1. IDS542 / MGTO 582
Business Models

2. Business “Process” Models: Mapping the Supply Side
Telling a good story
Part of selling your strategy / investment
Tying Narrative to Numbers
Strategy becomes less philosophy
More performance and outcome
When business models don’t work
It’s because the fail either
The ‘Narrative’ test
Or the ‘Story’ test

3. A business model is not strategy
It doesn’t describe external forces:
Competition
Environment
Scaling
It only depicts the systems that will be put into place to achieve a strategic objective
A good model is not enough
The boxes on the value map need to be understood in depth
In order to develop a good strategy

4. Graphing the Value Map
External competitive environment (supply & demand curves)
Internal strategies, competencies, knowledge, assets ‘owned’
Value flows between owners and/or the external environment

5. The Context of Business Models

6. Value and Structure in Business Models the Use the Internet

7. Value Chain Integrator Uses both Electronic and Logistic Networks

8. Aggregator (e-Tailor)

9. Agora & Alliance
Prosu
mer
Value Space

10. Strategies Updating Business Models over Time

11. Evolution of ‘Strategy’

12. Capabilities A firm’s assets and competences together For example,
Make up its capabilities
For example,
Intel
Capabilities = integrated circuit design & semiconductor manufacturing
Assets = patents, copyrights, installed base of PC’s (Intel inside), reputation, scientific expertise
Competences = protection of intellectual property, fast product time to market, compatibility of new products with prior genrations

13. The Value Map
Firms create that deliver low-cost or differentiated products
By performing the activities
Of their value configuration
(i.e., value chain, value network, value shop, profit chain)
To perform these activities
A firm needs resources (assets):
Manpower, money, machines, methods, materials
Plants, equipment, patents, scientists, brand name recognition, geographic location, client relations, distribution channels, trade secrets

14. Value Map = The Resource Based View of Strategy

15. Framing the Challenge
Establish what your business needs to do to make innovation worthwhile
What do we mean by ‘needs to do’?
What do we mean by ‘worthwhile’?
This is what will drive the Business Model

16. Vision, Milestones and Benchmarks
If I were to do something in the next 3-5 years
That my company’s stakeholders would regard as a major win
What would this performance record have to look like?
That my customers would regard as a major (disruptive) innovation
How would I change their lives?
How would my relation with customers affect my performance?
“Vision” defines direction and ultimate goals
“Milestones” are points in time at which sub-goals need to be achieved
“Benchmarks” allow your speed, execution and quality to be compared to competitors

17. Trade-offs: Markets and Capabilities
You best
(perhaps your only)
opportunities to compete are
Where Product Market Needs
Cross with Competences

18. An Example of a Successful Business Model Mad Catz, Inc.

19. Mad Catz Creative Tension: Design vs. Competences
Core Competences are the things that the firm does
That they do better than other firms
That are the source of their competitive advantage
They are not necessarily what the customer wants (!!)
Firms establish their core competences by:
Investing in people
Investing in assets, plant and land
Identifying and focusing their mission
How do you reconcile Mad Catz design and business model with their competences?

20. Mad Catz’s Products
Controllers, Joysticks, memory chips, cables, power supplies, etc.
Anything you could add onto a game console
Question: How do you make money on this market?

21. Mad Catz’ Business Model (Value Map)

22. Points to Note about Mad Catz’s Business Model
Sources of costs and revenues are different
Cycle time influences revenue
The product is 100% ‘human interface’
Visual
Mental
Tactile
Their market is driven by other vendors
What does this imply about market and growth strategies
Many components of this case are typical of Pearl River Delta companies

23. Mad Catz
By outsourcing much of its production, and coordinating the entire production process
Mad Catz Controlled its profitability by being a Value Chain Integrator
It was looking for new opportunities to
Control costs
Speed up time to market
Improve quality
By innovations in both logistics and information networks

24. Mad Catz: Take Aways
Look for cost – revenue spreads in the Business Model
Cut costs where revenues are small
Spend more if you can influence revenues with small additional cost
Cycle time influences revenue
Look for possibilities for ‘Geographical Scaling’
Through improvements in Information and Logistics networks

25. Mad Catz: Take Aways
Market is driven by other vendors (not by your decisions)
Bet that Sony and Microsoft will be leaders, and pander to them
Consider game specific software for powerful software companies like EA
E.g., branded controllers

26. Mad Catz: Take Aways Because the product is 100% ‘human interface’
Consider the costs and benefits of professional industrial design
What is Industrial Design?