Cool business model or waste of time
Whether this is an ingenious business model or a great way to earn $0.84 per hour, it’s fun to watch.
Business Model for Dummies Author Q&A
The Business Model Institute hosted a question and answer session with Business
Model for Dummies author Jim Muehlhausen. In case you missed the call, you can
download it at the link below.
Download the Dummies Conference Call July 2013
The difference between the business model, framework and architecture
An interesting question from Marsha Campbell, HR Officer at National Commercial Bank Jamaica Ltd landed in my inbox the other day:
I noticed on your website you explained the difference between a model and a business plan. I would like to know what is the difference between the model, framework and architecture. Most sites that attempt to answer this question tend to be IT specific. Would you be able to shed some light?
Our business model research specialist, Huss Sadri, came up with the following answer.
A business 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 construction is part of business strategy and the design of organizational structures. Thus the essence of a business model is that it defines the manner by which the business enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit: it thus reflects management’s hypothesis about what customers want, how they want it, and how an enterprise can organize to best meet those needs, get paid for doing so, and make a profit.
Ultimately, the business model of a company is a simplified representation of its business logic. It describes what a company offers its customers, how it reaches them and relates to them, through which resources, activities and partners it achieves this and finally, how it earns money. The business model is usually distinguished from the business process model and the organization model.
A business model can be described by looking at a set of building blocks such as for example:
- Market Attractiveness of the Business
- Value proposition
- Revenue Distribution
- Sales Performance
- Competitive Advantage
- Key resources
- Cost structure
- Pitfalls & Risks
- Exist Model
- Customer Value
Business architecture is a part of an enterprise architecture related to corporate business, and the documents and diagrams that describe that architectural structure of business. Business Architecture articulates the functional structure of an enterprise in terms of its business services and business information. The key views of the enterprise within the business architecture context are:
- Business Strategy view: captures the strategic goals that drive an organization forward. The goals may be decomposed into various tactical approaches for achieving these goals and for providing traceability through the organization.
- Business Capabilities view: describes the business functional abilities expressed via business services of an enterprise and the sections of the organization that would be able performing those functions.
- Business Knowledge view: establishes the shared semantics (e.g., customer, order, and supplier) within an organization and relationships between those semantics (e.g., customer name, order date, supplier name).
- Business Operational view: defines the set of strategic, core and support operational structures that transcend functional and organizational boundaries. It also sets the boundary of the enterprise by identifying and describing external entities such as customers, suppliers, and external systems that interact with the business. The operational structures describe which resources and controls are involved.
- Organizational view: captures the relationships among roles, capabilities and business units, the decomposition of those business units into subunits, and the internal or external management of those units.
Business frameworks Operationally, the business framework generally describes the corporate organization or management structure or may generally outline company policies or an organization might develop a framework to achieve a particular goal or An innovations framework may outline policies, procedures and management changes the company will use to achieve innovation and growth etc.
Effective leaders provide a business framework in which people and business partners can work efficiently and effectively, both individually and collectively, and succeed for mutual benefit. A framework comprises:
- goals and strategies,
- policies,
- organization and culture,
- relationship contracts and arrangements,
- business processes,
- roles,
- tools,
- systems,
- objectives and
- Measures and incentives.
A good business framework creates an organizational environment in which people think and act for themselves, yet collaborate to achieve common goals and objectives.
Is there such a thing as too much cost cutting?
When I travel for speaking engagements, my accommodations are often booked for me. I checked in early to my Holiday Inn Express room in Houston yesterday. As I looked around my room, signs of bean-counter hell abounded. As I scratched my itchy skin, I noticed that only shampoo and conditioner were in the bathroom. When I went to iron my clothes, I noticed something odd about the ironing board. It only was as high as my mid thigh. I am 5 foot 11, so this miniature ironing board was easier to use on my knees rather than bending over.
When I returned to my room later that night, they did not replace my coffee and the room was hastily cleaned at best. When I went to print my boarding pass at the business center, they had moved the printer to behind the check-in desk so I had to wait in line to get my one page printout. What’s my point? Not to complain about Holiday Inn, but to ask, “Can you cut one too many corners in the name of cost-saving?”
Can a quest for a low-cost business model end up alienating customers? After my stay, I would say “yes.” I have never been a 4-star hotel guy. Holiday Inn type hotels are fine in my book. However, I will admit that Holiday Inn Express has now been demoted to my “last resort” list vs. my “acceptable hotel options” list. All this so they could save $2.48 on an ironing board, $.06 on printer output and $.15 on a bottle of moisturizer?
In tough economic times, the single most important activity is retaining customers. It is expensive to gain new ones. Some companies do not have sufficient funding to aggressively pursue new customers en mass. For Pete’s sake, don’t cheap out like Holiday Inn and lose a customer over a few bucks. It’s always better to over-spend on customer retention than under-spend. If you lose the customer, you can’t “un-ring” that bell.
Venting aside, low-cost business models can be a powerful ally. However, make sure that the level of customer service and satisfaction is acceptable as well. Remember the old adage, “Price, service, delivery: pick any two.” However, you cannot completely ignore the third component.
Wal-Mart may skimp on the service or shopping environment vs. Target and Macy’s, but shopping at Wal-Mart is acceptable. The shopping experience meets the customer’s expectations for a Wal-Mart visit. When you make the mistake of Holliday Inn, you fall short of the customer’s expectation in the name of lowered cost.
