slide 21

Key ActivitiesKey activities can be categorized as follows:

Production Relate to designing, making and delivering a product

Focus on quantity or quality or both Critical for manufacturing businesses

Problem solving Developing new solutions to customer problems

Primarily used in consultancies, hospitals, and service organizations Knowledge management and continuous training

Platform/Network Maintaining a presence in the global society

Relates to service provisioning and promotion

There are different

categories of Key Activities

M01L04

The cornerstone of many business models. Can be formed to strengthen business model, reduce risk, or acquire resources. They fall into several categories e.g. strategic alliances between non-competitors, partnerships between competitors (co-opetition), joint ventures, buyer-supplier relationshipsKey Partnerships

Key Partnerships

Slide: 22

M01L04

Key Partnerships

Types of Partnerships Motivation for Partnerships

Strategic alliances between non-competitors

Co-opetition: strategic partnerships between competitors

Joint ventures to develop new businesses

Buyer-supplier relationships to assure reliable supplies

Optimization and economy of scale◦ The best allocation of resources and

activities since a company rarely owns all the resources needed.

Reduction of risk and uncertainty◦ Competitors form a strategic alliance

in one area while competing in another

Acquisition of particular resources and activities◦ Extension of capabilities by relying on

other firms to furnish the resources needed

Slide: 23

Co-opetition

M01L04

Business Structure vs. Organizational Structure

Slide: 24

Business Structure/Model Organizational Structure/Model