Strategic Management

Individual Assignment Topic

Business Model
Submit to

Assoc. Prof. Porpan Vachajitpan, Ph.D. by

Kittisup Leungchavaphongse 538 52823 29

MABE Part Time 10, Chulalongkorn University

Business Model
Business Model is the plan which implemented by an organization to generate revenue and make a profit from operations. The model describes the rationale of how an organization creates, delivers, and captures value (economic, social, or other forms of value). The process of business model is part of business strategy. In theory and practice the term business model is used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies. Hence, it gives a complete picture of an organization from a high-level perspective. A business model draws on a multiple of business subjects, including economics, entrepreneurship, finance, marketing, operations, and strategy. The business model itself is an important determinant of the profits to be made from an innovation. According to the research of Henry Chesbrough and Richard Rosenbloom, The Role of the Business Model in Capturing Value from Innovation, they present a basic framework describing the elements of a business model and list the following six components of the business model:
1. Value Proposition: a description the customer problem, the product that addresses the

problem, and the value of the product from the customers perspective.
2. Market Segment: the group of customers to target, recognizing that different market

segments have different needs. Sometimes the potential of an innovation is unlocked only when a different market segment is targeted.
3. Value Chain Structure: the companys position and activities in the value chain and how

the company will capture part of the value that it creates in the chain.
4. Revenue Model: How revenue is generated (sales, leasing, subscription, support, etc.), the

cost structure, and target profit margins.

5. Competitive Strategies: how the company will attempt to develop a sustainable

competitive advantage, for example, by means of a cost, differentiation, or niche strategy.

6. Growth Strategies: the ways to expand the market share which are diversification, product

development, market penetration, and market development.

The difference between Business Model and Business Strategy

1. Creating Value vs. Capturing Value - The business model focus is on value creation.

While the business model also addresses how that value will be captured by the company. The business strategy goes further by focusing on building a sustainable competitive advantage.
2. Business Value vs. Shareholder Value - The business model is architecture for converting

innovation to economic value for the business. However, the business model does not focus on delivering that business value to the shareholder while the business strategy does.
3. Assumed Knowledge Levels - The business model assumes a limited environmental

knowledge, whereas the business strategy depends on a more complex analysis that requires more certainty in the knowledge of the environment.

Business Model Framework

Company should periodically asks question such as Who are our customers? What value do we offer to them? How do we do this? In order to understand who your customers are, what value you provide to them, and how you do it, we use a business model framework which is a way to understand your business models in terms of the complete value chain (customers, partners, suppliers, cost structure, etc.).

The business model framework should consider the following 9 elements:

1. Customer Segments: For whom are we creating value? Who are our most important customers? 2. Value Proposition: What value do we deliver to the customer? Which one of our customers

problems are we helping to solve? Which customer needs are we satisfying?

3. Distribution Channels: How are we reaching customers now? How are our channels integrated?

Which ones are the most efficient? How are we integrating them with customer routines?
4. Customer Relationships: What type of relationship does each of our customers expect us to

establish and maintain with them? How are they integrated with the rest of our business model?
5. Revenue Streams: For what value are our customers really willing to pay? For what do they

currently pay? How are they currently paying? How would they prefer to pay?
6. Core Capabilities: What core capabilities do our value propositions, distribution channels,

customer relationships, and revenue streams require?

7. Activity Configuration: What key activities do our value propositions, distribution channels,

customer relationships, and revenue streams require?

8. Partner Network: Who are our key partners? Who are our key suppliers? Which core

capabilities are we acquiring from partners? Which key activities do partners perform?
9. Cost Structure: What are the most important costs inherent in our business model? Which

capabilities are the most expensive? Which activities are the most expensive? These 9 elements all come together in creating a sound business model structure if used properly and appropriately. It is definitely worth thinking about how each of these elements applies to the business. We also can apply these to the Business Model Canvas for a strategic management tool which allows us to develop and sketch out new or existing business models.

References:
http://en.wikipedia.org/wiki/Business_model http://en.wikipedia.org/wiki/Business_model_innovation http://en.wikipedia.org/wiki/Business_Model_Canvas http://blogs.hbr.org/cs/2010/01/is_your_business_model_a_myste_1.html http://www.1000ventures.com/business_guide/business_model.html http://chanimal.com/html/business_models.html http://i360insight.com/2011/06/20/reinventing-your-value-proposition-with-business-modelinnovation/ http://www.redlemonclub.com/general/the-9-elements-of-a-strong-business-model-for-freelancecreatives/ http://www.eadtu.nl/usbm/files/guide/businessmodelelements.htm http://www.fritscher.ch/hec/tm/chapter2 http://www.innosight.com/our_approach/Business_Model_Innovation.html http://www.ifarm.in.th/index.php?option=com_content&view=article&id=561:businessmodel&catid=121:marketing&Itemid=308 http://www.marketeer.co.th/inside_detail.php?inside_id=6419 http://www.arip.co.th/businessnews.php?id=410224 http://www.wiseknow.com/Business-Model.html http://diamond-model.blogspot.com/2011/03/business-model.html