Defining the Business Model
Organisations need to define their unique business model by making clear, strategic decisions
An organisation’s business model is fundamental to the business’ direction, growth and sustainability
 A business model consists of 3 unique components:
1. WHO is our target consumer?
o Customer segment
o Geographic region
o Size / value / volume
2. WHAT are we offering our consumer?
o
Product / service definition
3. HOW do we deliver our product / service?
o Acquisition, Organic Growth or Strategic Alliance
o Distribution channels / platforms
o Marketing
2
Value Chain Analysis
An organisation’s Value Chain includes all activities undertaken in producing their output
These consist of Primary and Support activities undertaken in producing its goods or services
SUPPORT
ACTIVITIES
FIRM INFRASTRUCTURE
HUMAN RESOURCE DEVELOPMENT
FINANCE / ACCOUNTING / PAYROLL
TECHNOLOGY DEVELOPMENT
INBOUND
OPERATIONS
LOGISTICS
OUTBOUND
SALES &
LOGISTICS MARKETING
SERVICE
PRIMARY
ACTIVITIES
 An organisation needs to determine which activities it must be involved in to deliver a product or service
 A decision can then be taken on how best to accomplish those activities (internally or externally)
 This decision will be based on degree of standardisation versus specialisation required
2
Defining the Market, Industry, Supplier and Competitive Factors
Organisations need to develop a clear understanding of the environment in which they operate and intend to compete
Various factors and drivers need to be analysed to best position and contextualise the offering, product or service
Porter’s Five Forces
BUYER POWER
Factors determining power of suppliers relative to buyers
Price Sensitivity
- cost of purchases
- profitability of buyers
- relevance of product to
quality of buyers’ product
THREAT OF ENTRY
- economies of scale
- absolute cost advantages
- capital requirements
- product differentiation
- access to distribution channels
- governmental and legal barriers
- retaliation by established producers
Bargaining Power
- size / concentration of
buyers relative to suppliers
- buyers’ switching costs
- buyers’ information
- buyers’ ability to
backward integrate
INDUSTRY COMPETITIVENESS
- concentration
- product differentiation
- excess capacity
- demand growth
- cyclicality (eg. of demand)
- exit barriers
•
Define the market and industry boundaries
•
Map the key players - identify who is doing what (note that
certain players can take on multiple roles)
•
Clarify whether the analysis is from the perspective of an
incumbent or an entrant
Assess the power of each to influence price, cost and
volumes.
•
THREAT OF SUBSTITUTES
- buyer propensity to substitute
- relative price performance of
substitutes
1. Gauge which of the five forces pose a threat and to what extent
2. Assess how those key forces are likely to change over time, by
SUPPLIER POWER
Factors determining power of buyers relative to suppliers
Price Sensitivity
- cost of purchases
- profitability of buyers
- relevance of product to
quality of buyers’ product
2
Bargaining Power
- size / concentration of
buyers relative to suppliers
- buyers’ switching costs
- buyers’ information
- buyers’ ability to
backward integrate
considering the actions / responses of each group
3. Third, identify specific actions you can take to reduce the
threats posed by these particular forces or to leverage them to
your advantage
Defining Critical Market, Industry and Team factors
Organisations need to develop a clear understanding of the environment in which they operate and intend to compete
Various factors and drivers of the opportunity need to be analysed to best position the offering, product or service
MARKET DOMAIN
INDUSTRY DOMAIN
Seven Domains:
MARKET ATTRACTIVENESS
INDUSTRY ATTRACTIVENESS
- Where is industry heading, what factors affect it?
Define and gauge the three critical parameters of
Market (buyers), Industry (sellers) and Team
•
Are the Market and Industry attractive?
•
Consider both Macro and Micro factors in determining
MICRO-LEVEL
- What is the size, growth rate and overall opportunity?
•
- Five forces analysis - buyers, suppliers, barriers (including
regulatory and technological), substitutes, rivals - who holds the
power / what are the drivers?
- Definition of broad market, including / as defined by: similar
services, substitutes and customer needs
- Size, volume, value, trends and forecasts for the broad customer set
- Are the forces favourable or unfavourable and to what extent - what,
if anything can be done to mitigate?
- Description of customer “pain”, needs, requirements along with
potential solution
BUYER POW ER
F a c t o rs d e t e rm in in g p o w e r o f s u p p lie rs re la t iv e t o b u y e rs
P ric e S e n s it iv it y
- c o s t o f p u rc h a s e s
- p ro f it a b ilit y o f b u y e rs
- re le v a n c e o f p ro d u c t t o
q u a lit y o f b u y e rs ’ p ro d u c t
TH R EA T OF EN TR Y
B a rg a in in g P o w e r
- s iz e / c o n c e n t ra t io n o f
b u y e rs re la t iv e t o s u p p lie rs
- b u y e rs ’ s w it c h in g c o s t s
- b u y e rs ’ in f o rm a t io n
- b u y e rs ’ a b ilit y t o
b a c k w a rd in t e g ra t e
IN D U S T R Y C O M P E T IT IV E N E S S
- e c o n o m ie s o f s c a le
- a b s o lu t e c o s t a d v a n t a g e s
- c a p it a l re q u ire m e n t s
- p ro d u c t d if f e re n t ia t io n
- a c c e s s t o d is t rib u t io n c h a n n e ls
- g o v e rn m e n t a l a n d le g a l b a rrie rs
- re t a lia t io n b y e s t a b lis h e d p ro d u c e rs
- c o n c e n t ra t io n
- p ro d u c t d if f e re n t ia t io n
- e x c e s s c a p a c it y
- d e m a n d g ro w t h
- c y c lic a lit y ( e g . o f d e m a n d )
- e x it b a rrie rs
T H R E A T O F S U B S T IT U T E S
- b u y e r p ro p e n s it y t o s u b s t it u t e
- re la t iv e p ric e p e rf o rm a n c e o f
s u b s t it u t e s
S U P P L IE R P O W E R
F a c t o rs d e t e rm in in g p o w e r o f b u y e rs re la t iv e t o s u p p lie rs
P ric e S e n s it iv it y
- c o s t o f p u rc h a s e s
- p ro f it a b ilit y o f b u y e rs
- re le v a n c e o f p ro d u c t t o
q u a lit y o f b u y e rs ’ p ro d u c t
attractiveness of opportunity
•
B a rg a in in g P o w e r
- s iz e / c o n c e n t ra t io n o f
b u y e rs re la t iv e t o s u p p lie rs
- b u y e rs ’ s w it c h in g c o s t s
- b u y e rs ’ in f o rm a t io n
- b u y e rs ’ a b ilit y t o
b a c k w a rd in t e g ra t e
Does the opportunity offer compelling customer
TARGET SEGMENT BENEFITS AND ATTRACTIVENESS
•
Does the team have the experience, capabilities and
network to deliver results?
•
A low count on one parameter might be mitigated by a
MACRO-LEVEL
benefits as well as sustainable competitive advantage?
SUSTAINABLE ADVANTAGE
- Is there a target market segment to which we can offer compelling
benefits?
- Does the business model have an enduring economic viability?
- Precise identification and definition of intended target segment
- Sustainable competitive advantage (what do we have that is
valuable, rare and hard to imitate?)
- Size, volume, value, growth rate, trends etc. of this precise segment
- How do our resources contribute to and sustain our advantage?
- Clear description of these customers' requirements, the proposed
solution and its associated compelling benefits / competitive
differentiation
- What have we got, what do we need, how should we get it (ally,
acquire and/or grow organically)?
higher count / combination of others
TEAM
MISSION, ASPIRATIONS, RISK
PROPENSITY
- Does the opportunity fit team’s and /or
“investor’s” business mission, aspirations
and risk propensity?
- Is the market, industry, brand / product
aligned with “investor’s” aspirations?
2
ABILITY TO EXECUTE ON CSF’s
- Does team have clear understanding of
critical success factors?
- Does team have relevant experience,
background and industry knowledge to
deliver on opportunity and CSF’s?
CONNECTED UP, DOWN & ACROSS
VALUE CHAIN
- Is team well connected up, down and
across value chain so as to notice and
adapt to change / evolving target if required
to do so?
- Does team have strong network to
facilitate flexibility and evolution?
Value Curves and Value Proposition
Value Curves can identify product / service’s unique Value Proposition relative to those of competitors’ / substitutes
Parameters used must be relevant and prioritised based on research of customer requirements and pain points
Value Curve - News Delivery
PERFORMANCE
10
Newspaper

Can be defined and conducted at various levels and
parameters from Macro to Micro

Once identified, prioritised and compared to
competitors, can be used to focus resources and
capabilities to optimally position and support the
service and ensure competitive advantage

Considerations might include:
8
6
Online
4
Radio
2
TV
0
–
Portability
Information
Coverage
Accessibility
Price
–
PARAMETER
–
Value Curve - Hardcopy News Delivery
PERFORMANCE
10
–
8
6
4
2
0

Guardian
Newsweek
Express
FT
General Content
Specific Content
PARAMETER
Frequency
Price
What factors can be reduced below the industry
standard?
What factors can be eliminated that the industry
has taken for granted?
What factors should be raised beyond the
industry standard?
What factors should be created that the industry
has never offered?
Also helps provide early identification of future
threats and competitor dynamics – eg. greater quality
of portable online media platform might mitigate /
pose threat to current superior benefits of
newspapers on that parameter
Value Curves and Value Proposition
Value Curves can identify product / service’s unique Value Proposition relative to those of competitors’ / substitutes
Parameters used must be relevant and prioritised based on research of customer requirements and pain points

The Body Shop - Illustrative Example
The Body Shop made clear decisions regarding:
–
The Body Shop
–
–
PERFORMANCE
–
Packaging &
Advertising
Hi-Tech
Scientific
Image
Glamorous
Image
PARAMETERS
Natural
Ingredients
"Ethical"
Concerns
What factors should be raised beyond the
industry standard?
What factors should be created that the industry
had never offered?

In so doing, The Body Shop created a unique
business model, brand and position that ensured an
sustainable competitive advantage

The Body Shop’s robust business model and
unassailable position was evidenced by L’Oreal’s
acquisition of it in 2006

Despite being an established, extremely wellresourced competitor L’Oreal had been unable to
compete against The Body Shop’s values and
positioning…..whether The Body Shop’s values were
compromised by its acquisition, however, is a
different matter!
Cosmetic’s
Industry
Price
What factors could be reduced below the industry
standard?
What factors could be eliminated that the industry
had taken for granted?
Sources Growth / Sustainability
Organisations need to deliver clear benefits / solutions to their customers’ pain / problems
These benefits need to be “better” than available alternatives and more sustainable than potential direct competitors’
– What have we got, what do we need, how can we attain it?
• Grow
Pros – engender team dynamics / buy-in of constituents, embed organisational culture
Cons - slow time to market, not aligned with core competencies
• Acquire
Pros – time-to-market, existing customer base, separate to avoid “contamination” of core capabilities
Cons – integration issues, fair valuation
• Ally
Pros – value-adding synergies (1 + 1 = 3), new market entry, competitive advantage
Cons – cultural integration / working practices, non-aligned incentives
2