business model and strategy

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 A.K. Swain  A.K. Swain 

6/11/20126/11/2012 11

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Business Strategy: A Cursory View

Strategy viewed as a• Pattern

 – Pattern o choices made over time 

• Plan –   

• Position

 – Choices about which products or services are 

features 

• Perspective

 – Choices about how the business is conceptualized 

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Business Strategy vs. IS Strategy

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Por t er ’s Value Chain Model

Legal, Finance, General ManagementFirminfrastructure

SUPPORT ACTIVITIES

SkillsDatabase

Human resourcemanagement

Online linksProcurement

 development

Computer Aided design

and manufacturing

Service

Service

Marketing and

sales

Outbound

logistics

Operations

Manufactu

Inbound

logistics

to suppliers

promotions

shipping

assembly

handling

delivery

PRIAMRY ACTIVITIESMARGIN

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St ra t eg ic Gr id (Cash, Mc Far lan & Mc Kenney)

High

StrategicFactory(On-line Airline ReservationS stem

Impact on

Business

Turnaround(Application Portfolio with

Support(Batch Billing/financial

eve opment mp as sLow

High 

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Fram ew ork fo r Ident i fy ing St ra t eg ic

Com etitor

Strategic Target

Su lier Customer

  .

Differentiation

    T   h

  r  u  s   t

Cost

   S   t  r  a   t  e  g   i  c

Innovation

row

Alliance

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IT Value Perc ept ion

IT Dem and: The bus iness need for IT ser v ic es

IT Supply : IT serv ic es t hat ar e de l ivered t o t he bus iness

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Balanc ing Dem and and Supply

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Business and IT A l ignm ent

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Business and IT Al ignm ent : Level 1

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Business and IT Al ignm ent : Level 2

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Business and IT Al ignm ent : Level 3

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Business and IT Al ignm ent : Level 4

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Col laborat ive St ra t eg y

Essence:

How to in ect more diversit and ex ertise into 

the strategy process?

EB Model  IIMK  15

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Stra tegy

Purpose:

to lead to circumstances in the lon term that are 

favorable to profit generation.

EB Model  IIMK  16

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St ra t eg y t o Pro f i t

Envi ronment

Resources

Prof i tDa -t o-da

Operat ions

Envi ronment

EB Model  IIMK  17

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Profitability

What det er m ines a f ir m ’s Pro f i t ab i l i t y?

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Profitability: Industry Specific

Sl. No. Industr ROE % ROA % 1 Pharmaceuticals 25.87 10.27

2 Chemicals and allied products 21.70 7.88

3 Food and kindred products 24.78 7.25

4 Printing and publishing 16.30 6.68

5 Rubber and miscellaneous plastic 15.07 6.25

6 Fabricated metal products 19.00 5.58

7 Paper and allied products 13.77 4.70

8 Electronics & electrical equipment (no computer) 9.63 4.67

9 Nonferrous metals 10.39 4.23

10 Machinery except electrical 15.69 3.80

11 Petroleum and coal products 13.25 3.76

12 Textile mill products 5.11 3.71

13 Aircraft, guided missiles, and parts 14.02 3.5714 Stone, clay, and glass products 9.16 3.44

15 Motor vehicle and equipment 11.91 3.16

ron an s ee . .

17 Airlines (transportation by air) 2.68 2.05

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Profitability: Industry Specific …. Contd.

m ore pro f i t ab le , on average, t han f ir m s

n ustry xterna actors  

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Profitability: Firm Specific

Sl. No Firm (Pharmaceuticals) ROA(%) Sl. No Firm (Airlines) ROA(%)

1 Bristol Myers Squibb 13.71 1 Southwest Airlines 4.58

2 Merck 13.37 2 AMR 1.51

3 Schering Plough 12.89 3 Delta Airlines 1.50

. .

5 Eli Lilly 10.23 5 US Air 0.31

6 Pfizer 9.66 6 America West Holdings -3.27

7 Pharmacia & Upjohn 7.98 7 Continental Airlines -4.97

8 American Cyanamid 3.57 8 TWA -5.37

ort west r nes - .

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Profitability: Firm Specific …. Contd.

t hem t o ou t perfo rm t he ir r i vals?

Firm-Specific/ Internal Factors 

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Industry/External Factors

 • om pe ve orc es  

• Coo erat ive forc es  

• Mac ro env i ronm ent  

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Firm-Specific/Internal Factors

 • os ons o a r m  

• Ac t i vi t i es of a f i r m  

• Resourc es o f a f i r m 

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Determinants of Profitability

Indus t r y Fac t ors• Compet i t i ve Fo rces

• Cooperat i ve Forces

• Mac ro Env ironmen t

Fi r m -Spec i f i c Fac t ors

Ac t iv i t ies Posi t ionsResources

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BM Representation

I ndus t ry

Ac t i v i t i es

Resources

Posi t ions Prof i tab i l i t y

Costs

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Deals with Two Issues

a. How to implement a new strategy?

b. How to translate them into new structures,processes and day-to-day activities?

This missing link is called a business model.

EB Model IIMK 

27

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Business Model-Definition

It is a re resentation of a firm’s underl in

core logic and strategic choices forcreatin and ca turin value within avalue network.

b. How a business works

EB Model IIMK 

28

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Business Model- Definition.. Contd..

A business model describes the rationale

of how an organization creates, delivers,and ca tures value.

Osterwalder and Pigneur, 2010

EB Model 

IIMK 29

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Strategy vs. Business Model

• Business model refers to the logic of the firm,the way it operates and how it creates valuefor its stakeholders

• Strategy refers to the choice of businessmodel through which the firm will compete in

.

EB Model 

IIMK 30

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Business Model: Deals with

• Strate ic Choices

• Value Creation 

• Value Deliver

• Value Network

EB Model 

IIMK 31

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Business Model: Components

• Concrete Choices

• Policy Choices• Asset Choices

• Governance Choices

• Consequences of these choices

EB Model 

IIMK 32

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Osterwalder and Pigneur BM Building Blocks

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Osterwalder and Pigneur BM Building Blocks

KA

CS

CR

KR

VPCHKP

CS

O ld d Pi ’ BM C

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Osterwalder and Pigneur’s BM Canvas

E l 1 G l ’ BM C

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Example 1: Google’s BM Canvas

E l 1 G l ’ BM C

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Example 1: Google’s BM Canvas.. Contd…

E l 2 Vi C d’ BM C

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Example 2: Visa Card’s BM Canvas

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Business Model: Example

R anair: The World’s Chea est Airline

It is Europe’s first low-cost carrier and successfullycompeted with the subsidized national carriers. - -

and point-to-point frequent flights, and no in-flight

meals, business class and landings at main, congestedairports.

u u

EB Model  IIMK  39

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Business Model: Example

Features of the business model

Choices ConsequencesSecondary airports Low airport fees

owest t c et pr ces arge vo ume

Low commissions to travel agents Low cost

Standardized fleet of 737s Bargaining power with suppliersSingle-class Economies of scale

High-powered incentives Attracts combative team

No meals Faster turnaround

Nothing free Additional revenueSpartan headquarters Low fixed cost

No unions Flexibility in rostering staff

EB Model  IIMK  40

Business Model: Ryanair

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Business Model: Ryanair

EB Model  IIMK  41

C

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Tactics: A Concept

• It refers to the residual choices o en to a

firm by virtue of the business model itchooses to em lo .

EB Model  IIMK  42

S B i M d l & T i

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Strategy, Business Model & Tactics

Tactics stageStrategy stage

Stage 1 Stage 2

Firm chooses thebusiness model

through which it

Tactical Choices

Made from amongstthose available

intends to compete depending onbusiness modelchoice at first stage

EB Model  IIMK  43

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The ENDThe END

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