Value Activities and the Business Model: The Central Tenets of the Organisation

Value Activities and the Business Model: The Central Tenets of the Organisation

DOI: 10.4018/978-1-5225-3392-4.ch001
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The business model and the value activities are able to play a significant role in the development of the strategic plan and risk assessment for the organisation. The importance of these concepts and the separate role each needs to play is discussed. The good business model is an important tool for managers to analyse strategic choices and select the strategies they feel appropriate to develop the organisation for future advantage and to set the business into a more effective direction. However, the definitions for a business model cover a range of complexity: from a simple definition covering the customer and product, to a complex definition covering most of the business organisation. The value proposition is examined as a systematic way of examining the activities a firm performs and how they interact. The various value models: from value chain to value net, are reviewed and replaced with the term value architecture to give a broader view of the value concept. An architecture is proposed for defining the structure of the value activities and their inter-relationships which can provide an underpinning of information for the business model. This would remove many complexities from the model and make the model easier to review, validate and implement.
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An organisation can be defined firstly by ‘how’ it does business, that is the relationship between the nature of the product and the targeted customer market segment, and secondly by ‘what’ the organisation does in terms of the processes and resources used to create the product, and to develop the customer market.

How the organisation does business can be defined by the business model, and what the organisation does in terms of processes and resources which can be described by the business architecture. Unfortunately, there are many definitions for the business model and many different descriptions for a business architecture.

This chapter is about reviewing the business model definitions from a simple definition to the very complex and examine the difficulties posed by the variety of alternative definitions. It is proposed to use a simple model that is easy to understand and update as required. The chapter will also discuss the use of the value chain when defining a business architecture and suggests that by delineating a specific role for the business architecture and the business model, each becomes simpler to use. Value chain analysis will be reviewed for its importance in describing the business organisation, and the broader term of value analysis will be discussed more fully in the following analysis chapter.

The business model and business architecture both play a role in the development of the strategic plan, and in developing the risk assessment for the organisation and for the strategic plan. The importance of these concepts to the running of the organisation and the separate role each needs to play is discussed. The idea is to bring everything together into a cohesive planning function such that the organisation can be seen holistically, creating a much more sustainable planning environment.

The various concepts and terms associated with the strategic planning environment often have conflicting descriptions in the literature, and the descriptions can overlap to varying degrees. In order to clarify the planning environment, it is necessary to review the intersection of the various terms and concepts that are described in different papers. There is a need for clarification and separation of function for each of the different concepts, such that each can play a useful functional role in assisting in the development of strategies for future improvement of the organisation.

Al-Debei, El-Haddadeh, and Avison (2008) define a business model as a most important domain in the field of information systems and useful for the strategic development of the organisation, but are concerned over the confusion caused by the various definitions being proposed by different authors. They have collated 17 definitions to search for common components, and the term ‘value proposition’ occurred in 11 definitions, with the next most common element being collaborative transactions, which appeared 5 times and 4 of those was in conjunction with the value proposition. The term value proposition is used wherever the analysis has used the expression ‘creating value’ or ‘making money’ in the definition of business model.

In this chapter, the concepts of the business model and the value chain will be explored to review the strengths of these concepts for planning purposes, and to examine some of the issues surrounding their use. Finally, examining how both can be best used together, to get an accurate picture of the organisation. The following chapter will review the analysis of the organisation, with the focus on the value activity, which is used as the fundamental analysis tool, but is supported and added to by SWOT, Porters 5 forces and PESTLE.


The Power Of A Business Model

A strong proponent of the business model states that “great business models can reshape industries and drive spectacular growth” (Johnson, Christensen, & Kagerman, 2008). This is just what every company would want. The proviso is of course that you need a great business model and therefore there is a need to know just what is a great business model. The simplest definition for a business model is given by Magretta (2002), that a good business model answers the questions: Who is the customer? And what does the customer value? A nice comment also from Magretta (2002) is that business models are “stories - stories that explain how enterprises work” (p. 4), this is a useful view of the business model, because it conveys the idea that the business model has a purpose of communicating the enterprises intentions in a clear uncomplicated way, to all the staff and to the customers. However, the more complex definitions for the business model would be more like an epic novel than a story and very hard to communicate a succinct message to staff and customers.

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