Post on 07-Dec-2014
description
Business Models (MT5016):
Why are they important?
A/Prof Jeffrey Funk
Division of Engineering and
Technology Management
National University of Singapore
Why Business Models?
• They have a big impact on business success
– Many examples of why some firms succeeded more than
others can be explained in terms of business models
• Business models need constant modifications as changes
in technology etc. occur
– But many firms do not modify their business models
– One example of how business models require change can be
found in so-called disruptive technologies
• Changes in business models can also explain growing
success or failure of certain countries
• The variety (and pace?) of technology change and thus
need for new business models may be accelerating
MT 5016 Addresses Success or Failure of
Firms in Many Industries
• Computer-related
• Video-game
• Mobile Phones
• Other Consumer Electronics
• Internet
• Broadcasting
• Semiconductor
• Transport
• Medical Equipment
One Reason why Biz Model Impacts on Success
and Failure is… (1)
• They need constant modifications particularly when
there are changes in
– Technology
– Customer needs
– Market segments
– Performance, price, and costs
– Levels of vertical (dis)integration
– Number of firms in industry
– Regulations and laws (e.g., deregulation)
– Scale (e.g., more or less economies of scale)
– Stage of industry lifecycle
One Reason why Biz Model Impacts
on Success and Failure is… (2)
• But many firms do not modify their business
models as changes occur
• And thus they
– they lose market share
– they are acquired or gradually disappear
Why Business Models?
• They have a big impact on business success
– Many examples of why some firms succeeded more than
others can be explained in terms of business models
• Business models need constant modifications as
changes in technology etc. occur
– But many firms do not modify their business models
– One example of how business models require change can be
found in so-called disruptive technologies
• Changes in business models can also explain growing
success or failure of certain countries
• The variety (and pace?) of technology change may be
accelerating
Disruptive Technologies
• Many argue that disruptive technologies are a trivial
technology that requires a new business model
(Andrew Grove, CEO of Intel)
• Low-end innovations involve
– new value proposition (always)
– new customer selection (always)
– often new method of value capture (sometimes, e.g., lower
gross margins)
– may have less scope of activities (because new entrants)
– may involve new method of strategic control
Why Business Models?
• They have a big impact on business success
– Many examples of why some firms succeeded more than
others can be explained in terms of business models
• Business models need constant modifications as
changes in technology etc. occur
– But many firms do not modify their business models
– One example of how business models require change can be
found in so-called disruptive technologies
• Changes in business models can also explain growing
success or failure of certain countries
• The variety (and pace?) of technology change may be
accelerating
Biz Model can also Partly Explain Success
and Failure of Countries
• Success of Japanese firms partly came from new
business model that involved:
• Value proposition
– emphasize quality including reliability, durability, and low
number of internal defects
• Scope of activities
– vertically integrated in firm or business group (keiretsu)
• Method of strategic control
– high quality in both design and manufacturing
– low inventory (just-in time manufacturing)
– Kaizen, continuous improvement
Biz Model can also Partly Explain Success
and Failure of Countries (2)
• But many changes have occurred over the last 20
years
– U.S., Taiwanese, Singaporean and other firms have learned
about quality, inventory control, and Kaizen
– They have used low-cost and relatively high-quality
manufacturing from China to reduce importance of Japan’s
advantages in manufacturing
• Result is products from other countries have quality
(and often lower cost) that is comparable to Japanese
quality
Biz Model can also Partly Explain Success
and Failure of Countries (3)
• Other changes have also occurred
– Emergence of vertical disintegration enabled entry of new
firms that have lower scopes of activities in computers,
semiconductors, consumer electronics, etc.
– Japanese firms have been slow to reduce their scopes of
activities partly because there are no startups in Japan
– But U.S., Taiwan, and Singapore have startups in
semiconductor, computer, and biotechnology sectors
• This vertical disintegration has been accompanied by
emergence of standards, some of which are open……..
Biz Model can also Partly Explain Success
and Failure of Countries (4)
• But not all standards are open and certainly not
completely open
• These complex values and the varying degree of
openness in the standards has caused focus of strategic
control to changed to interface standards and industry
architecture
• Result is falling shares for Japanese firms in
– Computers
– Semiconductors
– Consumer electronics
Why Business Models?
• They have a big impact on business success
– Many examples of why some firms succeeded more than
others can be explained in terms of business models
• Business models need constant modifications as
changes in technology etc. occur
– But many firms do not modify their business models
– One example of how business models require change can be
found in so-called disruptive technologies
• Changes in business models can also explain growing
success or failure of certain countries
• The variety (and pace?) of technology change may be
accelerating
Why Business Models?
• Finally, Technology Change may be
Accelerating
– Frequency of discontinuities is increasing
• These discontinuities often require changes in
business models
• Understanding how and when changes in
business models are needed, is essential to
business success
Industry Examples
Photography 1. Movement from film to digital bits and packets
2. New devices (e.g., camera phones)
3. New methods of transferring the data between individuals (fixed
versus wireless Internet transfers) and between devices (e.g., PCs
and cameras) that are owned by an individual (e.g., with USB and
memory cards)
Television 1. Movement from analog to digital and to high-definition
television
2. Movement to a new generation of digital video disks (DVDs)
3. New methods of broadcasting such as over the Internet
4. New mobile devices (e.g., digital tuners in mobile phones)
Music 1. Movement from CDs (compact discs) to MP3 players
2. New mobile devices (e.g., i-Pod type devices and mobile
phones)
3. New methods of transferring data between mobile and fixed
devices (e.g., USB, memory cards, wireless)
Examples of Technological Changes Currently Occurring (1)
Industry Examples
Books 1. Emergence of e-books
2. Use of laptops and i-Pad to read books
Computer/
IT
1. Much cheaper laptop computers
2. New “computers” such as tablet computers and smart phones
3. Utility computing/cloud computing/software as a service
4. Networks of RFID tags and smart dust
Human
Computer
Interface
1. From keyboards to touch displays
2. Gesture-based interfaces
3. Voice-recognition; 4. Neural interfaces
Telecom/IT 1. New forms of mobile phones, applications for mobile phones,
or wireless networks (e.g., WiFi, ultrawideband)
2. New forms of wireline networks: e.g., integration of optics
and computing on the same substrate, i.e., optical computing
Examples of Technological Changes Currently Occurring (2)
Examples of Technological Changes Currently Occurring (3)
Industry Examples
Semi-
conductors/
Integrated
Circuits
1. New types of materials and processes such as nanotechnology
2. New types of designs such as System on Chip (SoC),
configurable processors
3. New types of applications such as micro-electronic mechanical
systems (MEMS), bio-electronic ICs such as laboratory on a chip,
DNA sequencers and synthesizers, or drug delivery via an
implanted or digested chip
Displays 1. Touch displays
2. LCDs backlit with LEDs
3. Organic light emitting diodes (OLEDs)
4. Electrophoretically Controlled Nematic (EPCN) liquid crystal
display
5. 3D Displays
6.Augmented reality
7. Holographic displays
Examples of Technological Changes Currently Occurring (4)
Industry Examples
Lighting 1. Compact fluorescent light bulb
2. LEDs
3. Smart LEDs
Electricity 1. Wireless electricity
2. Renewable energy sources such as solar cells: crystalline silicon,
micro-crystalline silicon, thin film amorphous silicon, thin film
CdTe, CIGS (Cadmium Indium Gallium Selenide), organic cells,
dye-sensitized cells
3. Other renewable such as wind turbines, fusion, geothermal
4. Smart grids
Examples of Technological Changes Currently Occurring (5)
Industry Examples
Automotive 1. Hybrid (battery and engine) vehicles
2. Plug-in vehicles; Hydrogen; Bio-fuels
3. Autonomous vehicles
Education 1. Internet-based education
Healthcare 1. Movement to Internet-based information systems
2. Nanotechnology-based treatments for cancer
3. New forms of surgery
4. New medical equipment
5. Obviously many more
Other
Internet
1. 3D content, video, social network
2. Social networks
3. Utility/Cloud computing (e.g., Software as a service)
4. Mashups; video conferencing
5. Business support services
U.S. Venture Capital Funding (B$) is Partly Driven by High Frequency of Technological Change
Software 5.1
Communications & Networking 3.0
Semiconductors 1.6
Other IT 2.2
Total IT 11.9
Biopharmaceutical 3.8
Medical devices 2.0
Other healthcare 1.0
Total healthcare 6.9
Other industries 3.5
Total all industries 22.3
Source: Dow Jones 2006 Venture Capital Industry Report
All Industries in 2010 26.45 Billion USD
Aerospace and defense 97
Agriculture and forestry 34
Biopharmaceuticals 3,246
Business support services (mostly Internet) 2,516
Communications and networking 1,027
Construction and civil engineering 141
Consumer information services 4,552
Electronics and computer hardware 1,282
Financial institutions and services 631
Food and beverage 100
Healthcare services (mostly Internet) 1,144
Household and office goods 71
Machinery and industrial goods 188
All Industries Billions of USD
Materials and chemicals 413
Media and content 343
Medical devices and equipment 2,249
Medical software and information services 478
Non-renewable energy 296
Personal goods 47
Renewable energy 2,118
Retailers 182
Semiconductors 764
Software 3,762
Travel and leisure 133
Utilities 141
Vehicles and parts 460
Wholesale trade and shipping 0
New Technologies, New Business
Models
• Every one of these new technologies requires a
new business model
• Finding the appropriate business model is
difficult
• This will cause incumbents and many new
entrants to fail
• This provides opportunities for firms with good
business models
On Last Reason for Why Business Models:
Business Models are Similar to Strategies
• Strategy
– Can be at corporate or business level
– At business level, strategies are classified in terms of:
• Cost vs. differentiation
• Focused vs. broad markets
– Business strategy should be consistent with
• functional strategies
• business models for each product/service
• When a business only delivers a single product/service,
a business strategy is very similar to a business model
When a Business Offers Multiple Products
and Services
• Customer selection and value proposition
– may be different for each product and service
– But probably business will focus on similar set of
customers (e.g., high- or low-end, business or
consumer)
• Value capture, scope of activities, and strategic
control
– may be the same for each product and service
– and generally should be the same
For Example, Apple’s Computer Business
• Apple sells many types of desktop and laptop
computers
• Each type of computer
– serves a different segment
– offers a different value proposition
• But all of their computers probably have similar
– Method of value capture
– Scope of activities
– Method of strategic control
In Summary
• There are many changes driving a need
for new business models
• Although technological changes are the
most obvious, there are others
• Opportunities for new entrants and
incumbents continue to be created
• The goal of MT5016 is to help you
– understand these opportunities
– their impact on business models
– create business models