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1/27Copyright 2012 Pearson Education6-1
Chapter 6
Developing an
Effective Business
ModelBruce R. Barringer
R. Duane Ireland
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2/27Copyright 2012 Pearson Education6-2
Chapter Objectives1 of 2
1. Describe a business model.
2. !plain business model innovation.
". Discuss the importance of having a clearl#
articulated business model.
$. Discuss the concept of the value chain.
%. Identif# a business model&s t'o potential fatal
fla's.
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Chapter Objectives2 of 2
6. Identif# a business model&s four major components.
(. !plain the meaning of the term business concept
blind spot.
). Define the term core competenc# and describe its
importance.
*. !plain the concept of suppl# chain management.
1+. !plain the concept of fulfillment and support.
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,hat is a Business -odel
/ -odel
0 model is a plan or diagram that&s used to mae or
describe something.
/ Business -odel0 firm&s business model is its plan or diagram for ho' it
competes3 uses its resources3 structures its relationships3
interfaces 'ith customers3 and creates value to sustain itself
on the basis of the profits it generates.0 4he term 5business model is used to include all the
activities that define ho' a firm competes in the
maretplace.
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Dell&s Business -odel1 of 2
/ Be#ond Its O'n Boundaries
0 It&s important to understand that a firm&s business model
taes it be#ond its o'n boundaries.
0 lmost all firms partner 'ith others to mae their businessmodels 'or.
0 In Dell&s case3 it needs the cooperation of its suppliers3
customers3 and man# others to mae its business model
'or.
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Dell&s Business -odel2 of 2
Dell&s pproach to 7elling 8Cs versus 4raditional -anufacturers
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4he Importance of Business -odels
9aving a clearl# articulated business model is importantbecause it does the follo'ing:
7erves as an ongoing e!tension of feasibilit# anal#sis. business
model continuall# ass the ;uestion3 5Does this business mae sense
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Diversit# of Business -odels
Diversit# or =ariet# inBusiness -odels
4here is no standard business
model for an industr# or for
a target maret 'ithin an
industr#.9o'ever3 over time3 the most
successful business models
in an industr# predominate.
4here are al'a#s opportunities for business model innovation.
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9o' Business -odels merge1 of "
/ 4he =alue Chain
0 4he value chain is the string of activities that moves a
product from the ra' material stage3 through
manufacturing and distribution3 and ultimatel# to the enduser.
0 B# stud#ing a product&s or service&s value chain3 an
organi>ation can identif# 'a#s to create additional value
and assess 'hether it has the means to do so.
0 =alue chain anal#sis is also helpful in identif#ing
opportunities for ne' businesses and in understanding ho'
business models emerge.
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9o' Business -odels merge2 of "
4he =alue Chain
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9o' Business -odels merge" of "
/ 4he =alue Chain ?continued@
0 ntrepreneurs loo at the value chain of a product or a
service to pinpoint 'here the value chain can be made
more effective or to spot 'here additional 5value can beadded.
0 4his t#pe of anal#sis ma# focus on:
/ single primar# activit# such as mareting and sales.
/ 4he interface bet'een one stage of the value chain and another3
such as the interface bet'een operations and outgoing logistics.
/ One of the support activities3 such as human resource management.
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8otential
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Components of a Business -odel
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Core 7trateg#1 of "
/ Core 7trateg#
0 4he first component of a business model is the core
strateg#3 'hich describes ho' a firm competes relative to
its competitors./ 8rimar# lements of Core 7trateg#
0 -ission statement
0 8roductmaret scope
0 Basis for differentiation
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Core 7trateg#2 of "
8rimar# lements of Core 7trateg#
-ission
7tatement
8roduct-aret7cope
compan#&s productmaret scope defines the
products and marets on 'hich it 'ill
concentrate.
firm&s mission3 or mission statement3
describes 'h# it e!ists and 'hat its business
model is supposed to accomplish.
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Core 7trateg#" of "
8rimar# lements of Core 7trateg#
Basis of
Differentiation
It is important that a ne' venture
differentiate itself from its competitors insome 'a# that is important to its customers.
If a ne' firm&s products or services aren&t
different from those of its competitors3 'h#
should an#one tr# them
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7trategic Resources1 of "
/ 7trategic Resources
0 firm is not able to implement a strateg# 'ithout
resources3 so the resources a firm has affect its business
model substantiall#./
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7trategic Resources2 of "
8rimar# lements of 7trategic Resources
Core
Competencies
7trategicssets
core competenc# is a resource or capabilit# that
serves as a source of a firm&s competitive advantage.
!amples include 7on#&s competence in
miniaturi>ation and Dell&s competence in suppl#chain management.
7trategic assets are an#thing rare and valuable that a
firm o'ns. 4he# include plant and e;uipment3location3 brands3 patents3 customer data3 a highl#
;ualified staff3 and distinctive partnerships.
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7trategic Resources" of "
/ Importance of 7trategic Resources
0e' ventures ultimatel# tr# to combine their core
competencies and strategic assets to create a sustainable
competitive advantage.0 4his factor is one that investors pa# close attention to 'hen
evaluating a business.
0 sustainable competitive advantage is achieved b#
implementing a valuecreating strateg# that is uni;ue andnot eas# to imitate.
0 4his t#pe of advantage is achievable 'hen a firm has
strategic resources and the abilit# to use them.
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8artnership et'or1 of "
/ 8artnership et'or
0 firm&s partnership net'or is the third component of a
business model. e' ventures3 in particular3 t#picall# do
not have the resources to perform e# roles.0 In most cases3 a business does not 'ant to do ever#thing
itself because the majorit# of tass needed to build a
product or deliver a service are not core to a compan#&s
competitive advantage.
0 firm&s partnership net'or includes:
/ 7uppliers
/ Other e# relationships
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8artnership et'or2 of "
8rimar# lements of 8artnership et'or
7uppliers
Other Ee#
Relationships
supplier is a compan# that provides parts or
services to another compan#. Intel is Dell&s
primar# suppler for computer chips3 for e!ample.
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8artnership et'or" of "
4he -ost Common 4#pes of Business 8artnerships
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Customer Interface1 of "
/ Customer Interface
0 4he 'a# a firm interacts 'ith its customer hinges on ho' it
chooses to compete.
/on.com sells boos over the Internet 'hileBarnes F oble sells through its traditional boostores and online.
0 4he three elements of a compan#&s customer interface are:
/ 4arget customer
/
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Customer Interface2 of "
8rimar# lements of Customer Interface
4arget
-aret
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Customer Interface" of "
8rimar# lements of Customer Interface
8ricing
7tructure
4he third element of a compan#&s customer
interface is its pricing structure. 8ricing models
var#3 depending on a firm&s target maret and its
pricing philosoph#.
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Recap: 4he Importance of Business -odels
/ Business -odels
0 It is ver# useful for a ne' venture to loo at itself in a
holistic manner and understand that it must construct an
effective 5business model to be successful.
0 ver#one that does business 'ith a firm3 from its customers
to its partners3 does so on a voluntar# basis. s a result3 a
firm must motivate its customers and its partners to pla#
along.
0 Close attention to each of the primar# elements of a firm&s
business model is essential for a ne' venture&s success.
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