Loading...

Messages

Proposals

Stuck in your homework and missing deadline? Get urgent help in $10/Page with 24 hours deadline

Get Urgent Writing Help In Your Essays, Assignments, Homeworks, Dissertation, Thesis Or Coursework & Achieve A+ Grades.

Privacy Guaranteed - 100% Plagiarism Free Writing - Free Turnitin Report - Professional And Experienced Writers - 24/7 Online Support

Can a society based on hate survive 1984 essay

10/12/2021 Client: muhammad11 Deadline: 2 Day

x 455 cm

Spotlight

100 Harvard Business Review January–February 2011

SPOTLIGHT ON BUSINESS MODEL INNOVATION

1568 JanFeb11 Casadesus-Masanell.indd 1001568 JanFeb11 Casadesus-Masanell.indd 100 12/3/10 3:52:19 PM12/3/10 3:52:19 PM

Joan E. Ricart (ricart@iese. edu) is the Carl Schroder Professor of Strategic Man- agement and Economics at IESE Business School in Barcelona.

Ramon Casadesus- Masanell (casadesus@ gmail.com) is an associate professor at Harvard Busi- ness School in Boston.

How to Design A Winning Business Model Smart companies’ business models generate cycles that, over time, make them operate more eff ectively. by Ramon Casadesus-Masanell and Joan E. Ricart

STRATEGY HAS been the primary building block of competitiveness over the past three decades, but in the future, the quest for sustainable advantage may well begin with the business model. While the convergence of information and communication technologies in the 1990s resulted in a short-lived fascination with business models, forces such as de- regulation, technological change, globalization, and sustainability have rekindled interest in the concept today. Since 2006, the IBM Institute for Business Value’s biannual Global CEO Study has reported that senior executives across industries regard develop- ing innovative business models as a major priority. A 2009 follow-up study reveals that seven out of 10 companies are engaging in business-model innova- tion, and an incredible 98% are modifying their busi- ness models to some extent. Business model innova- tion is undoubtedly here to stay.

That isn’t surprising. The pressure to crack open markets in developing countries, particularly those at the middle and bottom of the pyramid, is driving a surge in business-model innovation. The economic slowdown in the developed world is forcing compa- nies to modify their business models or create new ones. In addition, the rise of new technology-based and low-cost rivals is threatening incumbents, re- shaping industries, and redistributing profi ts. Indeed,

S STRATEGY HAS been the primen the p competitiveness over the pacompetitiveness over the in the future, the quest for sin the future, the quest fo may well begin with the businmay well begin with the b convergence of informationconvergence of inform technologies in the 1990s restechnologies in the 1990s fascination with business mofascination with business mo regulation, technological chanregulation, technological chan sustainability have rekindled sustainability have rekindled today. Since 2006, the IBM Itoday. Since 2006, the IBM I Value’s biannual Global CEO Siannual Global CEO S senior executives across induves across ind ing innovative business modbusiness m A 2009 follow-up study revea-up study companies are engaging in bucompanies are eng

PH O

TO G

R A

PH Y:

S TE

PH EN

W H

IT E,

C O

U RT

ES Y

W H

IT E

C U

BE

HBR.ORG

January–February 2011 Harvard Business Review 101

1568 JanFeb11 Casadesus-Masanell.indd 1011568 JanFeb11 Casadesus-Masanell.indd 101 12/3/10 3:52:32 PM12/3/10 3:52:32 PM

1122111 33222

the ways by which companies create and capture value through their business models is undergoing a radical transformation worldwide.

Yet most enterprises haven’t fully come to grips with how to compete through business models. Our studies over the past seven years show that much of the problem lies in companies’ unwavering focus on creating innovative models and evaluating their ef- fi cacy in isolation—just as engineers test new tech- nologies or products. However, the success or fail- ure of a company’s business model depends largely on how it interacts with models of other players in the industry. (Almost any business model will per- form brilliantly if a company is lucky enough to be the only one in a market.) Because companies build them without thinking about the competition, they routinely deploy doomed business models.

Our research also shows that when enterprises compete using business models that diff er from one another, the outcomes are diffi cult to predict. One business model may appear superior to others when analyzed in isolation but create less value than the others when interactions are considered. Or rivals may end up becoming partners in value creation. Appraising models in a stand-alone fashion leads to faulty assessments of their strengths and weak- nesses and bad decision making. This is a big reason why so many new business models fail.

Three Characteristics of a Good Business Model How can you tell if a business model will be eff ective? A good one will meet three criteria.

Is it aligned with company goals? The choices made while designing a busi- ness model should deliver consequences that enable an organization to achieve its goals. This may seem obvious until you consider a counterexample. In the 1970s, Xerox set up Xerox PARC, which spawned technological innovations such as laser printing, Ethernet, the graphical user interface, and very large scale integration for semiconductors. However, Xerox PARC was notoriously unable to spawn new businesses or capture value from its inno- vations for the parent due to a distressing lack of alignment with Xerox’s goals.

Is it self-reinforcing? The choices that executives make while creating a business model should comple- ment one another; there must be internal consistency. If, ceteris paribus, a low-cost airline were to decide to provide a level of comfort comparable to that off ered by a full-fare carrier such as British Airways, the change would require reducing the number of seats on each plane and off er- ing food and coff ee. These choices would undermine the airline’s low-cost structure and wreck its profi ts. When there’s a lack of reinforcement, it’s possible to refi ne the business model by abandoning some choices and making new ones.

Is it robust? A good business model should be able to sustain its eff ectiveness over time by fend- ing off four threats, identifi ed by Pankaj Ghemawat. They are imitation (can com- petitors replicate your business model?); holdup (can customers, suppliers, or other players capture the value you create by fl exing their bargaining power?); slack (organizational complacency); and sub- stitution (can new products decrease the value customers perceive in your products or services?). Although the period of eff ec- tiveness may be shorter nowadays than it once was, robustness is still a critical parameter.

Moreover, the propensity to ignore the dynamic elements of business models results in many compa- nies failing to use them to their full potential. Few ex- ecutives realize that they can design business mod- els to generate winner-take-all eff ects that resemble the network externalities that high-tech companies such as Microsoft, eBay, and Facebook have created. Whereas network eff ects are an exogenous feature of technologies, winner-take-all eff ects can be trig- gered by companies if they make the right choices in developing their business models. Good business models create virtuous cycles that, over time, result in competitive advantage. Smart companies know how to strengthen their virtuous cycles, weaken those of rivals, and even use their virtuous cycles to turn competitors’ strengths into weaknesses.

“Isn’t that strategy?” we’re often asked. It isn’t— and unless managers learn to understand the dis- tinct realms of business models, strategy, and tactics, while taking into account how they interact, they will never fi nd the most eff ective ways to compete.

What Is a Business Model, Really? Everyone agrees that executives must know how business models work if their organizations are to thrive, yet there continues to be little agreement on an operating definition. Management writer Joan Magretta defi ned a business model as “the story that

102 Harvard Business Review January–February 2011

SPOTLIGHT ON BUSINESS MODEL INNOVATION

1568 JanFeb11 Casadesus-Masanell.indd 1021568 JanFeb11 Casadesus-Masanell.indd 102 12/3/10 3:52:40 PM12/3/10 3:52:40 PM

explains how an enterprise works,” harking back to Peter Drucker, who described it as the answer to the questions: Who is your customer, what does the customer value, and how do you deliver value at an appropriate cost?

Other experts defi ne a business model by speci- fying the main characteristics of a good one. For ex- ample, Harvard Business School’s Clay Christensen suggests that a business model should consist of four elements: a customer value proposition, a profi t formula, key resources, and key processes. Such de- scriptions undoubtedly help executives evaluate business models, but they impose preconceptions about what they should look like and may constrain the development of radically diff erent ones.

Our studies suggest that one component of a busi- ness model must be the choices that executives make about how the organization should operate—choices such as compensation practices, procurement con- tracts, location of facilities, extent of vertical inte- gration, sales and marketing initiatives, and so on. Managerial choices, of course, have consequences. For instance, pricing (a choice) aff ects sales volume, which, in turn, shapes the company’s scale econo- mies and bargaining power (both consequences). These consequences infl uence the company’s logic of value creation and value capture, so they too must have a place in the defi nition. In its simplest concep- tualization, therefore, a business model consists of a set of managerial choices and the consequences of those choices.

Companies make three types of choices when cre- ating business models. Policy choices determine the actions an organization takes across all its operations (such as using nonunion workers, locating plants in rural areas, or encouraging employees to fl y coach class). Asset choices pertain to the tangible resources a company deploys (manufacturing facilities or sat- ellite communication systems, for instance). And

governance choices refer to how a company arranges decision-making rights over the other two (should we own or lease machinery?). Seemingly innocuous diff erences in the governance of policies and assets infl uence their eff ectiveness a great deal.

Consequences can be either flexible or rigid. A fl exible consequence is one that responds quickly when the underlying choice changes. For example, choosing to increase prices will immediately result in lower volumes. By contrast, a company’s culture of frugality—built over time through policies that oblige employees to fl y economy class, share hotel rooms, and work out of Spartan offi ces—is unlikely to disappear immediately even when those choices change, making it a rigid consequence. These dis- tinctions are important because they aff ect competi- tiveness. Unlike fl exible consequences, rigid ones are diffi cult to imitate because companies need time to build them.

Take, for instance, Ryanair, which switched in the early 1990s from a traditional business model to a low-cost one. The Irish airline eliminated all frills, cut costs, and slashed prices to unheard-of levels. The choices the company made included offering low fares, fl ying out of only secondary airports, ca- tering to only one class of passenger, charging for all additional services, serving no meals, making only short-haul fl ights, and utilizing a standardized fl eet of Boeing 737s. It also chose to use a nonunionized workforce, offer high-powered incentives to em- ployees, operate out of a lean headquarters, and so on. The consequences of those choices were high volumes, low variable and fi xed costs, a reputation for reasonable fares, and an aggressive management team, to name a few. (See “Ryanair’s Business Model Then and Now.”) The result is a business model that enables Ryanair to off er a decent level of service at a low cost without radically lowering customers’ will- ingness to pay for its tickets.

Idea in Brief There has never been as much interest in business models as there is today; seven out of 10 companies are trying to create innovative business models, and 98% are modify- ing existing ones, according to a recent survey.

However, most companies still create and evaluate business models in isola- tion, without considering the implications of how they will interact with rivals’ business models. This narrow view dooms many to failure.

Moreover, companies often don’t realize that busi- ness models can be designed so that they generate virtu-

ous cycles—similar to the powerful eff ects high-tech fi rms such as Facebook, eBay, and Microsoft enjoy. These cycles, when aligned with company goals, reinforce competitive advantage.

By making the right choices, companies can strengthen their business models’ virtuous cycles, weaken those of rivals, and

even use the cycles to turn competitors into comple- mentary players.

This is neither strategy nor tactics; it’s using business models to gain competitive advantage. Indeed, com- panies fare poorly partly because they don’t recognize the diff erences between strategy, tactics, and busi- ness models.

Business Model

Choices

POLICIES

FLEXIBLE

Consequences

ASSETS

GOVERNANCE

RIGID

A business model comprises choices and consequences.

HOW TO DESIGN A WINNING BUSINESS MODEL HBR.ORG

January–February 2011 Harvard Business Review 103

1568 JanFeb11 Casadesus-Masanell.indd 1031568 JanFeb11 Casadesus-Masanell.indd 103 12/3/10 3:52:46 PM12/3/10 3:52:46 PM

How Business Models Generate Virtuous Cycles Not all business models work equally well, of course. Good ones share certain characteristics: They align with the company’s goals, are self-reinforcing, and are robust. (See the sidebar “Three Characteristics of a Good Business Model.”) Above all, successful business models generate virtuous cycles, or feed- back loops, that are self-reinforcing. This is the most powerful and neglected aspect of business models.

Our studies show that the competitive advan- tage of high-tech companies such as Apple, Micro- soft, and Intel stems largely from their accumulated assets—an installed base of iPods, Xboxes, or PCs, for instance. The leaders gathered those assets not by buying them but by making smart choices about pricing, royalties, product range, and so on. In other words, they’re consequences of business model choices. Any enterprise can make choices that allow it to build assets or resources—be they project man- agement skills, production experience, reputation, asset utilization, trust, or bargaining power—that make a diff erence in its sector.

The consequences enable further choices, and so on. This process generates virtuous cycles that con- tinuously strengthen the business model, creating a dynamic that’s similar to that of network eff ects. As the cycles spin, stocks of the company’s key as- sets (or resources) grow, enhancing the enterprise’s competitive advantage. Smart companies design business models to trigger virtuous cycles that, over time, expand both value creation and capture.

For example, Ryanair’s business model creates several virtuous cycles that maximize its profits through increasingly low costs and prices. (See the exhibit “Ryanair’s Key Virtuous Cycles.”) All of the cycles result in reduced costs, which allow for lower prices that grow sales and ultimately lead to increased profi ts. Its competitive advantage keeps growing as long as the virtuous cycles generated by its business model spin. Just as a fast-moving body is hard to stop because of kinetic energy, it’s tough to halt well-functioning virtuous cycles.

However, they don’t go on forever. They usually reach a limit and trigger counterbalancing cycles, or they slow down because of their interactions with

other business models. In fact, when interrupted, the synergies work in the opposite direction and erode competitive advantage. For example, one of Ryanair’s cycles could become vicious if its employ- ees unionized and demanded higher wages, and the airline could no longer off er the lowest fares. It would then lose volume, and aircraft utilization would fall. Since Ryanair’s investment in its fleet assumes a very high rate of utilization, this change would have a magnifi ed eff ect on profi tability.

It’s easy to see that virtuous cycles can be cre- ated by a low-cost, no-frills player, but a diff erentia- tor may also create virtuous cycles. Take the case of Irizar, a Spanish manufacturer of bodies for luxury motor coaches, which posted large losses after a series of ill-conceived moves in the 1980s. Irizar’s leadership changed twice in 1990 and morale hit an all-time low, prompting the new head of the compa- ny’s steering team, Koldo Saratxaga, to make ma

Homework is Completed By:

Writer Writer Name Amount Client Comments & Rating
Instant Homework Helper

ONLINE

Instant Homework Helper

$36

She helped me in last minute in a very reasonable price. She is a lifesaver, I got A+ grade in my homework, I will surely hire her again for my next assignments, Thumbs Up!

Order & Get This Solution Within 3 Hours in $25/Page

Custom Original Solution And Get A+ Grades

  • 100% Plagiarism Free
  • Proper APA/MLA/Harvard Referencing
  • Delivery in 3 Hours After Placing Order
  • Free Turnitin Report
  • Unlimited Revisions
  • Privacy Guaranteed

Order & Get This Solution Within 6 Hours in $20/Page

Custom Original Solution And Get A+ Grades

  • 100% Plagiarism Free
  • Proper APA/MLA/Harvard Referencing
  • Delivery in 6 Hours After Placing Order
  • Free Turnitin Report
  • Unlimited Revisions
  • Privacy Guaranteed

Order & Get This Solution Within 12 Hours in $15/Page

Custom Original Solution And Get A+ Grades

  • 100% Plagiarism Free
  • Proper APA/MLA/Harvard Referencing
  • Delivery in 12 Hours After Placing Order
  • Free Turnitin Report
  • Unlimited Revisions
  • Privacy Guaranteed

6 writers have sent their proposals to do this homework:

High Quality Assignments
Professional Coursework Help
Engineering Guru
Quick Mentor
Engineering Help
Chartered Accountant
Writer Writer Name Offer Chat
High Quality Assignments

ONLINE

High Quality Assignments

I am an academic and research writer with having an MBA degree in business and finance. I have written many business reports on several topics and am well aware of all academic referencing styles.

$41 Chat With Writer
Professional Coursework Help

ONLINE

Professional Coursework Help

After reading your project details, I feel myself as the best option for you to fulfill this project with 100 percent perfection.

$73 Chat With Writer
Engineering Guru

ONLINE

Engineering Guru

I am an elite class writer with more than 6 years of experience as an academic writer. I will provide you the 100 percent original and plagiarism-free content.

$68 Chat With Writer
Quick Mentor

ONLINE

Quick Mentor

This project is my strength and I can fulfill your requirements properly within your given deadline. I always give plagiarism-free work to my clients at very competitive prices.

$41 Chat With Writer
Engineering Help

ONLINE

Engineering Help

I have read your project details and I can provide you QUALITY WORK within your given timeline and budget.

$70 Chat With Writer
Chartered Accountant

ONLINE

Chartered Accountant

Being a Ph.D. in the Business field, I have been doing academic writing for the past 7 years and have a good command over writing research papers, essay, dissertations and all kinds of academic writing and proofreading.

$54 Chat With Writer

Let our expert academic writers to help you in achieving a+ grades in your homework, assignment, quiz or exam.

Similar Homework Questions

Gloucester royal hospital map - Hsc in the holidays uts - Discussion Board 5.2: Nothing About Us Without Us - Tectyl 506 spray gun - Dc busbar sizing calculation - Vcaa 2015 exam 2 methods - University of phoenix placement test - Computer science department ucl - 7 lbs 13 oz - $30 assignment 1 HOMEWORK 1 - The one minute manager meets the monkey sparknotes summary - Policy and politics in nursing - Arc flash study every 5 years - Voltage divider rule with 3 resistors - Homework kills trees t shirt - 8.3 mortgage application process answers - Knight company reports the following costs and expenses in may - Tafe sa police test - 500 miles an hour - Adavanced Patho. - List the levels of biological organization in multicellular organisms - Health behavior - What are derivatives used for in the real world - Kramer and knox began a partnership by investing - 2 pages and 1 page - Foreign exchange transfer department rbi - Picot question for short staffing - Managing in Global Envi - Week - 5 diss 833 - STock Exchange - Aqa a level chemistry grade boundaries - Nadgee cape howe track - Delivering health care in america seventh edition - Direct and indirect objects worksheet doc - Eng 121 week 2 assignment critical essay outline - What do usability effectiveness mis metrics measure - 55mm ring size uk - James banks multicultural education approaches - Harley engine vin decoder - What is the chemical composition of honey - Kepner tregoe excel template - Jools oliver fish pie - Informative speech topics about disney world - Toro desk 1500 x 750mm maple/grey - Wk 7 forum 2 Jade - Society and culture association - Offensive and defensive strategies in strategic management - Asdefcon strategic materiel handbook - Final Project Milestone Three: Global HR, Diversity, Risk Management, and Social Responsibility - Examples of primary sexual characteristics - Bode plot octave scale - What to write in a logbook - Annotated Bibliography - Good vision statement characteristics - An important characteristic of behavior therapy homework is that it - Assessing Demand - Questions - Machine guarding ppt presentation - In cold blood citation - Beam deflection macaulay's method - What is snubber circuit - Zombie shield parts voyage of despair - The nightingale and the rose character action - Earth Science - Nick nolte wikipedia the free encyclopedia - Small bowel obstruction nursing considerations - Patchwork paraphrasing - Uts hecs census date - Revision of paper 3 - Will these hands ne'er be clean - Activated charcoal shoppers drug mart canada - 25 pound in kg - Research Paper Topic : Biological Basis of Emotions - Pilot training sunshine coast - Discussion response(MK) - Divine roles across cultures - The decomposition of hydrogen peroxide lab report - Jet blue airlines company history - Why was the baby corn crying at the mall worksheet - Red roofs surgery online booking - Mars in aries sexuality - What is the stepwise approach to asthma treatment - Zinc plus oxygen balanced equation - Small town mentality in to kill a mockingbird - Argumentative essay on sleep deprivation - Thesis statement about college athletes getting paid - Dealer accounting procedures manual - Scheherazade poem analysis - Murgan salem al gohary - Passwordfox for chrome - Diablo 2 act 3 quests - British turkish lawyers association - Folin wu tube uses - Wanderer poly icebox 25l - A _____ is a practice required for safe and efficient organizational operations. - Reference list - Commemorative speech outline on a person - The little ark kilbaha - Leadership theories matrix - Capstone Research Companion