WHY BUSINESS

MODELS MATTER
CIS 424
Based on Tab 4
Article by Joan Magretta
 WHY BUSINESS MODELS
MATTER
 One of “THE” buzzwords of the dot
com era
 http://www.businessplanarchive.org/

 The grave yard of the dot coms

 Lewis says, that , “You didn’t need a

strategy, or a special competence, or
even customers – all the business
needed was a model that promised
wild profitability”
 WHY BUSINESS MODELS
MATTER
 So what did this idea spawn?
– GBF
– An absurd amount of venture capital
– Unparalleled IPO success
– $110 stock price for a company that has
an operating deficient of $1.5 billion
– Inflationary salary and bonus trends
– Criminals – Enron, Adelphi, World Com
 WHY BUSINESS MODELS
MATTER
 AND, a great deal of criticism that
models do not matter
 So, I ask you, and desire your
opinion:

 Do they matter anymore???

 Do we even have a working
definition of what they are?
 WHY BUSINESS MODELS
MATTER
 Magretta says that creating a
business model is a lot like writing a
new story.
 All new stories are really version of
old ones
 And…Business models are versions of
the generic value chain which has
two parts
– Making something
– Selling something
 WHY BUSINESS MODELS
MATTER
 Despite the recent economic downturn, there are
unlimited opportunities within the real estate
industry to create wealth, cash flow, and jobs. To
take advantage of these opportunities, real estate
professionals must be committed to do different
things, not do things differently. They must
develop a new business model focusing on
clients, capital, talent and knowledge. Each of
these elements is equally important and central
to finding solutions. Companies embracing
change can strengthen their market position and
capture more than their fair share of
opportunities. Real estate firms failing to change
their business model will dramatically increase
the availability of talent and clients.
(Christopher Lee, writing in the Journal of
Property Management)
 WHY BUSINESS MODELS
MATTER
 While collaboration has become almost routine
for developing product or service solutions that
span multiple technologies, only a handful of
companies have made co-development an
integral element of their business models,
building a strategy for continuous cross-
enterprise development. These companies have
grasped that R&D strategy has become
inseparable from value-chain participation
strategy, and have developed processes for
forming and managing deep collaborative
relationships. Their co-development model has
three levels: 1. a strategy for development chain
design, 2. process and governance structures
that define how the partners will work together,
and 3. information technology that effectively
supports collaborative development.
(Mark Deck and Mark Strom writing for Research
 WHY BUSINESS MODELS
MATTER
 Thomas P. D'Angelo, senior vice president of finance and
controller of priceline.com, designed the complex financial
transaction that underpins priceline's revolutionary
business model and created the company's finance and
accounting framework. D'Angelo joined the company in
October 1997 as the groundwork for the unique Internet-
based endeavor was taking place. He was wooed away from
Direct Travel, Inc., a $200 million travel agency where he
was CFO. D'Angelo applied his knowledge of the traditional
travel agency model for airline tickets and adapted it to the
unique nature of the Name Your Own Price model. He used
his prior experience to show how to build a comprehensive
accounting and finance function that would accommodate a
start-up on the fast track. Now that priceline.com is forging
ahead, he would like to share some of the lessons he has
learned. (Kathy Williams writing for Strategic Finance)
 WHY BUSINESS MODELS
MATTER
 Does a international company have
the same business model regardless
of where they are located
 How about US companies that have
franchises all over our country?
 Is it safe to say that a business
model can be changed on an ongoing
basis?
 WHY BUSINESS MODELS
MATTER
 Theauthor also states that a
business plan to be successful must
pass two tests,

– The Narrative test (Priceline groceries

and gas)
– The Numbers Test (Webvan – groceries)
 WHY BUSINESS MODELS
MATTER
 When one or both tests fail, an
organization should revisit their strategy.
– Competition is the driving force that
determines when organizational strategy
should be revisited.
Walmart – a new business model or a strategy?
Lower prices – increased profits – more than just
volume – physical amenities gone, bigger
stores to handle more people, fewer
salespeople so that the customer is
empowered.
 WHY BUSINESS MODELS
MATTER
 Walmart has the same business
model as Kmart, but has been so
much more successful, that is
strategy!!!
 Chose to serve a different group of
customers
 Chose to do it in a different set of
markets
 WHY BUSINESS MODELS
MATTER
 Target – another success story

 Their strategy is based on

– Style
– Fashion
Did not try to be all things to all people
 WHY BUSINESS MODELS
MATTER
 Dell Computer – Michael Dell
 Created a business model, direct
sales via telephone and Internet
 JIT

 Very Unique but…competition tried to

do the same thing, so…
 Dell expanded product line