Business model is increasingly becoming a buzzword in the business world. Whether it is business leaders, management scholars, or government officials, they are constantly emphasizing the importance of business model innovation. There are two main reasons why business models have received unprecedented attention today.
On the one hand, the rules of the business society are undergoing drastic changes, and the familiar competitive scene is constantly being overturned; on the other hand, the previously relatively stable symbiote releases new productivity through more frequent deconstruction and reorganization. These signals are increasingly reminding corporate executives that learning to design and timely debug corporate business models has become a compulsory course. However, the business model is like a dragon hidden in the cloud. It seems that everyone has seen and knew its power, but it is difficult to clearly portray the appearance of the dragon. We believe that designing a business model is to study and design the transaction structure of the focus enterprise and its internal and external stakeholders engaged in specific business activities from the perspective of symbiosis, so as to achieve the goal of maximizing the value of the focus enterprise.
In short, business model design is to build a symbiosis and create a focus enterprise that maximizes value in it. Therefore, for the business model, what needs to be considered is which stakeholders constitute the symbiote, what are the business activities or roles of these stakeholders, what are their ways of benefiting from the symbiote, and what is the final cash flow. The business model pays much attention to the structural efficiency of the symbiosis in which the focus enterprise is located. The value of the focus enterprise will also vary depending on the content of cooperation with stakeholders in the symbiotic body and the changes in cooperation methods.
Every enterprise is in a symbiosis, and will establish relationships with surrounding stakeholders through market exchanges, cooperation, and participation in holdings. In the retail industry represented by supermarkets, the main competitors in the industry select locations to build stores, and then organize sources of goods to deliver products to consumers. Competitors in the industry are facing similar stakeholders and profit models, so everyone invariably devotes their energy to the improvement of their own business performance: how to better understand and even creatively propose the unique value of various customer segments It advocates how to differentiate with competitors and how to use more advanced management tools to improve corporate operating efficiency… But if you analyze carefully, you can find that there are actually different business models in similar symbiosis.
Three elements of business model
The business model is to consider the value of the focus enterprise from the perspective of symbiosis. It is composed of three core elements: business system, profit model and cash flow structure.
1. business systems
business systems define the focus of enterprises to create value in symbiosis body is how it works, what it is concerned by the symbiosis of stakeholders, as well as governance and the role of the relationship between the behavior of the stakeholders. Each stakeholder has and uses its own resource endowments or abilities to contribute unique meaning and value to the symbiote. When designing and innovating business models, it is important to pay attention to the resource capabilities and appeals of each stakeholder in the symbiote structure. If you can leverage key stakeholders, you can achieve the effect of two or two.
Yizhao Biotechnology, founded in 2011, is a compound fertilizer manufacturer that has developed a new formula for “increasing efficiency and saving fertilizer”. When it tried to expand its territory, it encountered the ceiling of the traditional business model of the compound fertilizer industry. As a result, Yizhao made breakthroughs and innovations in its own business model. In the traditional business model, the symbiosis is mainly composed of three types of stakeholders: billion trillion (including multiple internal stakeholders), distributors and farmers. Yizhao’s role is to fully control the entire value chain from R&D to investment and plant, raw material procurement, production, logistics and warehousing. This kind of business system design has very high requirements for resource input and management, and it is no easy task for the start-up billion trillion.
In the new business model, there are five types of stakeholders in the business system: billion trillion, designated fertilizer plants, sales companies, farmers, and banks. The sales company is set up by a designated factory for formula fertilizers, but the sales receipts are managed by billion trillion, so that it is easy to clearly define the gross profit sharing of sales. Banks provide billion trillion loan support through warehouse receipt pledge, thereby revitalizing the cash flow of the entire symbiote.
2. Profit model
The profit model refers to the source and method of income and expenditure of an enterprise. In other words, the profit model needs to answer the following questions: Where does the income come from? Where does the cost go? How to earn? How to spend? Excellent profit-making model design can stimulate the enthusiasm of all stakeholders in the symbiote to play their own value, thereby injecting vitality into the entire symbiont system. Sources of income and expenditure include which stakeholders the income comes from, which products or services, and which resource capabilities. The typical representative is the free model. Taking Google as an example, its visitors can use the search service for free, and the source of support for Google’s revenue is advertising revenue. Advertisers value Google’s gathering of visitors who are interested in different search content. These customer groups that are segmented through search keywords have very high consumption potential.
The pricing method is to maximize the satisfaction of the interests of various stakeholders through effective distribution, and at the same time can inspire the stakeholders to continuously contribute their resources. The degree of influence of different stakeholders in the symbiosis on the final value creation and their own interest appeals are different, and the design of the pricing method needs to be able to find a balance.
The usual pricing methods include five categories: fixed, remaining or divided; calculated according to consumption qualifications (such as entrance fees), calculations of consumption times (such as tolls), calculation of consumption time (such as parking fees), and calculation of consumption value (such as oil Fees), value-added calculations (such as sharing fees); auction methods; customer pricing methods; combined pricing methods, such as “low fixed + high share”, “consumption qualification + number of consumption”, cross subsidies, “razor + blade”, etc. .
In the Yizhao case, usually the profit model of compound fertilizer is that the company pays the cost and obtains revenue from direct customers. Compound fertilizer manufacturers pay the cost of purchasing raw materials, manufacturing and channel sales, and obtain income through direct sales to customers. Income minus costs is gross profit, which is a way of valuing based on consumption value.
3. Cash flow structure
The cash flow structure is the proportional structure and distribution form of corporate cash inflows and outflows in time series divided by stakeholders. Excellent cash flow structure design can improve the execution efficiency of the business model and ensure the success rate and reproducibility of the business model. The cash flow structure is a key indicator to test the success of the business model design. A long-term declining and exhausted cash flow structure is likely to be due to problems in the business system and profit model.
The reason why asset-light companies are favored by many scholars and investors is that their cash flow structure can achieve higher returns with less investment in the early stage and sustained stability in the later stage. For example, CapitaLand Group Singapore is known as the largest commercial real estate company in Asia. It builds new commercial properties in prime locations in big cities in emerging markets. CapitaLand Group divides investment properties into “incubation period” (ie, commercial property construction period) and “mature period” according to their development stages. There is no cash inflow in the incubation period, and the risk is relatively high, but the potential return on capital appreciation is relatively large. In the mature period, the property is leased by high-end merchants, the cash inflow is relatively stable, the yield rate is stable at 7%-10%, and it has a stable dividend ability. In this regard, CapitaLand Group adopts the real estate finance model of PE+REITs, adopting private equity investment (PE) financing during the incubation period, and real estate trust investment funds (REITs) financing during the mature period, using third-party funds to achieve light assets Operate, share investment income while obtaining management fee income.
Four steps to business model design
Business models are known for their refreshing creativity, but how to design business models has always lacked powerful tools. Business model design is a management science developed from the perspective of symbiosis around the focus enterprise. Usually, business model design requires four steps.
1. portrait of
the current business model is the starting point for future business models. Depicting the business system diagram in the current business model, and indicating the profit model and cash flow structure of the corresponding stakeholders, can help corporate executives sort out the assumptions of the current model, and what opportunities and opportunities exist for different stakeholders. challenge. This step is not only the experience of business executives using business model thinking, but also the potential direction for new business model innovation.
2. Multi-viewing angle prism
symbionts consists of multiple stakeholders, each stakeholder itself is a variety of roles and capabilities valuable resource complex, but we are often too concerned about a role of stakeholders in symbiosis or The importance of resource capacity value ignores others. For example, the core value of the refrigerator is freezing and refrigeration, but when the refrigerator is placed in the kitchen, it also has the value of beautiful decoration. The multi-prism perspective of the business model is to help us re-understand or unearth the value of other stakeholder roles or resource capabilities, unearth this neglected value or role of resource capabilities, and develop new value creation designs.
It needs to be pointed out that the potential value of the same stakeholder at different scales or time points will also be different, which will bring about changes in business models. For example, Xiaomi mobile phone started from the mobile phone hardware, sold mobile phones at a super cost-effective price that traditional mobile phone manufacturers could not afford, and quickly gathered tens of millions of mobile phone sales. The strong sales volume not only enhances Xiaomi’s voice in the entire mobile phone procurement and assembly value chain, but also drives the increase in the total number of active users of Xiaomi mobile phones, laying a solid foundation for Xiaomi’s continued profitability of mobile phone applications. Xiaomi mobile phones use high cost performance as a means to accelerate the qualitative change of sales scale, and then use the qualitatively changed user scale as the basis for future business model design.
3. Wide angle lens angle of view
We regard symbiosis as the main body of value creation, transmission and realization. The changes of stakeholders will change the value creation space and realization efficiency of symbiosis. On this basis, we design the cooperation method between focus enterprises and new stakeholders. There are two main ways to expand the value space of a symbiote: one is to start with existing stakeholders and discover the customers of customers, suppliers of suppliers, stakeholders of stakeholders (and the stakeholders that these stakeholders may adopt Activities based on new technologies) in order to achieve the expansion of stakeholders’ horizons; the second is to find various possible cooperation stakeholders and their activities from the existing business ecosystem, and cut and reorganize these activities to form a new Stakeholders.
To improve the efficiency of the value realization of the symbiote, it is necessary to check whether the contribution of each stakeholder in the symbiote exceeds the opportunity cost of the resource capacity invested, whether the assumptions established at the beginning and the current role still exist, and whether there is a better one Alternative methods, and then make adjustment decisions.
4. focusing mirror perspective
in the design of a new business model, we must first clear symbiosis and the Role of the resource body stakeholder input; Secondly, stakeholders and interest demands influence the results of matches profitable; Finally, design and deduce the cash flow structure of each stakeholder to ensure the smooth cash flow structure of the entire symbiote, because today’s business world has formed a symbiote that is all prosperous and loses all. If the cash flow of a company A problem may affect the healthy development of the symbiote.
The new business model needs to be able to promptly reflect the adjustment of the role and behavior of stakeholders and the changes in interest demands, and strive to achieve a win-win situation for all parties in the symbiosis on the basis of ensuring the maximum value of the focus enterprise. In our business model innovation design practice, the above three perspectives are both closely related and relatively independent. There is no strict sequence of these three perspectives. The changes brought about by each perspective can promote the reconstruction of business models. In most cases, entrepreneurs and entrepreneurs full of wisdom and creativity start from a certain perspective of the traditional business model and redraw the picture of a new business model, but the coexistence of the three perspectives can ensure that they are Completeness when conceiving a new business model, and finally realize the update of the business model.
The author of this article Wei Wei is the director of the Business Model Research Center of Peking University’s HSBC Business School; Zhang Zhenguang is the consulting business director of Aon Hewitt (China); Zhu Wuxiang is the professor of finance and the director of the business model research studio in the School of Economics and Management of Tsinghua University.