Intel Rock Star 0-18

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Best Buy Case Study 08-18

Best Buy Case Study

The Challenge of Change

Typically companies devote the majority of their resources to optimizing current business models especially by applying and improving incrementally on existing capabilities. This is because business models are ultimately based on a common understanding among individuals—company managers, employees and investors—of what business they are in and how they create value. Shifting these mental models to evolve business models remains a powerful barrier to innovation.

But, just because business model innovation requires a mental leap and requires potentially painful shifts within a company doesn’t mean it isn’t possible or necessary. In fact, when it comes to survival, some established companies will shift their models, and will do so quickly.

In 2012, the world’s largest electronics retailer, Best Buy, announced that it would begin a transition to a new model, initially requiring the elimination of 50 stores, the creation of 100 new smaller stores, and a focus on mobile device sales. The business model shift, from big-box retail to “Connected Stores,” was precipitated by swiftly declining sales and competition from online retailers. The experiment with smaller, more mobile-focused stores began immediately and was brought online in a span of only 18 months. Whether Best Buy’s experiment is a commercial success or not, its effort is evidence of how quickly a company can shift market position and approach when conditions require it.

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9 Blocks of the Business Model Video 08-18

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Revenue Stream 08-18

Revenue Stream

•      The cash a company generates from each customer segment

•      For which value is each customer segment truly willing to pay?

•      Revenue streams for different segments may have different pricing mechanism

–     Fixed price list

–     Bargaining

–     Auction

–     Market dependant

–     Volume dependant

–     Yield dependant on inventory

•      For what do customers currently pay?

•      How are customers currently paying?

•      How would they prefer to pay?

•      How much does each customer revenue stream contribute to overall revenues?

Ways to generate Revenue Streams:

–     Asset Sale: Selling ownership rights of products

–     Usage fees: phone services, hotels

–     Subscription fees: Access to service, annual fees, gyms, mobile..

–     Lending/renting/leasing: Temporary rights to use

–     Licensing: Permission to use protected intellectual property in exchange for licensing fees

Brokerage fees: Intermediary services

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Key Partnerships 08-18

Key Partnerships

•      Network of suppliers and partners that make business model works

•      Partnerships and alliances are made to:

–     Optimize business model

–     Reduce risk and uncertainty

–     Acquire resources

•      Types of partnerships:

–     Strategic alliance between none competitors

–     Coopetition: Strategic partnership between competitors

–     Joint-Venture: Develop new business

–     Buyer-supplier relationships to assure reliable supplies

•      Who are our key partners?

•      Who are our key suppliers?

•      Which key resources are we acquiring from partners?

•      Which key activities do partners perform?


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Customer Segment 08-18

Customer Segment

•      Defines the different groups of people that company aims to reach and serve

•      Without profitable customers NO company can survive

•      Distinct segment = Common needs = Common behavior = Better service

•      The question is WHICH segment to serve and which to ignore???

•      Customer groups represents different segments, if their needs require and justify distinctive offers

•      They are reached through different channels

•      They require different kind of relationships

•      They have substantially different profitability

•      They are willing to pay for different aspects of the offer

•       

•      Types of segments:

o   Mass Market: FMCG, B2C

o   Niche Market: B2B, specific requirements

o   Segmented Market: By size or industry

o   Diversified Market: Diversified customer business model

o   Multi-Sided Platform: Credit cards companies

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Cost Structure 08-18

Cost Structure

•      Describes all costs incurred to operate a business model

•      Can be easily calculated after defining

–     Key activities

–     Key resources

–     Key partnerships

•      What are the most important costs inherent in our business?

•      Which key resource are most expensive?

•      Which key activities are most expensive?

•      Is our business model Cost Driven .vs. Value Driven?

•      Cost driven business model

–     Focus on minimizing cost

–     Use low price value proposition

–     Maximum automation

–     Extensive outsourcing

•      Value driven business model

–     Focus on value creation

–     Premium value proposition

–     High degree of personalized services

•      Cost structures can have the following characteristics:

–     Fixed cost: Constant cost despite volume of production

–     Variable cost: Proportional cost with output volumes

–     Economies of scale: Cost advantages as output expands and average cost per unit drops

–     Economies of scope: Cost advantages due to large scope


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