This sounds like something very "flashy" and as a "new-biz-buzz". However, we are all thinking business models and a lot of us are also doing business model innovations without even knowing it.
A lot of people get confused when using a term like a business model...why not just call it a strategy? Well, - there are some differences. A business strategy holds a lot of the information that a business model does....it describes where we are going with our business. The business Model however, describes how we make money.
Cost structure and revenue streams
In the end it all comes down to cost structure and revenue streams. There are no single-most important aspects in a business model...it's about how you integrate the different components to make a profitable business that is essential.
The "bridge" between a cost structure and the revenue streams is the "Value Proposition". The value proposition states what value that you are offering your clients in return for their money. It is important to articulate this value proposition so it reaches high enough without loosing foot-hold. It should be easy for anyone to see why customers would want to accept your value proposition. (see former issue around business strategy)
The cost structure can be defined as "key resources", "key activities" and "key partners" that is needed to make the business model work. They all have associated costs. The revenue streams defines how cash flow is delivered to the company and is made up by "client relations", "distribution channels" and "client segments". Here you will define how your value proposition is offered to your clients and who your clients are....and how they are going to pay for it.
In the end it is ofcourse imperative to match a reasonable cost structure with the revenue streams to become succesful. It sounds very simple...but there are tons of ways to do this.
http://www.businessmodelgeneration.com/
The above link will guide you to one of the most straightforward, yet innovative, approaches to describe the concept and how you can use it to find new ways to make money, - either for your existing business or for a completely new startup. Explained in this visual way, - anyone is able to follow it and find time to complete it. It is a book for people that sees beyond initial offerings and want to challenge the old models of doing things. An important aspect that I will urge you to notice in this book is, that they are focusing on working systematically with creativity...(see the last post on this blog). This issue is becoming more and more important and organisations are really opening up for 1. aknowledging that we are not good at this & 2. seeing the possibilities in behaving crazy :-)
I'm sure that anyone interested in business development and innovation will find this book very interesting and get lots of ideas.
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How does this incorporate the idea that 'good business' is more than just making money? Grundfos is a good example of using other values (water for the poor, talent management, environmental concern) as a part of the business model. In short, if Grundfos makes a profit but fails in these other areas, the business model is flawed.
ReplyDeleteHi Adam,
ReplyDeleteVery good question indeed. As I work at Grundfos I know the values that you're talking about. I will try to clear out where I see these "soft factors" contribute to revenue.
First of all...purpose of the business model is not to focus only on money transactions...otherwise we would be a very simple company. The purpose is to clear out HOW we make money and evaluate the activities we do, the resources we keep, the partnerships we build, the client relations that we nurture, the distribution channels that we develop, and the customers that we aim. Grundfos is not using only 1 business model, but I think that the things that you're talking about could go for all business models excerted in the corporation.
1. Water for the poor: It is a noble thought, but still this is a fundamental value of Grundfos...to help where it matters and lies deep within the Due Jensen Familiy roots. However...looking at this from an economic point of view I'm sure that this "responsibility" is a great contributor to our value proposition (people are also buying sustainability and helping us to help others) and it is a stron contributor for building client relations...think about how customers is exposed to this value when they visit us and we talk about ourselves....I'm really stunned when going abroad and people recognize that I'm working for Grundfos....everybody thinks it is a great company.
2. Talent Management: Grundfos has recognized that IF we are going to be LEADERS in the businesses that we enter, we need talents......so talent management is recognized as a "key activity" in the business model. In the "key resources" area we can then define the talents that we need....e.g. talented leaders and secure these resources once they are build. They are all contributing to the cost structure....
3. Environmental concern: Same as 1...still these things are done ALSO because it contributes to bottom line....in fact..if we were a company that were investing in things that didn't get a payback somehow, we would not be living up to our own values! "Responsibility" is also about securing the company's future and the workplaces and lives of people...and money runs a business.
Adam, - I'm not sure whether or not you're working at Grundfos...?? I could show you the book if you're interested
Best,
Tobias
Hi Tobias,
ReplyDeleteI do work for Grundfos. I am in the US D&E group. What book are you referring to?
Well, greetings colleague!
ReplyDeleteI was referring to the book I'm linking to: http://www.businessmodelgeneration.com/
I will e-mail you.
Best, Tobias
Hi there! this is such an informative post. Thank you for sharing. Cheers!
ReplyDelete- The family business strategy