Inn. Mgmt Ch.6 (1)

Chapter Six
Business Models and capturing value

6.1. What is Business Model?
A business model describes the rationale of how an organization
creates, delivers and captures value.
Business model refers to a company’s plan for making a profit.
It identifies the products or services the business plans to sell, its
identified target market, and any anticipated expenses.
It is important for both new and established businesses. They help
new, developing companies attract investment, recruit talent, and
motivate management and staff.
A business model is a high-level plan for profitably
operating a business in a specific marketplace.
A primary component of the business model is the
value proposition.
This is a description of the goods or services that a
company offers and why they are desirable to
customers or clients, ideally stated in a way that
differentiates the product or service from its
competitors.
A business model is a high-level plan for profitably operating a
particular business in a specific marketplace.
Essentially, it answers crucial questions for strategic decision-
making and business operations.
Innovations aren't a single idea but a detailed and well-
constructed story which gave the idea meaning and direction and
helped communicate it to others.
It details how to Creating value social or commercial.
6.2. Why Use Business Models?
The purpose of a business model is to provide a clear representation of where and how
value is created and can be captured. That’s useful for a number of reasons:
It provides a roadmap for how an innovation can create value. It won’t just happen; it
needs a framework.
It provides a way of sharing the idea with others, making the business vision
explicit. That can be useful for entrepreneurs trying to pitch their ideas to venture
capitalists or to innovation teams trying to win resources and support for an internal
innovation project.
It offers a helpful checklist of areas to consider in making sure the idea and the route
to creating value with it is well thought out.
6.3. What’s in a Business Model?
A sound business model is imperative for the success of any
business. It maps out your plan to create value for your target
market. Value creation doesn’t just happen.
It is the result of a structured process which involves:
o A value proposition – what is valued? Commercial or social
value.
o A target market – for whom?
oA supplier – who?
o A set of activities – how?
o A representation of the value – how much?
If we can’t make explicit how value is created and how we will capture it then
the best idea in the world may not have an impact.
 Equally, if we understand how this process works we can improve it
streamline it and reduce the waste and friction in it.
We can extend its application to new markets and adapt and shape the
innovation for them.
 If we go back to our idea of innovation strategy then these three concepts
changing what we offer, how we create and deliver that and to whom are three
of the core dimensions on the ‘4Ps’ model.
Figure 6.1. outline framework for a business model.
Table 6.1. Examples of business model.
6.4. Business Model Innovation
 Business models innovation is the art of enhancing advantage and
value creation by making simultaneous and mutually supportive

changes both to an organization’s value proposition to customers and
to its underlying operating model.
At the value proposition level, these changes can address;
 the choice of target segment,
product or service offering, and revenue model.
At the operating model level, the focus is on how to drive
profitability, competitive advantage, and value creation through these
decisions on how to deliver the value proposition:
Where to play along the value chain
What cost model is needed to ensure attractive returns
What organizational structure and capabilities are essential to success

• Business model innovation is also critical to business
transformation. Many organizations share a common set of
concerns.
What type of business model innovation will help us achieve
breakout performance?
How do we avoid jeopardizing the core business?
How do we build the capability to develop, rapidly test, and scale
new models?
Inspiring an organization to change is not a trivial undertaking, but
given the current strategic environment, it is a critical one.
oBMI reflects a fundamental change in how a company delivers
value to its customers, whether that’s through the development
of new revenue streams or distribution channels.
6.5. Generic and Specific Business Model
Generic refers to a broad, versatile approach that can be applied across
various industries or markets.
• It lacks specific details and is more general in nature.
• Examples :Focusing on tangible items (e.g., laptops, books) and maximizing
profit by selling them at a reasonable price.
Once established, there is competition about finding new and modified ways
of deploying these – playing with the ‘4Ps’.
For example, the basic airline business model is that people pay for the
service of transportation. Over the years we have seen competition amongst
airlines based on incremental innovations in the service offered – different
destinations, different catering, different aircraft, different seating and sleeping
options, provisions of lounge accommodation, transportation to/from the
terminal, etc.
Process innovations have reduced the costs and improved the flow in areas
like check-in, reservations, fuel efficiency, terminal turnaround times, etc.
 Position innovation has segmented the market, first into different classes and
experiences and, in recent times, radically opening up the market through low-
cost short-haul flying.
And this has led to a paradigm innovation: from being seen as a luxury service
for the few flying has now become
• Specific Business Model:
• It targets a particular audience or industry.
• It tailors its approach to meet the unique needs and characteristics of that
specific context.
• Examples include:
• Niche Market Strategies: Focusing on a specialized market segment

(e.g., luxury goods, eco-friendly products).
• Niche airlines offer services to remote locations or serving specialist

segments, for example helicopters serving oil platforms.
6.6. Building a Business Model
There are plenty of models for how to do this, but they have the same underlying
architecture, which can be expressed in a small number of key questions:
What? The value proposition.
 By whom? The supply side.
 For whom? The demand side.
How? The key activities by the supply side to create value for the demand side.
If it is going to be robust then the ‘revenue’ from the demand side needs to be
greater than the costs on the supply side of doing it.
Beyond that there are important questions about timing (can we
ensure the flow of resources out is supported by the flow of revenue in?)
and long-term sustainability. How can we protect our model so that

others can’t instantly copy it,
and how can we develop our idea in the long term to counter other
competitors coming in to try? We can build the model in simple
fashion; first, what is the core value proposition?

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Chapter Six

Business Models and capturing value

value creation by making simultaneous and mutually supportive

What cost model is needed to ensure attractive returns

What organizational structure and capabilities are essential to success

• Niche Market Strategies: Focusing on a specialized market segment

• Niche airlines offer services to remote locations or serving specialist

 By whom? The supply side.

 For whom? The demand side.

and long-term sustainability. How can we protect our model so that

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