Business Models How do information systems change the structure and operation of the enterprise Copyright 2016 Curt Hill

Business Models

How do information systems change the structure and

operation of the enterprise

Copyright © 2016 Curt Hill

Introduction• How do information systems

support business models?• What is a business model?


Business Models• A business model should show the

following:• What does the enterprise do?• How does a it do this?• In what ways does the company

get paid for doing this?• What are the key resources and

activities needed?• What are the costs involved?


Application• Lets consider these questions

briefly for two widely different enterprises– Amazon– VCSU

• We can back up one screen to consider


Some Additional Questions• What industry? • How competitive it is in that

industry?• What, if any, competitive

advantage does the company enjoy?

• How profitable is the company?– How profitable can it be?


Once more• A business model is a summary of a

business’s strategic direction that outlines how the objectives will be achieved

• A business model specifies the value proposition– How a company will create, deliver,

and capture value. – Each component plays a role in

shaping all aspects of the business


Components• There are many things that contribute to

the business model– Some discussed here

• What customers are targeted?• What product or service for them?• How do we get the product to the

customer? • How long and how strong are the

relationships we form with our customers?– How create and maintain these


Components Again• What resources do we need?• What activities do we need to do?• What other enterprises do we have

in this?– Partners and suppliers

• What are the costs to do the things on this page?


Revenue Models• The most important ingredient for

any organization is determining how to generate revenue

• A revenue model describes how the firm will earn revenue, generate profits, and produce return on investment

• This is often different in the digital world than it used to be


Income Streams• Sales

– Traditional for tangible products• Commission

– From brokering a transaction• Advertising

– We sell advertising on our web site or in our products

• Licensing – Product is not sold but licensed– Users are usually unable to resell– Most often for software


More Income• Affiliate Marketing

– We refer customers to a business– Get a percent or fixed fee

• Subscription– Usually a service provided while

subscription is paid


Freeconomics• Giving a product for free, yet still

able to make a profit– Free may still allow profit

• The old adage is that if you are not paying for the product, then you are the product

• Lets consider Google


Google• Google gives away search• Users give Google search results their

attention– This can include attention to sponsored

links– Google sells space for sponsored links

• Advertisers pay Google for that attention to sponsored links– Some users convert into customers– Customers pay for advertised products

• Works nice at scale


International Strategies• The cost of shipping and communication has dropped so much that more companies are going international

• How is this done?• Four strategies

– Home replication– Global– Multidomestic– Transnational

• What are the pros and cons?


Home replication• Seek our markets similar to local

– International business seen as extension of home business

• Pro: Focus on core market strengths• Con: Cannot react to local conditions• The foreign company is just copy of

domestic– Limited communication– Local databases


Global• Central organization, standardized

offerings across all markets– Homogenous markets

• Pro: Economies of scale• Con: Difficult to react to local

conditions• Only one company with centralized

systems, networks and data sharing between home office and subsidiaries


Multidomestic• The foreign company is not a copy

– It is customized to its environment• Pro: Quick reaction to changing local

conditions• Con: Differing products prevents

economies of scale– Limited communication and knowledge

sharing• A federation of cooperating systems

– Bidirectional communications with local databases


Transnational• Both centralized and decentralized

components, integrated network and market

• Benefits of both multi-domestic and global strategies

• Highly complex, difficult to manage• Distributed/shared systems,

enterprise-wide linkages, common global data resources


Conclusions• The world has changed • The way business was done a

hundred years ago may not work anymore

• A sea change of different business models is now apparent


History Speaks• F. W. Woolworth’s Great Five Cent

Store started in 1879• The largest department store chain

in the world in 1979• Restructured in 1993

– Closed 800 stores• Rest were closed in 1997• Footlocker most successful of the

owned chains

What Happened?• What caused the demise of

Woolworth’s?– I do not know

• What has changed from their glory days?

• Several things have made the business environment much faster– IT– Telecommunications

• Modern enterprises need to be agile– Quick on their feet and able to change

Documents

Business Models How do information systems change the structure and operation of the enterprise Copyright 2016 Curt Hill