Introduction: 2

What bs md: 2
Bsm com + conse: 2tr
Ryanair bussiness model: 3tr
Howbusiness model creat + bsm of irizar + competing with bsm: 3tr
3way to compete: 1
Bsm vs stra vs tactis 1t

HOW TO DESIGN BUSINESS MODEL

INTRODUCTION
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Past - Strategy has been the primary building block of
competitiveness. Future - Sustainable advantage may well begin with the
business model.
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IBM Institute for Business Values biannual Global CEO Study
Senior executives across industries regard developing innovative
business models as a major priority.
>
In Developing countries - Pressure to crack open markets,
particularly those at the middle and bottom of the pyramid, is driving a
surge in business-model innovation.
>
In developed countries - Economic slowdown is forcing companies to
modify their business models or create new ones.
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Companies create and capture value through their business models by
undergoing a radical transformation.

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Companies are focusing on business model innovation and
modification.
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Much of the problem lies in companies narrow focus on creating
innovative models and evaluating their efficacy in isolation.
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Success or failure - Depends largely on how it interacts with
models of other players in the industry.
>
Competition using business models - Outcomes are difficult to
predict.
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One business model may appear superior to others when analyzed in
isolation but create less value than the others when interactions are
considered.
WHAT IS A BUSINESS MODEL?
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A story that explains how an enterprise works
Joan Magretta
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Who is your customer, what does the customer value, and how do you
deliver value at an appropriate cost?
Peter Drucker
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Business model consist of four elements:
A customer value proposition,
A profit formula,
Key resources,
Key processes.
Clay Christensen (HBS)
A GOOD BUSINESS MODEL
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Aligning with company goals: While designing a business model, the
choices made should enable the organisation to achieve its goals.

Ex: Xerox. Xerox PARC, Laser printing, Ethernet, GUI, etc...

Xerox was unable to draw new business from its innovation, due to lack
of alignment with its goals.
>
Self-reinforcing: While creating business model, the choices made
should complement one another: there must be internal consistency.
Ex: Providing comfort level in a low cost airline, comparable to that
offered by
a full fare carrier (reducing no. of seats on plane & offering food and
coffee).
Reinforcement with new choices.
>
Robustness: A good business model business should be able to
sustain its effectiveness over time by fending off 4 threats.
Imitation , holdups, slack, and sub-situation.
The effective period is shorter than before.
A BUSINESS MODEL COMPRISES OF CHOICES & CONSEQUENCES
CHOICES:
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Policy choices - Actions an organization takes across all its
operations. (Using non-union workers, locating plants in rural areas, or
encouraging employees to fly coach class)
>
Asset choices - Tangible resources a company deploys.
(Manufacturing facilities or satellite communication systems, for
instance)
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Governance choices - Decision-making rights over the other two.
(Should we own or lease machinery)
CONSEQUENCES
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Flexible consequence - Responds quickly when the underlying

choice changes.
Ex: Choose to increase prices will immediately result in lower volumes.
>
Rigid consequence - Reflected in companys culture of frugality.
Built over time through policies.
Difficult to imitate.
Ex: Oblige employees to fly economy class, share hotel rooms, and work
out of Spartan offices is unlikely to disappear immediately, even when
those choices change.
RYANAIR BUSINESS MODEL
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In 1990s Ryanair switched from a traditional business model to a
low-cost one.
>
Choices - Offering low fares, Secondary airports, One class of
passenger, No meals, Short-haul flights, Fleet of Boeing 737s, Nonunionized workforce, High-powered incentives to employees.
>
Consequences - High volumes, low variable and fixed costs, a
reputation for reasonable fares, and an aggressive management team.

business model
Ryanair - then

Ryanairs Business Model

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Now
HOW BUSINESS MODEL CREATES VIRTUOUS CYCLES ?
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They are consequences of business model choices. The consequences
enable further choices, and so on.
>
This process generates virtuous cycles that continuously strengthen
the business model.
>
Ryanairs business model creates several virtuous cycles that
maximize its profits through increasingly low costs and prices.
>
But these cycles dont go on for a long time. Ex- If Ryanairs
workforce forms a union and demand higher wages, one of the cycles will
become vicious.
BUSINESS MODEL OF IRIZAft
>
Irizar, a Spanish manufacturer of bodies for luxury motor coaches,
posted large losses after a series of ill-conceived moves in the 1980s.

>
Irizars leadership changed twice in 1990, which prompted Koldo
Saratxaga, the new head of the companys steering team to make major
changes.
>
He transformed the organizations business model by making
choices that yielded three rigid consequences:
employees
tremendous sense of ownership, feelings of accomplishment, and trust.
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The choices included eliminating hierarchy, decentralizing decision
making, focusing on teams to get work done, and having workers own the
assets.
COMPETING WITH BUSINESS MODEL
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Its easy to infuse virtuousness in cycles when there are no
competitors, but few business models operate in vacuums.
>
Companies must build on rigid consequences to compete with rivals
having similar business models so as to create and capture more value.
3 WAYS TO COMPETE THROUGH
BUSINESS MODEL
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Strengthen your virtuous cycle: Modify the business models to
generate new virtuous cycles so as to compete more effectively with
rivals.
Ex: Boeing and Airbus.
>
Weaken competitors* cycles: Some companies get ahead by using the
rigid consequences of their choices to weaken new entrants virtuous
cycles.
Ex: Microsoft and Linux
>
Turn competitors into complements: Rivals with different business
models can also become partners in value creation.

BUSINESS MODEL VS STRATEGY VS TACTICS

The 3 are interrelated.
>
Business models - Logic of the company - How it operates and
creates and capture value for stakeholders in a competitive marketplace.
>
Strategy - Contingent plan - Which business model to use. Choice
and consequences is a reflection of strategy. Changing strategic choices
can be expensive.
There will be options to compete that are comparatively easy and
inexpensive to deploy.
>
Tactics - Residual choices open to a company by virtue of a
business model it employs.