Defining Business models
A Business model describes the rationale of how an organization creates, delivers and captures value. It also describes how an organization connect various parts of its ecosystem with the market ecosystem. It provides a framework of components to assist and develop a business plan which could span a short or longer horizon.
Challenges of Business model design
Business models have four types of challenges - Environmental, Industry, Market and Research input. Environment challenges include policy interpretation, contravening laws and flawed assumptions on macro level inputs. Industry assumptions including benchmark variances, interpreting indicators and consistency of standards.
Market challenges include variability of market conditions, pricing and costing variability and accuracy of market sizing. Research input challenges include data inconsistency, lack of transparency and often lack of industry models.
Creating a business modeling environment
Business models are created usually with two perspectives - the external perspective of the environment and the internal perspective within the given organization boundary. This is important since business models are designed and executed given specific business environments for them to be successful.
Environmental variables include Key trends (regulatory, technology, social, cultural and socio economic); Market forces (segments, need & demand, market issues, switching costs and revenue attractiveness); Marco economic forces (global market conditions, capital markets, economic infrastructure and commodities & other resources); and Industry forces (suppliers & partners, stakeholders, incumbent competitors, insurgent competitors and substitute products and services).
Internal variables include Key Value Propositions, Customer Segments, Customer Relationships, Channels, Key partnerships, Key activities, Key resources, Cost structures and Revenue streams.
How does the Blue ocean bit fit in?
When organizations build business models, they are always looking for niche spaces in the markets where they can innovate and grow and this demands change both within and aligning the organization to the market ecosystem.
A great place to start to look at Blue oceans is to spend quality time with defining your Value Propositions - if this is glossed over, you will be back to the start - typical blind spots include calling products lines and channels as value propositions, calling initiatives as value propositions or even using brand stories. This may be sub optimal as all of these are within the organization boundary. For Value Propositions to stand out they need to strongly connect with the segments and market ecosystem.
Blue oceans are really about having the courage to push the thinking boundary beyond the obvious and create templates of business models that can be delegated for execution. For a software product or even a car, it could be just one feature change! ; for a staid boring manufacturing firm, it could be showcasing its ability through technology or engineering breakthroughs ; for a modern e-commerce platform, it could be engagement ecosystems for its consumer and stakeholder communities.
Value Propositions can be potential blue oceans if they are well articulated - to execute we need an organizational template to engage the organization and a market template to engage the market ecosystem.
Blue oceans can often not be easily understood and this is a leadership challenge as to how this new belief system can be brought in through a combination of value, culture, products, systems and process shifts - for this to be effective an empowered task force works best that can rapidly detail and execute the strategy into actionable else the idea will die prematurely or be leveraged by competition if badly executed.