How to Design a Winning Business Model

Classified - Private Use

How to Design a Winning Business

ModelBased on a Harvard Business Review with same title by Ramon Casadesus-Masanell and Joan E. Ricart

Benny HerlambangTeddy MustaqimFreidiena

Classified - Private Use Based on a Harvard Business Review with same title by Ramon Casadesus-Masanell and Joan E. Ricart

Introduction – Idea In Brief What Is A Business Model Three Characteristic Of A Good Business Model How Business Models Generate Virtuous Cycle Competing With Business Models Sample Of Business Models Business Models VS Strategy & Tactics

CONTENTS


Current fact:“seven out of 10 companies are trying to create innovative business models, and 98% are modifying existing ones”

“most companies still create and evaluate business models in isolation, without considering the implications of how they will interact with rivals’ business models.”

INTRODUCTION – IDEAS IN BRIEF


Now and then…

Why we need business model…


PAST FUTUREStrategy has been the primary

building block of competitivenessSustainable advantage may well

begin with business model.

DEVELOPING COUNTRY DEVELOPED COUNTRY

Pressure to crack open market (mostly mid & bottom) driving a

surge of business model innovation

Economic slowdown is forcing companies to modify / replace

their business model.


Facts about business model:- Company that want to get a value trough business

model may need to do some radical transformation which focus on innovation & modification.

- A business model successes depends on how it interact with other’s model.

- Much of problem lies on company’s narrow focus that work on isolation. One may superior in isolation but actually result less when it interacts.



WHAT IS A BUSINESS MODEL

Definition: “a story that explains how an enterprise works” “who is your customer, what does the customer value and

how do you deliver value at an appropriate cost?”

Business model consist of 4 Elements:1. A Customer value Proposition2. A profit formula3. Key resources4. Key processes


THREE CHARACTERISTIC OF A GOOD BUSINESS MODEL

1. Aligning with company goals

While designing a business model, the choices made should enable the organization to achieve its goals.

Example: Xerox PARC; Xerox was unable to draw new business from its innovation, due to lack of alignment with its goals.



2. Self-reinforcing

While creating business model, the choices made should complement one another: there must be internal consistency.

Example: Providing comfort level in a low cost airline, comparable to that offered by a full fare carrier (reducing number of seat on plane and offering food and coffee).



3. Robustness

A good business model should be able to sustain its effectiveness over time by fending off 4 threats:- Imitation- Holdups- Slack- Sub-situation


THE CHOICES & ITS CONSEQUENCES

A component of Business Models is CHOICES; which types are:1. Policy choices2. Asset choices3. Governance Choices

The choices have consequences….


THE CHOICES & ITS CONSEQUENCES

The choices have CONSEQUENCES, which the types are:1. Flexible Consequences2. Rigid Consequences

Unlike flexible consequences, rigid ones are difficult to imitate because companies need time to build them.


There are consequences of business model choices. The consequences enable further choices and so on. This process generates virtuous cycles that continuously strengthen the business model.

E.g.: Ryanair’s business model creates several virtuous cycles that maximize its profits through increasingly low cost and prices.

But these cycles don’t go on for a long time

E.g.: If ryanair’s workforce forms a union and demand higher wages, one of the cycles will become vicious.

HOW BUSINESS MODELS GENERATE VIRTUOUS CYCLE


THREE WAYS TO COMPETING WITH BUSINESS MODEL

1. Strengthen Your Virtuous CycleModify the business models to generate new virtuous cycle to compete more efficient with rivals.

2. Weaken Competitor’s CycleUse the rigid consequences of the choices to weaken entrants’ virtuous cycle.

3. Turn Competitor Into ComplementRival with different business models can also become partners in value creation.


SAMPLE OF RYANAIR BUSINESS MODEL

Ryanair in 1980’s… Took CHOICES to offer

excellent service & standardize fleet.

Need redesign due to competitive market

In early 1990’s, has been transformed (radically) into a low cost carrier

.


SAMPLE OF RYANAIR BUSINESS MODEL

Ryanair nowadays… Become the largest low

cost carrier in Europe. Take CHOICES on low

fares, that: Align with its goal;

“firmly establish itself as Europe's leading low-fares”

Self-reinforcing its virtuous cycle

Robust; its has run for 20 years

.


SAMPLE OF COKE’S COOLER DIVISION BUSINESS MODEL

.

BEFO

REAF

TER

High-end cooler

High electricity intake Less placement Less sales

Mid-low cooler

Less electricity intake More placement More sales More money to

get more coolers

CHOICES CONSEQUENCES


These three are interrelated…

1. StrategyContingent plan about which business model will be used; choices and consequences are reflection of it

2. Business Model Logic of the company, how it operates, creates and capture values

3. TacticsResidual choices open to a company by virtue of a business model it employs.

BUSINESS MODEL VS STRATEGY & TACTICS


CLOSING REMARKS…

To achieve better competitiveness, a company should not only create a strategy but should implement it into a good business model.

A good business model is a model that align with your goal, self-reinforcing and robust.

When you have a good model, you may able to strengthen your cycle, weaken you rival’s cycle or make it as a complement.

Strategy, business model and tactics are interrelated; strategy is design the car, business model is the car and tactics is how we drive the car.

A company may struggling to build them toughly , especially because of their interactions with those of other players (rivals, suppliers, etc) that has their these three, too.

That’s the essence of competitiveness—and developing strategy, tactics, or innovative business models has never been easy.

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THANK YOU

Based on a Harvard Business Review with same title by Ramon Casadesus-Masanell and Joan E. Ricart

Benny HerlambangTeddy MustaqimFreidiena

How to Design a Winning Business Model

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