In this video, I'm going to describe what a business model is and how it relates to other important components in your business. Hi there. Matts Rehnstrom here, Shaper of Business Excellence.
In this video I'm going to explain to you what a business model is, and I'm going to also describe how it relates to other business components because the business model consists of other business components. I'll show you in a while. Anyway. So this video is a part of the series where I go through important business excellence components and I have my chart that shows all these very important business components and how they relate to each other. But for this video then we're down talking about the business model. And the business model contains nine different other components. So it relates to other very important components within this chart. And of course the chart just shows the relationship to a real business. So the components exist in your business.
So let's dive into the business model then. So what is the business model? First of all, it describes your value proposition. What is it that you are going to deliver to your customers? And if you recall from the earlier videos that I talked about or the video that I talked about the business idea, in the business idea we say what we're going to deliver and to whom we are going to deliver it. But that's on a high level. In the business model we take that down further and we describe what are values, what the value proposition, what value are we going to deliver to those clients that we talked about, the market share. And I'll get back to that in just a little while.
So, the value proposition describes then what you deliver in detail. And if you look to the left of the screen, you'll see the portfolio and that's the product of portfolio. And you see that there goes a blue line from the value proposition over to that product portfolio component. And we're going to talk about the proposition that is describing the product portfolio in an upcoming video. So here you've seen a good example, we're talking about something within the business model, but it relates out to another component, which in this case is then the product portfolio which describes exactly what you deliver, how much it will cost, and all those things that we'll talk more about in that video.
Okay, let's continue then. We have then the value proposition. From there on, we can look into the customer segments. Here you need to define exactly what different types of customers you have. And also in an upcoming video, I will talk about the market and how you divide the market up and you find these segments, but here within the business model you need to understand your Avatar. The Avatar that you are talking to that you want to deliver and give value to. So you have a product, you have products, and those products go out to a certain part of your customers and different propositions, different products, can go to different segments of customers.
Okay? Further on. Now you have your products, you know your customers. Now you need to define what channels do you want to use in order to give them the value, the service, that you want to provide for them. So you need to understand if you're going to have a store, if you're going to be online, if you go in to visit them at their site, or all of them.
So you find these channels that you want to work with your clients, your customers. How are you going to deliver the value? You know what value, you know what clients you have, your customers, but how are you going to deliver it?
When you know all that, you can then continue to talk about the customer relationship. How are you going to have the relationship with your customers? Do you have special programs like a special card or do you have a special website? A special room where only your customers have access to? Do you have a Facebook page which is locked from those that are not your clients? Or are you open with an open Facebook page, for example? Or a LinkedIn group or whatever source you're using. You need to think the relationship through. How are you going to talk to your customers?
Okay, so then we covered the right-hand side except for the lower bottom with cost and revenues and we'll get back to those in a moment. But now when we know what product or you know what product you have, products you have, you have several of them maybe. What customer segments you're delivering those to. You know how you're delivering it and now you also know what relationship and how do you build that relationship with your customers.
Now you need also to know what key activities you need to have in order to deliver the value for your customers and how you're going to do these customer service, this customer relationship. You need processes for all those things. And in business model we talk about key activities, but as I will describe also in another video I'm talking about processes here. So you need processes in place for everything that is going to deliver that value to your customers.
From key activities, you go over to key resources. Here, you need to understand what resources you need to have in order for your customers to be able to consume the products.
You maybe need a truck delivering things to them. You maybe need a website so they can access your information that way. You maybe need an online learning portal. You maybe need a phone where you can call them or they can call you in on a group call. For example, if you have a group call every Monday morning with your clients, then you need the phone set up.
All those things are key resources because without them you can't deliver the value for your customers. So you need to understand all these key resources.
And going from there, we move over to the strategic partners because now you can also then say, hmm, I know what to deliver. I know to whom I'm going to be delivering it. I know what channels I'm going to use. I know what relationship I want with them. I've decided my processes because I'm responsible for my processes because it's my clients, my customers, and I know what resources I need.
So I have the website. I have the truck. I have the store or whatever. It's what is needed in order to fulfill the promise that I gave to my customers, but now I can then say, hmm, do I have strategic partners because maybe I don't want to do all these myself.
Maybe it's better to have someone else with a truck going to deliver the goods or maybe I need to have someone else have a warehouse where I have all my books or all my stuff that I'm going to send to clients, but I'm still responsible for the processes.
That is very important to understand. You are responsible for the end to end process from where the client, customer, comes into your world and when they're satisfied with whatever you promised them. Even though you have strategic partners that may take care of the delivery. For example, with the truck. You are the one who is going to hold them responsible. For example, that the truck is clean because when they see the truck coming, pulling up in front of their office, you want a nice truck to deliver your goods. Not a filthy truck, worn. It's polluting. Everything is bad with that experience your customer has when they see your strategic partner.
So falling back to the key activities, the processes that you designed, it's your responsibility to set up the requirements for your strategic partners as well.
Okay, so all these top level segments here then in the business model generates revenue for your business. And it also then of course has costs included into it. So the revenue and cost will then hopefully lift at the end of whatever time period you have your budget.
So that's the basic thing of a business model. And as I said before, the business model is just one component, but it's spreading out to all different components within this relationship chart.
So I will talk about in detail the other components that I've just mentioned here. But that's in another video, and if you like to have more information about the videos that I mentioned in the beginning of the video about the business based model, the strategic goals, the goals of measurement and so on, you can find them here on my YouTube channel if that's where you're watching this or if you're on my blog, you can find them on the side where you can find all these blog videos so you can actually go through the whole relationship chart and get the whole big picture of how it's all connected.
And with that said, I will also say before I say goodbye, I will say that if you like to have this relationship chart just click here and you can download it for free so you can take a look at it and you can follow along in the videos and you can take it to your coworkers and you can look at it and talk about it because these are very, very important components you need to master in your business. And then with that said, until the next time, let's go and shape our businesses for excellence.
Matts helps Business Analysts, especially those who work in government administration, to design efficient and high quality business processes for their clients so they are able to deliver value in a sustainable and transparent manner. With over 20 years of advanced business process design in both IT and government, he can show you a simple ‘Business Excellence’ formula which dramatically reduces the time required to design a process as well as ensures it is created in a way which is optimized for the people who actually do the work. The health of the business and the people working in it is always at the forefront of how I help business analysts design their processes. ➔➔If you are a business analyst who wants to ensure you deliver the best possible outcome for their clients (especially if your current project is not running perfectly according to plan!) then Matts can help you.
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