notes

The design of business

Instructor - Vivien Koh

The design of business

As this course is heavily focused on the project, only the content for the quiz is presented.

Course overview

Component	Week	Percentage
Class Participation		15%
Quiz	11	15%
Individual Paper	13	15%
Mid-Terms Presentation	7	25%
Finals Presentation	13	30%

Group project

Grouping requirements
- 6 - 7 people
- diversity in superpowers and discipline
Mid-terms review
- to obtain approval of the idea from the client
Finals review
- to present prototype and financials
Client - Hasbro
Deliverables
- Assess and evaulate the ecommerce market for toys
- Market and customer insights, competitive landscape
- Online customer acquisition plan and 3-year horizon with key metrics
- Work with ecommerce, marketing and sales departments

Business model

A business model describes the rationale of how an organisation creates, delivers and captures value.

The Business Model Canvas

Components (from right to left, then bottom, 9 components)
- Customer Segments - that are served the organisation
- Customer Relationships - how are relations established and maintained
- Channels - how are value proposition delivered (communication, distribution, sales)
- Value Propositions - how the firms solve customer problems and satisfy customer needs
- Key Activities - what does the firm do to create and deliver the value)
- Key Resources - the assets required to offer and deliver the described business model components
- Key Partners - activities that are outsourced and acquired from outside the enterprise
- Cost Structure - fixed and variable costs of resources and partnerships
- Revenue Stream - means of generating revenue from customers and how this revenue stream is organised
Right side - value (fill up the right side first)
Left side - logic and efficiency

Importance of the Business Model Canvas

Develop business model quickly
Enable innovation - understand from where and affects what
Defines value propositions and its meaning to the customer
Iterate the model quickly
- Quickly redesign components and linkages
- Centered around the value proposition

**7 Questions to assess your business model design**

Switching costs - nothing holding customers from leaving or are they locked in
Recurring Revenue - transactional or automatically recurring
Earning vs Spending - whether you earn your revenue before incurring COGS
**Game-changing cost structure** - whether your cost structure higher or lower than your competitors (by 30%)
Others who do the work - whether the value created in the business model is created for free by external parties, or are you responsible for all the value created in the business model
**Scalability** - whether growing the business require substantial effort or is there no limits to growth
Protection from Competition - whether are there “moats” that are hard to overcome by competitors

Market Research

(Quiz questions - Why must we understand market insights and business model environment, **external forces that will impact your business model**)
Approaches
- Primary and secondary market search, pros and cons
- Internal data and external data
- Qualitative and quantitative data
Objective
- Find out current and emerging trends relevant to the market
  - Then extract the opportunities
What to look out for
- Possible innovation in the market segment or product segments
- Possible innovation in digital channels, technology, competitive landscape, partnership etc
- Possible changes in consumer behaviour and perception
- Validation of existing assumptions

Customer Segmentation (unlisted)

Why is customer segmentation important
- Marketing efficiency
- Unlock new market opportunities (new market segment)
- Design better brand strategy
- Improve distribution strategies
- Customer retention
B2C and B2B segment

Market sizing (session 2, unlisted)

Approach
- Top-down
  - Start from a large overall number (e.g. total expenditure) and work down
  - More user friendly
- Bottom-up
  - Identify a single micro-element (number of cans of beers drunk per week) of a large population and work up
  - Better for clients with physical locations
Categories
- Total Market Opportunity
  - Assuming 100% market share, total potential value of product/service
- Total Addressable Market
  - Total potential value sold to a particular market
- Serviceable Available Market
  - The total value of product/service that can fulfil the demand of a segment using one revenue stream/channel
- Serviceable Obtained Market
  - The total value of SAM divided by the expected percentage of market share that the company can capture
- Current Market

Empathy vs Sympathy (unlisted)

Criteria
- Perspective taking
- Staying out of judgement
- Recognising emotion
- Communication emotion
You need to explore your own vulnerabilities
No silver lining, no condescending language - “at least”

Empathy map (first step of design thinking)

Think and feel - major preoccupations, worries and aspirations
See - environment, friends, what the market offers
Say and do - attitude in public, appearance, behaviour towards others
Hear - word of mouth (friends and colleagues), influencers
Pains - fears, frustrations, obstacles
Gains - wants, needs, measure of success, obstacles

Interviewing Tips (unlisted)

Customer Personas (unlisted)

Customer Journey Map (unlisted)

What do you need - persona, timescale, activities at each stage, customer touchpoints, moments of truth
Stages: Awareness, consideration, purchase, retention
At each stage: Jobs, touchpoints, experience

Design Thinking

(2-3 questions, I don’t know how to summarise)

Design Thinking

“A human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success”
Aspects
- Empathy (human-centered)
- Ideation (generating a lot of ideas)
- Experimentation
Characteristics of challenges where design thinking is best suited
- Ill-defined problems
- Fast-changing landscape
- Complex
- Never done before
Six steps of Design Thinking
- Frame a question - identify a driving question
- Gather inspiration - inspire new thinking by discovering what people really need
- Generate ideas - push past obvious solution to get to breakthrough ideas
- Make ideas tangible - build rough prototypes to learn how to make ideas better
- Test to learn - refine ideas by gathering feedback and experimentation
- Share the story - craft a human story to inspire others toward action

BMC Innovation

Value Proposition Canvas

Value proposition
- “the reason why customer turn to one company over another”
- an aggregation/bundle of benefits a company offers customers
- from a point of view of a particular group of users
- may be similar to existing offers with additions, or may be innovative
Value proposition canvas is a tool that allows you to design, test and visualise the value of your product for customers in a structured way
- Value map (square)
  - Product and services - Name products and services your value proposition offers to get the job done
  - Pain relievers - Describe how your products and services can minimise or reduce the mentioned pains
  - Gains creators - Outline in which way your products and services create the gains
- Customer profile (circle)
  - Customer jobs - List the functional, emotional and social jobs that your customers need to have done
  - Pains - Identify the blockages and problems your customers may face trying to get the jobs done
  - Gains - Describe positive outcomes the customer expects when getting the job done
Modeling at a strategic level
- The environment map (?) helps you understand the context
- The business model canvas helps you create value for your business
- The value proposition canvas helps you create value for your customer

Business Model Innovation - Five Epicenters

Resource driven - From organisation existing infrastructure or partnership (Amazon Web Services built on Amazon.com servers)
Offer driven - Create new value propositions (IKEA low cost and fun furniture)
Customer driven - Facilitated access or increased convenience based on customer needs (Zipcar disrupting car ownership)
Finance driven - New revenue stream, pricing mechanism or reduced cost structures (Xerox leased photocopiers instead of selling it)
Multiple epicenter driven - multiple epicenters (Hilti from selling tools to renting a set of tools, changes value proposition and revenue streams)

Archetype of Business Models

Unbundled - unbundling customer relationship business, product innovation business and infrastructure business (e.g. private banking, telcom)
The Long Tail - selling less of more product, require low inventory costs and strong platforms (Amazon.com and niche products)
Multi-sided Platforms - bring together two or more distinct but interdependent groups of customers/parties, use of network effect (e.g. Apple App Store)
Freemium - one substantial customer segment is able to continuously benefit from a free-of-charge offer (e.g. Zoom)
Open Business - systematic way of creating and capturing value by collaborating with outside parties (e.g. P&G, pharma industry)

Blue/Red Ocean Strategies

Red Ocean	Blue Ocean
Compete in existing market place	Create uncontested market space
Beat the competition	Make the competition irrelevant
Exploit existing demand	Create and capture new demand
Make the value-cost trade-off	Break the value-cost trade-off
Align firm with choice of differentiation or low cost	Align firm in pursuit of differentiation and low cost

Value innovation - increasing value and reducing cost
Four actions framework
- Eliminate (that your industry has long competed on)
- Raise (well above the industry standard)
- Reduce (well below the industry standard)
- Create (something that the industry never offered)
Cost Impact, Value Proposition Impact, Customer Impact (?)

Prototyping

(I don’t know how to summarise)

Purpose of prototyping - concretising idea

Approaches

Validate, Analyse and Test the business model

“Do not fall in love with your idea”

Document your assumptions and test them

Test card
- We believe that …
- To verify that, we will …
- And measure …
- We are right if …
Learning card
- We believed that …
- We observed ..
- From that we learned that …
- Therefore, we will …

Cognitive Biases (unlisted)

Availability bias - overestimate the probabilities of events associated with memorable or dramatic occurrences
Confirmation bias - tendency to search/interpret/favour/recall information that confirms preexisting beliefs and hypotheses
Overconfidence
Anchoring bias - rely too heavily on initial piece of information
Risk aversion - when exposed to uncertainty
(Be aware of cognitive biases)

Pre-mortem

Activity - imagine the future has happened and that your business has failed. Think of the all the possible reasons why
Legitimises dissent, because pessimism is unpopular and leaders should be optimistic
“Prospective hindsight” increases the ability to identify reasons for future outcomes
(other points?)

Jay Galbraith’s Star model (unlisted)

https://www.jaygalbraith.com/images/pdfs/StarModel.pdf
Strategy (Direction) - What are your strategic goals and how to drive the business model?
Structure (Power) - What type of organisational structure does your business model require?
Processes (Information) - What information flows, processes, and workflows do your business model require?
Rewards (Motivation) - What reward system does your business model require? How can you motivate your people?
People (Skills/mindset) - What kinds of people with what skills does your business model require? What mindset is needed?

Change management

(2 questions)
Reasons for resistance to change - fear of the unknown, fear of failure, disagreement, sense of loss, false beliefs, leaving the comfort zone, misunderstanding, innertia, implication
Change management
- comprises the processes, tools and techniques used to manage the people side of change and achieve desired business outcome
- the methods and manners in which a company describes and implements change within both its internal and external processes
- a systematic approach that includes dealing with the transition or transformationof organizational goals, core values, processes or technologies
- all approaches to prepare, support, and help individuals, teams, and organizations in making organizational change
Kotter’s 8-step change management model
- Create a sense of urgency
- Form a powerful coalition
  - Change sponsors (executive leaders), Change champions (department heads), Change agents (department managers), Change targets (all staff impacted)
- Create a vision for change
  - Create a vision statement (a photograph of your future business)
- Communicate the vision / Enlish a volunteer army
- Remove the obstacles
  - e.g. excuses
- Create short-term wins
- Build on the change / Sustain acceleration
- Anchor the change / Institute change

Shopee

(2 questions)

Speaker - Anthony Ho, Regional Brand Partnerships - Electronics

Statistics of Shopee

More than 10 million active sellers
18 000 brands
615.9 million value of gross orders

Three types of sellers

Normal
Preferred (automatic enrolled when a set of criteria is reached)
Mall (manually vetted and added by Shopee)

Brand Partnerships

Each class of products a different set of challenges and opportunities (speaker is responsible for electronics)
How Shopee helps brands thrive and accelerate growth
Shopee Mall
- Service by Shopee
Shopee Branding
- Marketing Solutions - analytics and solutions for sellers

Brand activations

Brand initiatives and activations should be objective-based (need to solve a problem?)
Examples given

Operation Management (Supply chain)

Consider - goods, money and information flow
Operating model
- Marketplace model - Shopee is just a sales platform
- Fulfilment service model - Shopee packs and ships the order, assists with inventory planning
- Retail model - Supplier sells to Shopee, brands no longer have control price

Joint business planning

Start with a top-down target (e.g. GMV goal) and do a bottom-up projection, and potential investment needed
Break down the target into months
Find out why targets are missed, and fix the target
What to monitor and how to identify the right levers to pull
- “This slide will help solve 90% of your questions”
- GMV = Orders * Average Basket Size
  - Orders = Item Views * Conversion Rate
    - How to increase item views - in-app exposure, organic traffic, external traffic, assortment
    - How to increase conversion rate - reputation, product content, price/promotion
  - Average Basket Size = Items per order * Average Selling Price
    - How to increase items per order - cross-sell, promotions
    - How to increase average selling price - up-sell, promotions

Unclassified

Why it is important to work on as-is BMC

No content found

Scenario options and ask you what building block is it

No content found

Reasons for teams that didnt work well

There are 21 superpowers
Problems if all team members have the same superpower
We need to understand each others’ superpower
Our groups require a balance of discipline, gender, superpower