Connected Activities for a Profitable Business Model 5 Connected Activities for a Profitable Business Model

Business Systems (1 of 5) Defined: The sequence of activities that firms perform to produce goods and services, deliver them to customers, and make or lose money doing so.

Business Systems (2 of 5) Value Chains Value Addition Options Figure 5.1 Business System of a Manufacturing Company

Business Systems (3 of 5) Value Network: value is created through coordination, or mediation, between multiple clients Value Shop: value is created by providing a set of activities that satisfy different, but specific, needs of multiple customers

Business Systems (4 of 5) Outsourcing: when a firm contracts out one of its value configuration activities to another firm for one or more of the following reasons: 1. Outsourcee’s capabilities 2. Market power of outsourcees 3. Outsourcer’s integrative or architectural capability 4. Criticalness of activity’s underpinning capability

Business Systems (5 of 5) Outsourcing (cont’d.) Advantages Lower costs or more differentiation Freedom to concentrate on competitive advantage Disadvantages Loss of control, may be held hostage by outsourcee May lose sight of the “big picture” Limits learning and innovation

Value Systems, Supply Chains, and Vertical Linkages (1 of 4) Complementors, Suppliers, other firms Manufacturer, retailer Customers, clients, consumers Value system: a system of business systems, a collage of suppliers, customers, complementors, and firms from other industries that, combined, provide a valuable good or service

Value Systems, Supply Chains, and Vertical Linkages (2 of 4) Vertical Integration: backward, forward, tapered Lower Cost Differentiation Better Positioning Figure 5.2 Value System for Makers of PC Microprocessors

Value Systems, Supply Chains, and Vertical Linkages (3 of 4) Strategic Alliances: two or more firms combine their resources Advantages Access to networks, markets, suppliers, raw materials, etc. Pooled resources Access to knowledge, technology, patents, etc. Disadvantages Partner may not fully commit resources or people Clash of organizational cultures Risk of losing proprietary information

Value Systems, Supply Chains, and Vertical Linkages (4 of 4) Competitive Advantage and Connected Activities Competitive advantage rests in those activities that allow a firm to earn a higher rate of profits than its rivals

Figure 5.3 Activities, Positions, Resources, and Industry Factors

Which Activities to Perform (1 of 3) Options Business System Activities – areas of competitive advantage and value building Research and Development o Product Design Manufacturing/Operations o Marketing/Sales Customer Support/Services o Distribution Value System Activities

Which Activities to Perform (2 of 3) Deciding Which Activities to Perform Attain and Maintain the Right Positions Take Advantage of Industry Factors Build and Exploit Resources and Capabilities Keep Costs Low

Which Activities to Perform (3 of 3) Deciding Which Activities Not to Perform – by not performing certain activities, a firm may be freeing up resources that can be used more beneficially elsewhere

How to Perform Activities Options Business System Activities Research and Development o Product Design Manufacturing/Operations o Marketing/Sales Customer Support/Services o Distribution Cross-Functional and Cross-Firm Processes TQM Benchmarking Business Process Reengineering Choosing How to Perform Activities

When to Perform Activities (1 of 2) First Movers Advantages Build brand recognition Control scare resources Establish networks Early Economies-of-Scale Disadvantages Newer technology Higher development costs Reverse engineering by competitors

When to Perform Activities (2 of 2) Windows of Opportunities: periods within which some activities are best performed Timing Options Business System Activities Research and Development o Product Design Manufacturing/Operations o Marketing/Sales Customer Support/Services o Distribution Value System Activities Coopetition Industry Changes

Case Example: Wal-Mart Analysis: Which, How, and When in Wal-Mart’s Success Which: moved into small towns that its competitors shunned How: Wal-Mart saturated contiguous towns and built distribution centers and logistics systems When: First mover advantage by capturing scarce resources, locations, and loyal employees and customers

Connected Activities for a Profitable Business Model ? Questions