Summary articles Corporate Strategy
Article 6, 11 and 12 are Non-exam materials (background reading as not directly covered in class):
Article 6 – Zott, Amit and Massa (2011)
Article 11 – Anand, Jaideep, Luiz, Mesquita, Roberto, Vassolo (2009)
Article 12 – Raveendran (2019)
NOT included in this summary.
Article 1: Reinventing Your Business Model (Johnson, Christensen and
Kagermann, 2008)
Summary in the article itself
The idea in brief
Great business models can reshape industries and drive spectacular growth. Yet many companies
find business-model innovation difficult. To determine whether your firm should alter its business
model, three steps are advised:
1. Articulate what makes your existing model successful: for example, what customer problem does
it solve? How does it make money for your firm?
2. Watch for signals that your model needs changing: such as tough new competitors on the
horizon.
3. Decide whether reinventing your model is worth the effort: The answer’s yes only if the new
model changes the industry or market.
The idea in practices
Understand your current business model; a successful model has these components:
Customer value proposition: the model helps customers perform a specific “job” that alternative
offerings don’t address.
Profit formula: the model generates value for your company through factors such as revenue
model, cost structure, margins, and inventory turnover.
Key resources and processes: your company has the people, technology, products, facilities,
equipment, and brand required to deliver the value proposition to your targeted customers. And
it has processes (training, manufacturing, service) to leverage those resources
Identify when a new model may be needed; these circumstances often require business model
change:
An opportunity to:
o Address needs of large groups who find existing solutions too expensive or complicated.
o Capitalize on new technology, or leverage existing technologies in new markets.
o Bring a job-to-be-done focus where it doesn’t exist.
A need to:
o Fend off low-end disruptors.
o Respond to shifts in competition
Introduction
Apple was not the first to bring digital music players to the market. It took a good technology and
wrapped it in a great business model. Why is it so difficult to pull off the new growth that business
model innovation can bring? Our research suggests two problems:
1. Lack of definition: Very little formal study has been done into the dynamics and processes of
business model development.
2. Lack of existing business model: few companies understand their existing business model well
enough.
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,Business Model: A Definition
A business model consists of four elements:
1. Customer value proposition (CVP): a successful company is one that has found a way to create
value for customers.
2. Profit formula: blueprint that defines how the company creates value for itself while providing
value to the customer. It consists of the following:
a. Revenue model: price x volume
b. Cost structure: direct costs, indirect costs, economies of scale.
c. Margin model: given the expected volume and cost structure, the contribution needed
from each transaction to achieve desired profits.
d. Resource velocity: how fast we need to turn over inventory, fixed assets, and other
assets.
3. Key resources: assets such as the people, technology, products, facilities, equipment, channels,
and brand required to deliver the value proposition to the targeted customer.
4. Key processes: operational and managerial processes that allow them to deliver value in a way
they can successfully repeat and increase in scale.
How Great Models Are Built
Identifying a clear customer value proposition: the most important attribute of a customer value
proposition is its precision. How perfectly it nails the customer job to be done and nothing else.
Companies trying to create the new often neglect to focus on one job; they dilute their efforts by
attempting to do lots of things. One way to generate a precise customer value proposition is to
think about the four most common barriers keeping people from getting particular jobs done:
insufficient wealth, access, skill, or time.
Designing a profit formula: when the customer value proposition is precisely defined. It often
requires a fundamental shift in all major components of the profit formula.
Identifying key resources and processes: companies must then consider the key resources and
processes needed to deliver that value.
When a New Business Model Is Needed Established
The short answer is: when significant changes are needed to all four elements of your existing model.
we have observed five strategic circumstances that often require business model change:
1. Opportunity to address new customers: the opportunity to address through disruptive
innovation the needs of large groups of potential customers who are shut out of a market
entirely because existing solutions are too expensive or complicated for them.
2. Opportunity to capitalize new technology: the opportunity to capitalize on a brand new
technology by wrapping a new business model around it (Apple and MP3 players) or the
opportunity to leverage a tested technology by bringing it to a whole new market.
3. Opportunity to bring job-to-be-done focus: that’s common in industries where companies focus
on products or customer segments, which leads them to refine existing products more and more,
increasing commoditization over time.
4. The need to fend off low-end disrupters: e.g. if the Nano is successful, it will threaten other
automobile makers.
5. The need to respond to a shifting basis of competition: inevitably, what defines an acceptable
solution in a market will change over time, leading core market segments to commoditize.
These questions will help you evaluate whether the challenge of business model innovation will yield
acceptable results. Answering “yes” to all four greatly increases the odds of successful execution:
1. Can you nail the job with a focused, compelling customer value proposition?
2. Can you devise a model in which all the elements work together to get the job done in the most
efficient way possible?
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,3. Can you create a new business development process unfettered by the often negative influences
of your core business?
4. Will the new business model disrupt competitors?
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, How Dow Corning Got Out of Its Own Way
Breaking the rules: o automate, the new business would have to be far more standardized, which
meant instituting different and, overall, much stricter rules.
Identifying new competencies: following the articulation of the new customer value proposition
and new profit formula, the Xiameter team focused on the new competencies it would need, its
key resources and processes.
The secret sauce: patience: Successful new businesses typically revise their business models four
times or so on the road to profitability.
Article 2: Blue ocean strategy (Kim and Mauborgne, 2004)
Summary in the article itself
The idea in brief
The best way to drive profitable growth? Stop competing in overcrowded industries (red oceans) and
start to create a blue ocean.
Red Ocean Blue ocean
companies try to outperform rivals to grab uncontested market spaces where the
bigger slices of existing demand competition is irrelevant
profit and growth prospects shrink you invent and capture new demand
Products become commoditized Offer customers a leap in value while also
streamlining your costs
Ever-more-intense competition Handsome profits, speedy growth and brand
equity that lasts for decade
The idea in practice
How to begin creating blue oceans?
Understand the logic behind blue ocean strategy:
o It’s not about technology innovation: blue oceans seldom result from technological
innovation.
o You don’t have to venture into distant waters to create blue oceans: most blue oceans
are created from within, not beyond, the red oceans of existing industries.
Apply blue ocean strategic moves:
o Never use the competition as a benchmark: instead, make the competition irrelevant by
creating a leap in value for both yourself and your customers
o Reduce your costs while also offering customers more value:
Introduction
Blue oceans denote all the industries not in existence today—the unknown market space, untainted
by competition. In blue oceans, demand is created rather than fought over. There are two ways to
create blue oceans:
1. Companies can give rise to completely new industries, as eBay did with online auction industry.
2. From within a red ocean when a company alters the boundaries of an existing industry.
Blue and Red Oceans
Looking forward, it seems clear to us that blue oceans will remain the engine of growth. Prospects in
most established market spaces— red oceans—are shrinking steadily. Technological advances have
substantially improved industrial productivity, permitting suppliers to produce an unprecedented
array of products and services.
The Paradox of Strategy
Unfortunately, most companies seem becalmed in their red oceans. So why the dramatic imbalance
in favor of red oceans? Strategy is all about red ocean competition (origin in military by defending
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