The Holistic Business Model
Benjamin T Solomon BSc (Eng), MA Operations Research, MBS Finance
QuantumRisk LLC (www.QuantumRisk.com)
©2001
Holistic Business Model: Operations Layer
Logic of the
Business
High Coordination
Functional Teams
Control
Matrix & Project Orgs.
Cohesion between
Organization
Subunits
High Channel Replenishment
Hierarchical Orgs.
Stock Available on Demand
Consensus
Control Drives
Drives the
the Organization
Milestones Define Goals Missions Define Goals
Goals are Formative Objectives Define Goals
Driven
Leadership
Driven
Value of
Availability to
Operations
Low
Distribution Mgmt. Producers Determine
>> Purchasing Mgmt. Product Innovation
Switching
Costs
Purchasing Mgmt. >> Consumers Determine
Distribution Mgmt. Product Innovation
Planning Drives Execution Drives
Organization Organization
Relationship
Organization
Product Competency
Process
(Equip Mix &
Quantity)
Variability
Group Technology
Transaction Management
Few Large
High Push Scheduling
Capacity Drives Scheduling
WIP Allocation to Machines
Process Complexity
Capacity
Machines
Revenue Sustained by Processing Costs >>
Incremental Product Upgrades Materials Cost
Revenue Derived from Input Materials Costs
Basic Product is Significant
Product Product
Diversity is Diversity
not Important is Critical
Equipment
Clusters
Long
Shelf
Life
Made-To-Order
Capacity Available on Demand
Low Trading Drives Product Movement
Low
High
Value of Availability to Consumers
Low Cost of
Product Diversity
Availability
Multiple Objective
Supply Drives Scheduling Work
Allocation to Present Time
Few Machine Types Many Machine Types
Simplifies Planning Complicates Planning
Product Upgraded by Product Diversity is Achieved
Managing Inputs by Process Management
Continuous Flow
Process
Network
Process Orgs.
Low Entrepreneurial Org.
Low
High
Cohesion within Organization Subunits
Process
Clusters
High
Switching
Costs
Transaction Value Contract Value >>
>> Contract Value Transaction Value
Multi
Skilled Teams
High Assembly Line
Quick Response
Manufacturing Flexibility
Supply Mgmt. >> Capacity Mgmt. >>
Capacity Mgmt. Supply Mgmt.
Organization
Empowerment
Short
Shelf
Life
Many Small
Capacity
Machines
Number of
Product
Types
Simple
Value Add
Many Product Types
Capacity Simplifies Planning Complicates Planning
Cycletime Simplifies Planning Few Product Types
Simplifies Planning
Complex
Value Add
Simple Products WIP Stability
Simplifies Planning Simplifies Planning
Job Shop
Product Diversity
Low Equipment Complexity
High
Low
Demand (Prod Mix & Quantity) Variability
Reactive Scheduling
Low
Copyright 2001, Benjamin T Solomon
Demand Drives Scheduling
Time Allocation on of Work
Pull Scheduling
High Cost of
Product Diversity
WIP Drives Scheduling
Machine Allocation to WIP
Low
High
Number of Type of Machines
Scheduling
Management
Holistic Business Model: Revenue Transaction Layer
R
Value Identity
Weak
Product
Company
Service
Saturation
Contact
Outlets
Presentation
Format
Transaction
Premised
Activity
Virtual
Event
Synergy
I
High Activity
Unique
Process
Involvement is Key to Success
Industry Rivalry
Map
Product
Designed-In Operations
Competency
Presentation
High Product Brands
Activity Purchasing
Perception is Key to Success
Achievement is More Perception is More
Important than Perception Important than Achievement
Process
Filling A
Need
Function
not Bound
Interaction is More Important Effect is More Important
than Knowledge than Actualization
by Format
Knowledge is More Actualization is More
Important than Interaction Important than Effect
Format
Bound
Function
Contact
Multiple
High Product
Market
Demands
Enables Value
Product Specialization
Variable Cost Reduction
Value of
Assets Used
by Operations
Simple Products
Uniformity &
Consistency
Designed-In
Specialization Enables Viability
The Low Cost Producer
Market Consolidates Around Scale Economies Enhanced by
Market Demands Clearly Defined Attributes Focused Product Definition Market Demands
Variety
Uniformity &
Cost of Product Variation is Low Product Technology Enables
Consistency
Economies of Scope
Manufacturing / Delivery Process Unique Manufacturing
Based on Generic Equipment / Delivery Process
Synergy
Low Specialization
Nurtures Opportunities
Competency
Low
Low
Market
Demands
Features
Complex Products:
Product Definition Prevents Competency Delivers Value
Market Segmentation
Reliability
Weak Brands
Service Brands
Niche
Substance Premised Business
Based Ambience Drives Transactions
Traffic
Seeks
Experience Access
Value Identity
Outlets Business
Drives Transactions
Experience is Experience is
Unique Reproducible
Transaction
Nature
Expertise Driven
Transaction
Management
Product Definition Product Life Hampers Transaction
is Experiential Management Mechanization Process Driven
Standardized & Clearly Demand Enables Transaction
Defined Products Management Mechanization
Transaction
Management
Comparative Goods Need to be
Information Required Physically Present
Operations
Process Specialization Enables
Unit Overhead Cost Reduction
Process Specialization
Product Attributes Enables
Market Segmentation Process Delivers Value
Markets
Competency Purchasing
Low Value Purchasing
High
Low
Value of Assets Purchased by Consumers
Multiple Simple Processes Scale Economies Enhanced
to Deliver Focused Products by Equipment Specialization
Product
Specialization
Function Purchasing
Generic Resources Hampers Unique & Scarce
Identity Differentiation Resources
Low Timing is Key to Success Processes Ownership is Key to Success
Low
High
Product Filling a Need
Format
Company Brands
Capacity < Scale Economies Increases
Consumption Faster than Growth
Delivery is More Content is More
Important than Content Important than Delivery
Event
Large
Markets
High
Knowledge Virtual Business Traffic Seeks
Saturation Business
Based Concept Drives Transactions Closure Convenience Drives Transactions
Few
Many
Transaction Location
Copyright 2001, Benjamin T Solomon
Transaction
Holistic Business Model: Business Management Layer (Structural Positioning)
Information
Asymmetry Is Great
Premium
Barriers
Intangibles
Market Perception Management
Barriers Management
Market Wealth
Creation
Market Price
Structure
Inputs
Expertise
Competitive External Factors Management Market Expectations Management
Information Low
High
Profitability
Unique Know-How Enhances
Unique Process Value Add Value Add from Unique Inputs
Many
Attributes
Unique Know-How Does Not Value Add from Generic Inputs
Enhance Unique Process Value Add
High Product Low Product
Differentiation Costs Differentiation Costs
Low
Value
Add
Scale Economies
Mop-Up
Market Demands Minor Specs
Market Avoids Minor Market Demands Many
Specifications Minor Specifications
Market Share
Structure
Specialized Process Multiple Processes
Delivers Values Facilitate Many Formats
Few
Attributes
Many
Attributes
Market Demands Specific Generic Process Hampers
Product Attributes Value Delivery
Informed Market Uninformed Market Does
Demands Product Stability Not Understand Standards
Low
Capacity
Understands Its Needs
Barriers Market Direction
Clarity
Market
State
Fragmented Market
Narrow
Uncertainty
Unknown
Proliferation
Market Product Structure
Capacity < Demand
Capacity Add is
Expensive
Value Benefit
> Value Add
Growth Drains Profits
FCF Unable to Sustain Growth
Market Growth
High
Type of Economic Game
High
Capacity
Barriers
Fixed Costs Drives Profits
Equity Game
Retained Earnings Growth
Market Access No Market Access
to Alternatives to Alternatives
Value Benefit
≈ Value Add
Few Cost Effective Value Delivery Not
Processes Easily Imitated
Distribution Economics Value Delivery
Hampers Growth Easily Imitated
Value Benefit >
Value Add
Down Stream Down Stream
Industry Stagnant Industry Growth
Endurance Game
Low
Capacity
Barriers
Variable Cost Game
Variable Costs Drives Profits
Fragmented Funding Drives Viability
High
Low
Market Growth
Copyright 2001, Benjamin T Solomon
Market
Sustainability
Win Win Game
Few Unit Cost Game
Market
Share
Structure
Capacity Add is
Relatively Inexpensive
Stagnant Down Down Stream
Stream Industry Industry Growth
High
Market Demands Value
High
Capacity
Barriers
Installed Capacity
Matches Demand
Value Benefit
≈ Value Add
Installed Capacity > Demand
(Rivalry Eliminates Profitability)
Zero Sum Game
Low
Few Consolidation
Growth Sustained by FCF
Viability DrainsInstalled
Profits
Up Stream
= No Unique Solution
Self Sustained Growth
Market Recognition Large Market
Established Potential
Low FCF Unsustainable
Low
Optimum Location Game
= As Close As Possible
Installed Up Stream
Capacity > Demand
Healthy FCF
Profitability
Markov Chains: Transition State Probabilities
Market
Advantage
Scope Economies
Compatibility Based CA
Competitive Process Based CA
Narrow
Market Product StructureProliferation
High Status Quo
Resource Bidding Game
Few
Attributes
Regular Auction
Market
Price
Structure
= Regular Auction
Unique Ability to Unique Presentation
Deliver Attributes of Multiple Attributes
Market Bidding Game
Knowledge Based CA
Differentiation
Uniqueness Based CA
= Dutch Auction
Premium Innovation/Niche
= Dutch Auction
Asymmetry is Low
High
Value
Add
Market
Economics
Holistic Business Model: Business Management Layer (Strategy Evaluation)
Information
Asymmetry Is Great
Premium
Barriers
Intangibles
Market Perception Management
Barriers Management
Market Wealth
Creation
Market Price
Structure
Inputs
Expertise
Competitive External Factors Management Market Expectations Management
Information Low
High
Profitability
Clarity
Market
State
Distinctive Value Benefit
Low
Capacity
Needs
Barriers Market
Uncertainty
Direction Unknown
Fragmented Market Understands Its
Narrow
Proliferation
Market Product Structure
Value Benefit
≈ Value Add
High
Capacity Rivalry
Profitability Attracts New Entrants
Resource Bidding Game
= Regular Auction
Cost Restructuring
Endurance Game
High
Market Growth
Type of Economic Game
High
Capacity
Retained
Barriers
Consolidation Prevents New Entrants
Profits Enable Excess Capacity
New Markets
Equity Game
Earnings Growth
Value Benefit >
Value Add
Price Wars
Low
Capacity
Barriers
Variable Cost Game
Variable Costs Drives Profits
Fragmented Funding Drives Viability
High
Low
Market Growth
Copyright 2001, Benjamin T Solomon
Market
Sustainability
Win Win Game
Fixed Costs Drives Profits
Market
Share
Structure
Process Innovation
Growth Drains Profits
FCF Unable to Sustain Growth
Alternative Tech. Pose Threats
Rising Value Benefit Expectations
Many
Attributes
Capacity < Demand
Unique Value Delivery
Market Recognizes Key Attributes
Value Benefit
> Value Add
Alternative Product Formats Erase Profits
Few Unit Cost Game
Low
Market Demands Minor Specs
Product Innovation
Zero Sum Game
Markov Chains: Transition State Probabilities
Few
Attributes
Mop-Up
Market Fragmentation Difficult to Imitate
Brand Dilution
Market Share
Structure
Cost Effective Value Delivery
Market Demands Value
High
Capacity
Barriers
Eliminate Excess Capacity
Viability DrainsInstalled
Profits
Up Stream
= No Unique Solution
Low Cost/Value Benefit Delivery
Few Consolidation
Growth Sustained by FCF
Low FCF Unsustainable
Low
Optimum Location Game
= As Close As Possible
Clear Brand Identity
Market
Advantage
Value Benefit
≈ Value Add
Self Sustained Growth
Increase Capacity Incrementally
Up Stream Process Innovation
Scope Economies
Scale Economies
CA
Competitive Process Based CA
Narrow
Market Product StructureProliferation
Installed Up Stream
Capacity > Demand
Healthy FCF
New Distribution Channels
Up Stream Process Standardization
Low
Value
Compatibility Based
Add
High Status Quo
Profitability
Regular Auction
Leveraging Core Product Design
Many
Attributes
Market Bidding Game
Product Attributes Deliver Value
= Dutch Auction
Down Stream Process Standardization
Up Stream Captive Technologies
Few
Attributes
Product Innovation & Patents
Market
Price
Structure
Alternative Product Tech Leakage
Knowledge Based CA
Differentiation
Uniqueness Based CA
New Markets
Premium Innovation/Niche
= Dutch Auction
Asymmetry is Low
High
Value
Add
Market
Economics