Posted by: rongeri | October 12, 2009

The Challenge of Changing Times–Part III

III.       YOUR BUSINESS MODEL AND VALUE PROPOSITION

 The value proposition in a “business model” concept may be familiar to some and less familiar or not familiar at all to others.  A business model “identifies a market segment, articulates the value of the proposed offering, focuses on the key attributes of the offering, creates a way for getting paid, and establishes the value network needed to sustain the mode.” [i]   Here are some excellent illustrations of the value proposition concept:

“The term business model is…closely related to innovation. As I mentioned, the business model concept is related to a whole new range of business design opportunities. The most obvious [example] is innovating the value proposition. When mobile phones appeared in the market they offered a different value proposition than fixed line phones.  In the early days of the Internet popular indexes like Yahoo! Helped people find information on the Web. Regarding target customer segments, low-cost airlines like EasyJet have brought flying to the masses. Dell became really successful by exploring the web as a distribution channel. Gillette has made a fortune by establishing a continuous relationship with customers based on its disposable razors. Apple resurged based on its core capacity of bringing design to computers and electronic gadgets. Cisco became famous for its capacity of configuring activities in new and innovative supply chains. Intel thrived for its capacity to get partners to build on its processing platform.  Google tapped in an innovative revenue streams by linking highly specific search results and content with text ads. WalMart became dominant by its ability to slash cost throughout its business mode.”[ii]

 On his business model design blogspot, Alex Osterwalder posted a definition of a business model consisting of the following nine building blocks: (1) The value proposition of what is offered to the market; (2) The segment(s) of clients that are addressed by the value proposition; (3) The communication and distribution channels to reach clients and offer them the value proposition; (4) The relationships established with clients; (5) The key resources needed to make the business model possible; (6) The key activities necessary to implement the business model; (7) The key partners and their motivations to participate in the business model; (8) The revenue streams generated by the business model (constituting the revenue model); (9) The cost structure resulting from the business model.[iii]

Your business operating plan should embody and reflect your business model, what you do and how you do it, where you position yourself in the value chain of your industry to sustain yourself by generating revenue that is greater than your costs.

 As suggested in Action Step #10 below, you will need to give intense attention to your business model, focusing on your value proposition, which is “an overall view of…products and services that together represent value for a specific customer segment,” and which “describes the way a firm differentiates itself from its competitors and is the reason why customers buy from a certain firm and not from another.”[iv] 

 


[i]           See Henry Chesbrough, Executive Director, Center of Open Innovation, Haas Business School, “The Business Model: A Primer.

 

[ii]           See Jeffrey J. Fox, How To Make Big Money In Your Own Small Business: Unexpected Rules Every Small Business Owner Needs To Know  .

 

[iii]          http://business-model-design.blogspot.com/2005/11/what-is-business-model.html.    

 

[iv]          http://en.wikipedia.org/wiki/Business_model


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