E2 MANAGING PERFORMANCE

E2A Business Models and Value Creation

 The digital world is
Summary of Articulation of a characterized by disruptions
Enterprise vision in a digital to business models by new
Pillar world entrants and incumbents who
seek superior performance
and competitive advantage.

How do we
How do we articulate the role
develop and of the finance
manage strategy? function in a digital
world?

This section covers the

fundamentals of business
How do we
ECOSYSTEM models and how new
manage
business and operating
ANALYSIS performance
through people and models can be developed to
projects? improve the performance of
organisations

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Ecosystems of organisations
A tool for defining strategy
Traditional markets
Defined as “a set of individuals or organizations who exchange products or
services within an environment governed by the laws of supply and demand”

Entities operated out of individual self-interest

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Traditional markets

Tools such as PEST(EL) were used to identify drivers of

change and assess whether markets were growing and why.

Porter’s 5 Forces model could be used to understand the

threats to achieving a healthy profit margin in markets.

However, all of this is changing because of developing

technologies

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Ecosystem – a definition

An ecosystem is a complex web of interdependent

enterprises and relationships aimed to create and
allocate business value

Suppliers
Lead producers
Competitors
Stakeholders

Business is challenged by changes in the ecosystems and the

arrival of new entrants. Traditional competitive advantages can be
overcome by taking an ecosystem perspective (access to capital,
access to markets and economies of scale)

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Characteristics of BOTH ecosystems and traditional markets

Participants – the individual players or Interactions – the products or services

organizations exchanged among participants

• Role within the environment • Rules or principles governing conduct

• Reach through the environment within the environment
• Capability of key value proposition • Connections of elements
• Course of interactions

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Characteristics of ecosystems that DISTINGUISH them from
traditional markets

Mutuality Orchestration

• Ecosystems only exist because • The coordination, management and

participants can deliver more value arrangement of complex environments,
acting together for the mutual their participants and interactions.
benefit.
• May be formal or informal. There may or
• This results in higher levels of may not be an actual orchestrator
coordination, shared ideals, shared
standards and shared goals, than in
traditional markets

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New technologies
• Social media
• The ‘internet of things’
• Mobile devices
• User interfaces
• AI and machine learning
• Big data and analytics
• Cloud technologies
See article:
Predators and Prey: • Bio and nano-technologies
A new ecology of competition • Digital assets
Moore 1993
• Bitcoin, cryptocurrencies
Other businesses are no longer seen as •
‘competition’, but rather participants in the
Blockchain
ecosystem
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The effect of technology on traditional markets

Areas of change
Changes in customer expectations
New types of products and services
New business models
Market disruption

Features of the new business environment

Connected and open
Simple and intelligent
Fast and scalable

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Elements of business models
Value
Value in a traditional business model

• Firms look at who they create value for and what counts
Define value as value for them

• Firms look at how resources are sourced and turned into

Create value
outputs that customers and others desire

Deliver value • Firms find ways to get value to those it was created for

• For themselves and others to share between the firms,

Capture residual value their shareholders and others (i.e. stakeholders)

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The CIMA business model

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Stakeholder analysis – a traditional approach

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Stakeholders – looking at Power, Legitimacy and Urgency

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Applying the concept of value to stakeholder analysis

Prioritise and Formulate value

Establish and
rank based on propositions
identify the
Identify the Power, that meet the
needs of the
stakeholders Legitimacy and needs of the
high priority
Urgency high priority
stakeholders
stakeholders

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Characteristics of value

Creates Short
term and
shared long
value term

Tangible
Not and
limited to intangible
the past

Is Financial
about or Non-
financial
people

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Five key elements to creating value

Partners Resources Processes

Activities Outputs

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Delivering value

 Divide the market into meaningful and

measurable segments
 Determine the profit potential of each
segment
 Target segments
 Invest resources
 Measure performance of each segment

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Capturing residual value

Revenue earned from delivering value

- Cost of creating value

= Residual value

Sharing residual value

Shared value comprises shareholder value
and the value delivered to other
stakeholders

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New business models in digital ecosystems
Disruption
Disruptive technology examples

Internet of
AI 3D printing Mobile tech Data analytics Robots Drones
Things
• Car industry • Healthcare – • Taxi and car • Energy • Lifestyle and • Oil – drilling • Logistics –
– semi- personalised rentals companies home and Amazon
autonomous hearing aids, (Uber) increased products – exploration plans to
vehicles personal output from Google Nest costs deliver using
prosthetics, wind farms and partners expected to drones
dental can deliver fall by 20%
crowns and connected due to
surgical houses automation
implants

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Strategies to build disruptive business models
There are an increasing number of frameworks and models to
help firms when choosing new business models

Incubate /
Build Buy Partner Invest
accelerate

Digital Business Models (World Economic Forum – Digital Transformation Initiative)

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Digital Operating models

Customer
Data-powered Open and liquid
centric

(World
Economic
Extra-frugal Skynet Forum – Digital
Transformation
Initiative

(World Economic Forum – Digital Transformation Initiative

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Leadership and culture
Attracting and retaining talent in the digital age

Two key trends

• Greater transparency about opportunities and
more ‘inside-information’
• Greater competition for digital talent

Responses
• Foster a culture of transparency rather than
resisting it
• Take note of what staff are saying
• Introduce a referral programme

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Fostering a digital culture

Definition of culture
The shared set of beliefs, values and mind-sets that
guide a group’s behaviours. The way we do things
round here

What factors distinguish a digital culture from

others?
Having a strong mission statement and a clear
sense of purpose
Lean business structures, with small, cross-
functional teams as opposed to individual divisions
working as separate siloes
A diverse workforce with good digital skills.
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