Why a Business Model Matters 13 14

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LECTURE 2 : DEVELOPING A BUSINESS CONCEPT

AND BUSINESS MODEL 11/09/2013

Dr. Terrence R.M.Lalla

LEARNING OUTCOMES

1. Explain what a business concept is

2. Position the concept in the value(supply)chain

3. Develop an effective distribution strategy

4. Build a business model for a newconcept.


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Why a Business Concept and

Business Model MattersA substantial amount of BusinessPlanning is required

Develop a business concept thatmeets a real market need;

Develop a business model that

captures value for customer andthe business


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Developing a Business Concept

(BC)

Concise description of an opportunity

(Concept Statement) that contains 4

elements :1. Customer definition;

2. Value proposition (benefit to customer);

3. The product/service

4. Distribution channel (Supply Chain)


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Customer Definition

Who is your customer (the one who

pays?)

Where do you lie on your supply chain


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Value Proposition

1. Why should anyone be interested in this

concept?

2. What is the pain that is being eased?

3. What problem does this concept solve?


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The Product/Service

Provide revenue streams for competitive

advantage

Definition and design stem from

Customers needs

Core competencies

Part of concept statement


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The Distribution Channel

Delivers the benefit to the customer

How to get to the customer?

Where and how the product should besold?

Direct or through channel intermediaries


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Developing the BC Statement

The BC Statement is a compelling story thatconsists of a problem and a solution

containing the 4 elementsQuick Test:1. Am I passionate about it?

2. Are others interested?

3. Will you pay for it?4. Why me?

5. Why now?


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The Value Chain and the BC

Value Chain (VC) consists of 2 Parts that can

make or break the BC

1. Upstream activities ( inbound logistics, operations,

outbound logistics)2. Downstream activities (marketing and sales,

service)

3 Forces affecting VC

1. Internet

2. Reduced transactions cost

3. Disintermediation


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Value Chain: Porters model,

1985Firm Infrastructure

Human resources management

Technology development

Procurement

Inboundlogistics

Operations Outboundlogistics

Marketingand sales

Service

Source: Porter, ME. (1985) Competitive Advantage, The Free Press


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Customer

demands

Narrow focus of

traditional logistics

Manufacturing

From VC to Supply Chain (SC)

Source: Gattorna, J. (2006) Living Supply Chains, FT Prentice Hall

Firm Infrastructure



Procurement

Inboundlogistics

Operations Outbound

logistics

Marketingand sales

Service

Margin

Firm Infrastructure



Procurement

Inbound

logistics Operations

Outbound

logistics

Marketingand sales

Service

Margin

Firm Infrastructure



Procurement

Inboundlogistics

OperationsOutbound

logistics

Marketingand sales

Service

Margin

SuppliersRetailers/

distributors

Inbound

logisticsOutbound

logistics

Internal

operations

Internal

interfaces External

interfacesBroad focus of integrated supply chain


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Transportation and Logistics in

supply chains

Diagram source: New and Payne, 1995.


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Components of an Effective

SC1. Inventory

2.

Ownership3. Financing and Payment

4. Risk management

5. Member power


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SC Strategy or design

The location and capacities of production

and warehousing facilities;

Products to be manufactured or stored at

various locations;

Modes of transportation to be made

available along different shipping legs;

Type of information system to be utilized.


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SC Planning

Define a set of operating policies that govern

short term operations;

Forecast for the coming year;

Decisions regarding market segment(s) to besupplied from which location;

The planned buildup of inventories;

Subcontracting of inventories; Backup locations for stockouts;

Timing of marketing promotions.


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SC Operation

Weekly or daily time horizon;

Decisions regarding individual customer orders;

Implement effecting and efficient operating policies;

Allocate individual orders to inventory or production;

Set date for order fulfillment;

Generate pick lists at a warehouse;

Allocate an order to a particular shipping mode andshipment;

Set delivery schedules of trucks;

Place replenishment orders.


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The Business Model (BM)

Involves the CREATION and CAPTURE of VALUE

by:

Differentiating from competitors;

Meeting an unserved need in the market;

Making money.

Thru a community of PARTNERS;SUPPLIERS,

CUSTOMERS and MEMBERS of the VC.NOTE:

BM change over time as customer change


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Building a BM

Requires continual innovation and new ways to satisfy the

CustomerImportant QUESTIONS (Q) to be answered and STAGES

(S) to be followed:

Q1 What are the cash cows?

Q2 What are the cost drivers?Q3 When and How much capital is needed?

Q4 What are the critical success factors?

S1 What position in the SC?

S2 Calculate how to create value to the CustomerS3 Identify revenue streams and cost drivers

S4 Test for weaknesses

S5 Develop Competitive Strategy


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Sources of Opportunity

1. Reposition on the value chain;

2. Reinvent the SC;

3. Redefine value added;4. Determine when the BM must change


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Tutorial 2 : Business concept; Business

model

1. With the use of examples state thereasons why a business concept and

business model are essential to the

success of a business idea.

2. Using examples explain what different

forces affect the workings of the value

chain.

3. With respect to the above, discuss how

the characteristics of an effective supply

chain can be used to overcome

challenges.


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Tutorial Question

How do companies add value, and what are

the dimensions of performance that

customers are expecting of companies?


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Answer

Companies add value through R&D, design

of products, services, or processes,

production, marketing, distribution, and

customer service

Customers want companies to deliver

performance through cost and efficiency,

quality, timeliness, and innovation.


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Assignment (5%of the 20%) Team Project

Date given : 12/09/2011

Date due : 26/09/2011

With respect to your business idea :

1. Develop the business concept

2. Position the concept in the value(supply)chain

3. Develop an effective distribution strategy

4. Build a business model

Documents

Why a Business Model Matters 13 14