Conceptual Business Models and Ontologies to improving businessIT alignment

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Conceptual Business Models and Ontologies to
improving business/IT alignment

• Université de Lausanne
• Ecole des Hautes Etudes Commerciales (HEC)

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Modelling The Business Model Ontology
What?
How?
Who?
How much?
DESIGN SCIENCE
Osterwalder and Pigneur, 2002, An e-Business
Model Ontology for Modeling e-Business, Bled
Electronic Commerce Conference
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Modelling The Business Model Ontology
What?
How?
Who?
Relationship
Partnership
Actor
INFRASTRUCTURE MANAGEMENT
CUSTOMER INTERFACE
Mechanism
Agreement
PRODUCT
Channel
Value Configuration
Value Proposition
Capability
Customer
Link
Activity
Offering
Resource
Criterion
Revenue
Cost
Profit
FINANCIAL ASPECTS
Pricing
Account
How much?
DESIGN SCIENCE
Osterwalder and Pigneur, 2002, An e-Business
Model Ontology for Modeling e-Business, Bled
Electronic Commerce Conference
4
1. Value proposition
Product Innovation
Requires
Targeted to
Value Proposition
Customer
Capability
setOf
isA
Offering
synonym Benefice

• Description
• Reasoning (use, risk, effort)
• Life cycle (creation, purchase, use, renewal,
  transfer)
• Value level (me-too, innovation/imitation,
  innovation)
• Price level (attractive, market, high-end)
• Categorization (barter, sale, market, buy)

What do we offer?
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Value proposition
What we offer?
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Value Proposition Attribute Reasoning on Value

• Use
• When a value proposition mainly creates value
  through its usage, e.g. electricity
• Risk (reduction)
• When a value proposition diminishes risks, e.g.
  derivative financial products, e.g. utility
  computing
• Effort
• When a value proposition makes a customers life
  easier, e.g. online shopping, e.g. car leasing
  (financial effort)

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Value Proposition Attribute (Product) Life Cycle

• Creation
• The moment the value is created, e.g.
  participatory sport shoe design (Web)
• Purchase
• The moment the ownership of the value is
  obtained, e.g. one-stop-shopping
• Use
• The moment the value is consumed, e.g. reading a
  book or turning on a light
• Renewal
• The moment the value is renewed, e.g. software
  updates
• Transfers
• The moment the value is transferred, e.g.
  recycling

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Value Proposition Attribute Value Level (how
much?)

• Me-too
• My value proposition is the same as others
• Innovative imitation
• My value proposition is similar to others but
  with innovative elements
• Excellence
• Create the most valuable customer experience
• Innovation
• My value proposition is the completely new

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Value Proposition Attribute Price Level

• Attractive
• I am cheaper than the market
• Market
• I am priced like the market
• High-End
• I am more expensive than the market

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Offerings easyMoney.com
Illustration
Target Customers
Capabilities
Value Proposition
Capabilities
setOf
isA
Offering
offerings
attributes
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Application The Value Map (Kambil et al. 1997)
Target Customers
Capabilities
Value Proposition
Capabilities
high-end
major credit cards
By seizing the value level and price level of the
competitors on a certain market their competitive
positioning becomes comparable and visualizable
price
market
economy
easyMoney.com
free
me-too
Imitative innovation
excellence
innovation
value
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Montreux Jazz Festival

• 15-day festival in July
• since 1967 (Claude Nobs)
• 15 million Swiss francs budget
• 240'000 visitors
• 94'300 tickets
• 44 DJs
• 326 groups.
• 1200 diverse staff members (during the festival,
  5 otherwise)
• 140'000 liters of beer
• 502 national and international journalists
• franchise
• Montreux-Detroit Jazz Festival, Montreux-Atlanta
  Jazz Festival, Montreux Festival On Tour,
  Montreux Jazz Festival in Monaco

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Value propositions, capabilities and customers
illustration
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A detailed value proposition
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Customer segment
2
Who are our customers? How do we reach them? How
do we get and keep them?
What do we offer to our customers?
WHAT?
Value proposition
WHO?
HOW?
Value configuration
CUSTOMER SEGMENT
Partnership
Distribution channel
Core capability
Relationship
Revenue
Cost
HOW MUCH?
How do we operate and deliver? How do we
collaborate? What are our key competencies?
What are our revenues? Our pricing? What are our
costs?
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Customer segment gt definition

• Categorizations of the population into social
  class or psychologically defined groups
• Area where a firm can specialize and gain
  competitive advantage
• By having lower costs or customer-satisfying
  differentiation

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2. Target customers
Customer relationship
Targeted to
Customer
Value proposition
isA
Segment
Community
setOf
isA
Criterion

• Description
• Reasoning

Who are our customers?
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Segments
illustration

• Categorizations of the population into social
  class or psychologically defined groups
• Area where a firm can specialize and gain
  competitive advantage
• By having lower costs or customer-satisfying
  differentiation
• Clear distinction
• Limited set of competitors
• Distinctive supply
• Different purchase criteria
• Barriers to deter new entrants

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Communities
illustration

• Group of people or entities
• that share values or interests
• and use the le Net regularly at the same place

transaction
Business, trading, occasions, barter
interest
Idea sharing, communication
fantasy
Role games, fantasy world
relation
Assistance (disease), sharing of experiences
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Distribution channel
3
Who are our customers? How do we reach them? How
do we get and keep them?
What do we offer to our customers?
WHAT?
Value proposition
WHO?
HOW?
Value configuration
Customer segment
Partnership
DISTRIBUTION CHANNEL
Core capability
Relationship
Revenue
Cost
HOW MUCH?
How do we operate and deliver? How do we
collaborate? What are our key competencies?
What are our revenues? Our pricing? What are our
costs?
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3. Distribution channel
How do we reach our customers? Feel and serve
them?
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Channel

• A channel can be defined as a set of links or a
  network via which a firm goes to market and
  delivers its value proposition.
• Owned channels - direct (i.e. Web, phone, fax)
• Owned channels - indirect (i.e. brand shops)
• Partner channels (intermediation i.e. retail,
  shops, ...)
• More precisely it defines how a firm is in
  touch with its customers for a variety of tasks
• Customer Buying Cycle (CBC)
• Customer Service Life Cycle (CSLC)

The purpose is to make the right quantities of
the right products or services available at the
right place, at the right time
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Distribution Channel gt Montreux Jazz Festival
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A detailed distribution channel
illustration
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Customer relationship
4
Who are our customers? How do we reach them? How
do we get and keep them?
What do we offer to our customers?
WHAT?
Value proposition
WHO?
HOW?
Value configuration
Customer segment
Partnership
Distribution channel
Core capability
CUSTOMER RELATIONSHIP
Revenue
Cost
HOW MUCH?
How do we operate and deliver? How do we
collaborate? What are our key competencies?
What are our revenues? Our pricing? What are our
costs?
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4. Customer relationship
Relationship
Customer
Value proposition
isA
Acquisition
Retention
setOf
isA
Add-on selling
mechanism
Offering
isA
isA

Personalization
Trust
Security
How do we get and keep our customers?
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Customer equity
In some mobile firms,customer acquisition
costshad reached almost a quarter of all
operating expenses said Mr Zehle, CEO of

• Customer Acquisition
• How do we get customers?
• Growing market share
• Customer Retention
• How do we keep customers?
• Nurturing customer loyalty
• Add-on selling
• How do we get customers to buy more?
• Enhancing Average Revenue Per User (ARPU)

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PERSONALIZATION mechanisms
Collaborative filtering
Listen to the customer
Make recommendation
Establish configuration
Distribution
2
5
One-to-one
Mass-customization
Planing of production
3
Production (internal)
4a
ERP
Outsourcing (external)
4b
SCM
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TRUST LOYALTY mechanisms
Contribute to the establishment of
TRUST
SECURITY
Fear financial losses
QUALITY
PRIVACY
Fear loss of intimacy
Contribute
COMMUNITY
INFO- MEDIARY
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Core capabilities (resources)
5
Who are our customers? How do we reach them? How
do we get and keep them?
What do we offer to our customers?
WHAT?
Value proposition
WHO?
HOW?
Value configuration
Customer segment
Partnership
Distribution channel
CAPABILITY
Customer relationship
Revenue
Cost
HOW MUCH?
How do we operate and deliver? How do we
collaborate? What are our key competencies?
What are our revenues? Our pricing? What are our
costs?
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5. Capabilities and resources
Infrastructure operation
Capability
Value proposition
isA
Mgmt capability
Business capability
setOf
isA
Resource

• Description
• Reasoning

by
Actor
What are our key competencies?
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Capabilities and resources
illustration
DO

• Capability
• Repeatable patterns of action in the use of
  assets
• Aptitude to exploit and coordinate resources
• to create, produce, and/or offer products and
  services to a market
• Resource
• Assets that are available useful
• in detecting and responding to
• market opportunities or threats

OWN
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Types of capabilities
Wallin, 2000 Synocus

• Business modeling
• capability
• Absorptive capacity
• Conceptualizing
• timing

Related to management processes (decision)
Related to business processes
external
internal
customers
resources
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Value chain
6
Who are our customers? How do we reach them? How
do we get and keep them?
What do we offer to our customers?
WHAT?
Value proposition
WHO?
HOW?
VALUE CHAIN
Customer segment
Partnership
Distribution channel
capability
Customer relationship
Revenue
Cost
HOW MUCH?
How do we operate and deliver? How do we
collaborate? What are our key competencies?
What are our revenues? Our pricing? What are our
costs?
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6. Activities and value configurations
Configuration
Value proposition
Capability
isA
Value chain
Value shop
setOf
isA
Value network
Activity
Resource
Fit Flow Sharing

• Description
• Reasoning

by
Actor
How do we operate and deliver?
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Types of value configurations
Stabell, 1998
Value chain
Value network
Value shop
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Value chain
Illustration
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Activities and capabilties
illustration
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Partnership agreement
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Who are our customers? How do we reach them? How
do we get and keep them?
What do we offer to our customers?
WHAT?
Value proposition
WHO?
HOW?
Value chain
Customer segment
PARTNERSHIP
Distribution channel
capability
Customer relationship
Revenue
Cost
HOW MUCH?
How do we operate and deliver? How do we
collaborate? What are our key competencies?
What are our revenues? Our pricing? What are our
costs?
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7. Partnerships
Partnership
Value proposition
Capability
isA
Chain
Market
setOf
isA
Network
Agreement
Activity
on

• Description
• Reasoning

by
Actor
How do we collaborate?
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Types of partnerships cooperation, competition,
co-opetation
Malone, 1987
MARKET
NETWORK
low
Coordination cost
low
high
CHAIN
Production cost
high
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Partnership gt Supply chain managment (SCM)
SCM
information
product
manufacturer
supplier
seller
distributor
buyer
payment
Bullwhip effect
Kalakota, 2001
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Partnership gt Alliances
network
Bank payment
Credit card
clearance
sales Information systems coordination contents
order
Shipping transport tracking
Distributor inventory
deliver
deliver
returns
sale
order
Customer buy content
Affiliate sales
sales
critics
Author marketing
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Profit and cost account
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Who are our customers? How do we reach them? How
do we get and keep them?
What do we offer to our customers?
WHAT?
Value proposition
WHO?
HOW?
Value chain
Customer segment
Partnership
Distribution channel
capability
Customer relationship
Revenue
COST
HOW MUCH?
How do we operate and deliver? How do we
collaborate? What are our key competencies?
What are our revenues? Our pricing? What are our
costs?
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8. Revenue model
Revenue
Target Customers
Value proposition
setOf
isA
Pricing
Offering
for

• Description
• Reasoning

Link
What are our revenues? Our pricing?
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Revenue stream gt categories
combination
Mobile
REVENUE
PRE-PAID card

• Phone
• registry
• subscription
• Usage
• Time
• Services

one time
sale
registry
recurrent
Income of the subscription fees to become a
member Paid by the buyer and/or the vendor
subscription
Income of the ad banners posted on the
shopfront Paid by the vendor
advertisement
use
transaction
Income of online sales paid by the buyer
commission
Income, percentage of a transaction made by the
settlement(affiliate program)
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Profit and cost account
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Who are our customers? How do we reach them? How
do we get and keep them?
What do we offer to our customers?
WHAT?
Value proposition
WHO?
HOW?
Value chain
Customer segment
Partnership
Distribution channel
capability
Customer relationship
Revenue
COST
HOW MUCH?
How do we operate and deliver? How do we
collaborate? What are our key competencies?
What are our revenues? Our pricing? What are our
costs?
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9. Cost structure
Cost
setOf
isA
Account

• Description
• Reasoning

What are our costs?
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Profit model

• PROFIT (P VC).Q FC
• P the unit price of a product
• VC the variable cost of a unit
• Q the number of products sold
• FC fixed costs

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Business model gt Birds eye view
Illustration
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Prototype (CAD tool for designing Business model)
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The e-Business Model Modeling Framework
Customer relationship
Infrastructure operation
Partnership
Relationship
Actor
Agreement
Mechanism
Product Innovation
isa
Channel
Customer
Proposition
Configuration
Capability
isa
Link
Criterion
Offering
Activity
Resource
flow fit share
Cost
Revenue
Account
Pricing
Financial aspects