1. Understanding & Improving our
Business Model

2. Key advantages of
Business Modelling
• Focuses the definition of competitive
advantage on the Customer’s current &
emerging priorities
• Directly links the drivers of competitive
advantage to quantitative measures of
business performance
• Provides a generic framework to utilise
when looking for future sources of
competitive advantage
Helps us see competitive advantage more clearly

3. Business Modelling Framework
Background to the Framework
1960’s 1970’s 1980’s 1990’s +
“The rising tide lifts all “Scale & market share “Become lean and “Better business design
boats” drive value growth” mean” drives profitable growth”
Customer Economics
Organisation Economics Relative Supply Economics Efficiency Economics • Customer needs and
• Post WWII, demand out- • Supply and demand • Global competition, lower priorities changing rapidly
stripped supply becomes more balanced trade barriers, de- • Information flowing more
• Regulation, global trade • Approaches to business regulations allows capacity freely; Internet exacerbating
management strategy focussed on the to exceed supply situation
(protectionism) created identification and building of • Corporate raiders and more • Markets converging,
relatively stable industries structural advantage active shareholders drive channels compressing,
• “If you build it they will • Exemplified by Experience trend to downsizing, products to solutions
come” euphoria supplanted curve and Porter’s Five restructuring, re- • Structural advantages and
by a need for more rigorous Forces model engineering barriers to entry becoming
thinking • Economies of scale, High • Focus on core less easy to protect
• Approaches to strategy market share = high competencies, “Stick to the
focussed on improving profitability knitting”
organisation structure &
command-control functions
Source :- Slywotzky & Morrison, The Profit Zone

4. What makes a better Business Model?
TRADITIONAL BUSINESS MODELLING
• More Customers / Volume • More Profitable & faster
growing Customers
• What new products can I • What are my customers key
sell to increase sales and priorities & how can I meet
profit? them better ?
• Where are the opportunities • When I look at all the
in my industry to get bigger money a customer spends
& more efficient? along the value chain -
where’s the profit zone?
• How do I create barriers to • What mechanisms are
protect my market share? available to keep me in the
profit zone?

5. Business Modelling Framework
Business Modelling tries to focus
on a small number of key questions
• Defining the important customers?
– Who are the most profitable customers?
– What are their priorities / business drivers?
– How are these priorities changing?
• How do we capture the value we create in
the form of profit?
• How do we protect our profit stream?
• How do we deliver value to these
customers? (operating systems)

6. Business Modelling Framework
Definition of Key Terms
Dimension Key Issue Key Questions
Strategic Dimensions
To which customers can I add real value?
Which customers I we chose to
Customer Selection Which customers will allow me to profit?
deal with? (or focus on) Which customers do I want to serve?
Fundamental What is my fundamental
What are our customers' priorities? How do
Assumptions about assumption about what the
we assume they will change in the future?
Customer Priorities customer values?
How do I provide additional value to the
Profit Model / customer that enables me to extract a price
How do I make a Profit?
Value Capture (or volume) premium over others in the
market?
What is my unique value proposition? Why
Differentiation / Strategic How do I protect my profit should customers buy from me ahead of
Control stream? the competition? How do I conterbalance
customer or competitor power?
Do we confine ourselves to certain
How do I define the limitations
Scope of Activities products, markets or customers? What
of our business? won't we make or where won't we go?
Source :- Slywotzky & Morrison, The Profit Zone

7. Business Modelling Framework
Example - General Electric
DIMENSIONS 1981 1997
CUSTOMER SELECTION Consumers Consumers
Manufacturers Manufacturers
Engineers Senior Executives
FUNDAMENTAL Customers value high quality, Customers value suppliers who can
ASSUMPTIONS ABOUT economical products, deliver lower total systems costs by
CUSTOMER PRIORITIES delivered reliably providing a complete solution in areas
outside their core competencies
PROFIT MODEL / Product sales Multi-component product, service,
VALUE CAPTURE “sell the box” solution, and financing
“Sell the whole solution”
DIFFERENTIATION / Brand Customer solutions
STRATEGIC CONTROL Market Leaders Customer relationships
“Be No. 1 or No 2 or exit” CEO marketing
6-Sigma Quality
SCOPE Manufactured Products Customer Solutions
Financing
Manufactured Products & Services
OUTCOMES S’holder Value US$13.1 Billion S’holder Value US$239.6 Billion
Sales US$26 Billion Sales US$90 Billion
Value to Sales 0.5 x Value to Sales 2.7 x
Source :- Slywotzky & Morrison, The Profit Zone

8. Value Capture - Generic Profit Models
Customer Solution Profit
Sell the Box, or ...
• Know the customer
Product • Create a solution (that
Sell the Solution
reduces total customer
The Profit Zone system costs)
Product
Services Options Financing
• Build the relationship
• May incur early losses
• But significant profits
follow
• Example
Profit
ABB (can build & finance a power
station not just supply the
generators)
GE (provides financing, maintenance
Time & scheduling services as well as
Source :- Slywotzky & Morrison, The Profit Zone
selling locomotives)

9. Total System Economics
Example : - Printing Company
• This company sold mainly Point of Sale Material to big
consumer marketing companies (e.g. Coke, Frito Lay, etc.)
• Business was competitive based upon cost per item.
• The printer investigated their customer’s real cost of putting
POS Material in the market and found that for the average POS
Promotion, 40% of the printed materials never made it to a store
to be displayed due to inefficient customer distribution systems
and poor tracking.
• The printer changed his business model - he now organises
distribution to the store himself and charges the customer on a
cost per item displayed instead of a cost per item printed.
• Needless to say his new model is far more profitable.
Source :- Slywotzky & Morrison, The Profit Zone

10. Total System Economics
Example : - Printing Company
• Expense of Usage
Big Box : • Cost of Maintenance
• Cost of Distribution / installation
• Cost of having no POS material in • Associated Labour
the store when the promo starts
• Lost Sales at store
• Cost of Distribution
• Cost of storing / disposing of • Cost of Inventory
unused POS Material
• Cost of Defects /
Little Box : Returns / Failure
Cost of
Printing POS • Costs of inflexibility
Material
• Inefficiencies

11. Business Modelling Framework
Example - Intel
DIMENSIONS 1981 1997
CUSTOMER SELECTION Industrial Equipment PC OEMs
Manufacturers Consumers
FUNDAMENTAL Customers value leading edge Customers value leading edge
ASSUMPTIONS ABOUT technology delivered with high quality, technology with broad consumer
CUSTOMER PRIORITIES low cost manufacturing systems acceptance and guaranteed
compatibility
PROFIT MODEL / Chip manufacture Chip Manufacture
VALUE CAPTURE Licensing Brand Premium
DIFFERENTIATION / Technology Speed of Product Development
STRATEGIC CONTROL Consumer Brand
Compatibility
SCOPE Memory Chips and Processor Chips
solutions Chip sets
Value Chain Management
Source :- Slywotzky & Morrison, The Profit Zone

12. Value Capture - Generic Profit Models
“Two steps ahead” Profit
The • First mover generates
Profit
Zone excess returns before
imitators begin to
erode margins
• Create and maintain a
$ per Unit
lead time over the
Cost
next competitor and a
Price
constant stream of
new products
Q2 Q4 Q6
Quarters Post Launch
Q8
• Example
Intel (focuses on being two
years ahead of nearest rival’s
product developments)
Source :- Slywotzky & Morrison, The Profit Zone

13. Value Capture - Generic Profit Models
Brand Profit
• Brand company expends
considerable marketing
investment in building
awareness, recognition &
credibility
Price per Unit
• These “intangibles” are
reinforced by customer
experience
• The Brand achieves a
significant price premium in
the marketplace
Market Brand • Examples
Price Price
Nike, Coca-Cola
Source :- Slywotzky & Morrison, The Profit Zone

14. Value Capture - Generic Profit Models
Value Chain Position Profit
• Profit concentrates
itself in certain parts
40%
of the value chain
• Profit comes from
30%
Operating Margin
– participating in the
more profitable value
Microprocessors
chain segments OR
20%
– capturing downstream
Software
10%
margin by leveraging
Services
Peripherals value chain power
Other
Personal
Components
Computers
0
0 25% 50% 75% 100%
Share of Industry Revenue
Source :- Slywotzky & Morrison, The Profit Zone

15. Example : The way Ford looks at it’s Value Chain
20% 15% Leasing
Operating Margin
Warranty
Gasoline
10%
Auto
New Car Loans
Dealers
5%
Auto
Service / Repair
Auto Rental
Insurance
After-
Auto
Used Car market
Manufacturing
Dealers Parts
0
0 25% 50% 75% 100%
Share of Industry Revenue

16. Notes about using the Generic
Profit Models
• The models serve two purposes
– They help us understand the drivers of our current
profitability
– They present us with alternative ways to look for future
profitability
• The models illustrate where the key sources of
profit are, they don’t suggest that this is where all
sales / profits should come from
• There are few “pure” examples of any model -
most successful business use a combination of
models

17. How do I assess the power of my
business model?
• Hypothesis
The most powerful business models
deliver greater shareholder value
• A number of quantitative & qualitative
factors are considered important ...
– Return on Sales (EBIT Margin)
– Profit Growth
– Asset Efficiency (Assets / Sales) the inverse of Asset Turns
– The Degree of Strategic Control

18. How do I assess the power of my
business model? Shareholder
Return Profit Asset Degree of Value
on Sales 1 Growth 2 Efficiency 1 Strategic Control 3 to Sales 4
40% 30% 0.1 10 10X
Intel 38%
Intel 9
Intel 24%
Intel 6x
Intel 0.7
0% 0% 1.0 0 0X
1. 1999 Actual levels have been used
2. Compound annual EBITA growth 1995 to 1999
3. A rating based upon the strength of differentiation / sustainability
4. Shareholder Value divided by Sales is used, however any valid measure of the leverage you
have in shareholder value creation would suffice e.g. EV Multiple, PE Multiple, Market to Book, etc.

19. What is a Strategic Control Point ?
• A Strategic Control point is a mechanism
that helps protect the profits flowing from
a business model against the corrosive
effects of competition and customer
power
• A business model without a strategic
control point is like a ship with a hole in
its hull - it will sink much sooner !
• Strategic Control Point keep you in the
profit zone longer

20. Examples of Strategic Control
Points
Business models that have strong ...
• Brand, Copyright, Patents
• Control of Distribution / the Value Chain
• Two year lead in product development
• Commodity with 10% - 20% cost
advantage

21. Assessing the strength of your
Strategic Control Point(s)
• Strength is often different in different industries
(e.g. Brand is almost irrelevant in OE Automotive but extremely
relevant in carbonated beverages)
• Strength is relative to the countervailing strength
of your competitors & customers
• It is also relative to it’s reach
(e.g. if your patent protected product only has application in a
very small segment of the market)
• Strength is cumulative i.e. if you have more than
one Strategic Control Point you can add their
scores together

22. The Template Strength vs.
Possession Reach Competitors / Index Value
Customers
Strategic Control Countervailing
What %age of
Point Do you Posses it?
your Sales does it
strength of Index value for my
Extended Value
(Yes=1, No=0) Competitors / industry
apply to?
Customers
A B C D AxBxCxD
Commodity with cost
disadvantage 1 0.0
Commodity with cost
parity 2 0.0
Commodity with 10%
to 20% cost 3 0.0
advantage
One Year lead in
Product development 4 0.0
Two Year lead in
Product development 5 0.0
Strong Brand,
Copyright or Patent 6 0.0
protection
Own the Customer
Relationship 7 0.0
String of super-
dominant positions 8 0.0
Control the Value
Chain / Distribution 9 0.0
Own the Industry
Standard 10 0.0
Total Strategic Control Rating 0.0

23. Examples
INTEL GE
Strength vs. Strength vs.
Possession Reach Competitors / Index Value Possession Reach Competitors / Index Value
Customers Customers
Strategic Control Countervailing Strategic Control Countervailing
What %age of What %age of
Point Do you Posses it?
your Sales does it
strength of Index value for my
Extended Value
Point Do you Posses it?
your Sales does it
strength of Index value for my
Extended Value
(Yes=1, No=0) Competitors / industry (Yes=1, No=0) Competitors / industry
apply to? apply to?
Customers Customers
A B C D AxBxCxD A B C D AxBxCxD
Commodity with cost Commodity with cost
disadvantage
1 0.0 disadvantage
1 0.0
Commodity with cost Commodity with cost
parity
2 0.0 parity
2 0.0
Commodity with 10% Commodity with 10%
to 20% cost 3 0.0 to 20% cost 1 100% 70% 3 2.1
advantage advantage
One Year lead in One Year lead in
Product development
4 0.0 Product development
4 0.0
Two Year lead in Two Year lead in
Product development
1 60% 40% 5 1.2 Product development
5 0.0
Strong Brand, Strong Brand,
Copyright or Patent 1 100% 70% 6 4.2 Copyright or Patent 6 0.0
protection protection
Own the Customer Own the Customer
Relationship
7 0.0 Relationship
1 100% 70% 7 4.9
String of super- String of super-
dominant positions 8 0.0 dominant positions 8 0.0
Control the Value Control the Value
Chain / Distribution
1 80% 50% 9 3.6 Chain / Distribution
9 0.0
Own the Industry Own the Industry
Standard
10 0.0 Standard
10 0.0
Total Strategic Control Rating 9.0 Total Strategic Control Rating 7.0

24. End of Section 1
Do we understand what Business
Design is all about ?

25. Going Downstream
• Going downstream involves assessing the
potential application of three generic profit
models …
– Customer Solution Profit
– After sale / installed base profit
– Value chain position profit

26. Value Capture - Generic Profit Models
Customer Solution Profit
Sell the Box, or ...
• Know the customer
Product • Create a solution (that
Sell the Solution
reduces total customer
The Profit Zone system costs)
Product
Services Options Financing
• Build the relationship
• May incur early losses
• But significant profits
follow
• Example
Profit
ABB (can build & finance a power
station not just supply the
generators)
GE (provides financing, maintenance
Time & scheduling services as well as
Source :- Slywotzky & Morrison, The Profit Zone
selling locomotives)

27. Value Capture - Generic Profit Models
After-Sale / Installed Base
Profit • Profit on the Initial sale is
After-Sales Model secondary to profits from
The Profit Zone
follow-on products &
Product
services
Maintenance Consumables Accessories
• In the installed base model -
having the base gives you
proprietary rights to the
Installed Base Model follow-on
• In the after-sales model you
focus on follow-on sales of
Profit Margin
yours & others base
products
• Example
Gillette (Razor sales secondary to blade
follow on sales)
Hardware Consumables /
Base Product Follow-on Products
Source :- Slywotzky & Morrison, The Profit Zone

28. Value Capture - Generic Profit Models
Value Chain Position Profit
• Profit concentrates
itself in certain parts
20%
Leasing
of the value chain
• Profit comes from
15%
Operating Margin
Warranty – participating in the
Gasoline more profitable value
10%
chain segments OR
Auto
Loans – capturing downstream
5%
New Car
Dealers Auto margin by leveraging
Service / Repair
Auto Rental
Insurance
After-
value chain power
Auto
Used Car market
Manufacturing
0
Dealers Parts
0 25% 50% 75% 100%
Share of Industry Revenue
Source :- Slywotzky & Morrison, The Profit Zone

29. Tools to assist in the process
• Total System Economics
(Little Box / Big Box)
• Value Chain Analysis
• Downstream Potential Tool
(HBR Article)

30. Total System Economics
• Expense of Usage
• Cost of Maintenance
• Associated Labour
• Cost of Distribution
Big Box :
• Cost of Inventory
The Customer’s Total Economics
• Cost of Defects /
Returns / Failure
Little Box :
Our Product • Costs of inflexibility
Sales
• Inefficiencies
Reducing the Customer’s Total System Economics (Big Box)
creates opportunities to increase our product sales (Little Box)

31. Total System Economics
Example : - Printing Company
• This company sold mainly Point of Sale Material to big
consumer marketing companies (e.g. Coke, Frito Lay, etc.)
• Business was competitive based upon cost per item.
• The printer investigated their customer’s real cost of putting
POS Material in the market and found that for the average POS
Promotion, 40% of the printed materials never made it to a store
to be displayed due to inefficient customer distribution systems
and poor tracking.
• The printer changed his business model - he now organises
distribution to the store himself and charges the customer on a
cost per item displayed instead of a cost per item printed.
• Needless to say his new model is far more profitable.

32. Total System Economics
Example : - Printing Company
• Expense of Usage
Big Box : • Cost of Maintenance
• Cost of Distribution / installation
• Cost of having no POS material in • Associated Labour
the store when the promo starts
• Lost Sales at store
• Cost of Distribution
• Cost of storing / disposing of • Cost of Inventory
unused POS Material
• Cost of Defects /
Little Box : Returns / Failure
Cost of
Printing POS • Costs of inflexibility
Material
• Inefficiencies

33. Similar Exercise :-
What is most important to my
customers? (Customer Priorities)
• What are the top three priorities for my
customer’s business?
• Try to answer this question …
– Imagine that you’re the CEO of your five most
important customers
• What would your overall objectives be?
• What major concerns would you have?
• How could a supplier help you towards your
goals?

34. Value Chain Analysis
Can we draw this picture for the relevant
Customer Activities ?
• What are the relevant
Leasing segments ?
20%
(Total cost of a brake job ?)
• How do we get the data
Operating Margin
Warranty
15%
?
Gasoline
10%
Auto
Loans
New Car
5%
Dealers Auto
Service / Repair
Auto Rental
Insurance
After-
Auto
Used Car market
Manufacturing
Dealers Parts
0
0 25% 50% 75% 100%
Share of Industry Revenue

35. Downstream Potential Tool
• Attractiveness of Downstream Business
– Ratio of Installed base to New Products
– Product Life Cycle Spend vs. Initial Product Cost
– Difference between downstream margin & product margin
• Importance of Customer Relationships
– Magnitude of Product differentiation
– Market share of top 5 Customers
– Share of total profit earned from Top 20% of Customers
• Power of the Distribution Channel
– Distribution & selling expense as a percentage of product
Price
– Channel Concentration - Market Share of Top 5 Distributors
– Degree of Channel Innovation or multiplication

36. How to Scope out the Downstream Opportunity
Attractiveness of Importance of Power of the
Downstream Business Customer Relationships Distribution Channel
Ratio of Ratio of Difference Magnitude Market Share of Total Distribution & Channel Degree of
Installed Base Life Cycle Between Of Downstrem Share of Profit earned Selling Costs Concentration Channel
to New Spend to D’stream Margin Product-based Top 5 from the top 20% as a Percentage Share of Multiplication
Product Sales Our Product & Our Product Differentiation Customers of Customers of Product Price Top 5
Cost Margin Distributors Stable &
2x 1x -10% Significant 10% 30% 20% 10% Monolithic
Patent
Unattractive
or Unimportant
Focus on
Traditional
Strong Mfg Strategies
Brand
Potentially
Technology or troublesome
Performance Monitor &
Lead Experiment
20% Cost
Advantage
Attractive
&
Imperative
Commodity
20 x 5x +10% 50% 60% 30% 50% Dynamic &
Multiplying

37. Appendix A
Generic Profit Models

38. Notes about using the Generic
Profit Models
• The models serve two purposes
– They help us understand the drivers of our current
profitability
– They present us with alternative ways to look for future
profitability
• The models illustrate where the key sources of
profit are, they don’t suggest that this is where all
sales / profits should come from
• There are few “pure” examples of any model -
most successful business use a combination of
models

39. Notes about using the Generic
Profit Models (con’t)
• Following is a summary of 15 of the 21 profit
models used in the Business Modelling theory. A
full list with more detailed descriptions and
examples can be provided if required.

40. Value Capture - Generic Profit Models
Relative Market Share Profit
• Companies with high
The
Profit market shares are more
Zone
profitable because they
enjoy pricing
Return on Sales
advantages and cost
economies
(manufacturing experience &
purchasing power)
• Examples
Relative Market Share Procter & Gamble,
Coles-Myer
Source :- Slywotzky & Morrison, The Profit Zone

41. Value Capture - Generic Profit Models
Cycle Profit
Price
• Firm profitability is a
function of position in
the cycle
The
Profit
• Maximise profit within
Zone the cycle by …
$ per Unit
– Lowering your break-
even point
Cost
– Pricing within the cycle
• Example
Capacity Utilisation
Dow Chemicals (leads
price increases as capacity
tightens and lags decreases as
capacity declines)
Source :- Slywotzky & Morrison, The Profit Zone

42. Value Capture - Generic Profit Models
Brand Profit
• Brand company expends
considerable marketing
investment in building
awareness, recognition &
credibility
Price per Unit
• These “intangibles” are
reinforced by customer
experience
• The Brand achieves a
significant price premium in
the marketplace
Market Brand • Examples
Price Price
Nike, Coca-Cola
Source :- Slywotzky & Morrison, The Profit Zone

43. Value Capture - Generic Profit Models
Product Pyramid Profit
The Profit • Multi-tiered branding
Zone
• Most of the Profit is
made at the top
segments of the
pyramid
Price
• Base brands protect
top tier brands
• Example
SMH (watch makers who derive
more than half their profit from
Volume
Omega, Longines, Blancpain &
Rado brands but also have
brands like Swatch, Tissot, etc.)
Source :- Slywotzky & Morrison, The Profit Zone

44. Value Capture - Generic Profit Models
Customer Solution Profit
Sell the Box, or ...
• Know the customer
Product • Create a solution (that
Sell the Solution
reduces total customer
The Profit Zone system costs)
Product
Services Options Financing
• Build the relationship
• May incur early losses
• But significant profits
follow
• Example
Profit
ABB (can build & finance a power
station not just supply the
generators)
GE (provides financing, maintenance
Time & scheduling services as well as
Source :- Slywotzky & Morrison, The Profit Zone
selling locomotives)

45. Value Capture - Generic Profit Models
After-Sale / Installed Base
Profit • Profit on the Initial sale is
After-Sales Model secondary to profits from
The Profit Zone
follow-on products &
Product
services
Maintenance Consumables Accessories
• In the installed base model -
having the base gives you
proprietary rights to the
Installed Base Model follow-on
• In the after-sales model you
focus on follow-on sales of
Profit Margin
yours & others base
products
• Example
Gillette (Razor sales secondary to blade
follow on sales)
Hardware Consumables /
Base Product Follow-on Products
Source :- Slywotzky & Morrison, The Profit Zone

46. Value Capture - Generic Profit Models
New Product Profit
• New product profits are a
function of newness and
growth
• New products produce high
margins, which reduces as
the products mature
Total Sales $
• Profitability is driven by
investing to lead the next
The Profit generation of products in
Zone your industry
• Example
Time
Compaq (it’s investment in servers
gives it a high margin base while PC
profits are declining and Laptops are
gradually reaching maturity)
Source :- Slywotzky & Morrison, The Profit Zone

47. Value Capture - Generic Profit Models
“Two steps ahead” Profit
The • First mover generates
Profit
Zone excess returns before
imitators begin to
erode margins
• Create and maintain a
$ per Unit
lead time over the
Cost
next competitor and a
Price
constant stream of
new products
Q2 Q4 Q6
Quarters Post Launch
Q8
• Example
Intel (focuses on being two
years ahead of nearest rival’s
product developments)
Source :- Slywotzky & Morrison, The Profit Zone

48. Value Capture - Generic Profit Models
Protectable Intellectual
Property Profit • Profit comes from increasing
proportion of sales coming
from patentable products
Protectable
IP • Key driver of profitability is
Products Protectable
IP
the astute selection of R&D
Products projects to generate
Revenue
tomorrow's products
• Examples
Commodity
Products Merck, 3M
Commodity
Products
Five Years Today
Ago
Source :- Slywotzky & Morrison, The Profit Zone

49. Value Capture - Generic Profit Models
Local Leadership Profit
The Profit • Profitability is a
Zone
function of local
market strength
• Cost structure is local
Profitability by Region
in nature
• Profitability supports
0
growth, not the other
way around
• Example
Local Market Share Wal-mart (established stores
county by county and focussed
on achieving local dominance)
Source :- Slywotzky & Morrison, The Profit Zone

50. Value Capture - Generic Profit Models
Value Chain Position Profit
• Profit concentrates
itself in certain parts
20%
Leasing
of the value chain
• Profit comes from
15%
Operating Margin
Warranty – participating in the
Gasoline more profitable value
10%
chain segments OR
Auto
Loans – capturing downstream
5%
New Car
Dealers Auto margin by leveraging
Service / Repair
Auto Rental
Insurance
After-
value chain power
Auto
Used Car market
Manufacturing
0
Dealers Parts
0 25% 50% 75% 100%
Share of Industry Revenue
Source :- Slywotzky & Morrison, The Profit Zone

51. Value Capture - Generic Profit Models
Low-Cost Business
Design Profit • New entrant trumps the
incumbent's low cost
(through experience)
business model with a new
model that
Cost per Unit
– Uses new technology to
produce cheaper
– Uses different go-to-market
or fulfilment systems to
deliver better customer value
– Deletes unnecessary or
obsolete features from
Conventional Low Cost
Business Business
product offer
Design Design • Examples
Dell in computing, Nucor in
steel
Source :- Slywotzky & Morrison, The Profit Zone

52. Value Capture - Generic Profit Models
Switchboard Profit
• In markets characterised by Buyers Sellers
multiple sellers communicating
with multiple buyers, with each
The Profit
incurring high costs in doing so, Zone
a switchboard can provide a
valuable service Intermediary
(Switchboard)
• A switchboard becomes the
single point of communication,
reducing the costs of buyers &
sellers
• It profits through advertising and/or transaction fees
• The increase in available information often reduces the premium
sellers gain in selling to uninformed buyers
• Examples
Schwab (investments), Auto-by-tel (on-line car sales),
ChemConnect (chemical trading on-line)
Source :- Slywotzky & Morrison, The Profit Zone

53. Appendix B
Generic Frameworks for
Differentiation / Strategic Control

54. What is a Strategic Control Point ?
• A Strategic Control point is a mechanism
that helps protect the profits flowing from
a business model against the corrosive
effects of competition and customer
power
• A business model without a strategic
control point is like a ship with a hole in
its hull - it will sink much sooner !
• Strategic Control Point keep you in the
profit zone longer

55. Examples of Strategic Control
Points
Business models that have strong ...
• Brand, Copyright, Patents
• Control of Distribution / the Value Chain
• Two year lead in product development
• Commodity with 10% - 20% cost
advantage

56. Assessing the strength of your
Strategic Control Point(s)
• Strength is often different in different industries
(e.g. Brand is almost irrelevant in OE Automotive but extremely
relevant in carbonated beverages)
• Strength is relative to the countervailing strength
of your competitors & customers
• It is also relative to it’s reach
(e.g. if your have patent protected product only has application in
a very small segment of the market)
• Strength is cumulative i.e. if you have more than
one Strategic Control Point you can add their
scores together

57. The Template Strength vs.
Possession Reach Competitors / Index Value
Customers
Strategic Control Countervailing
What %age of
Point Do you Posses it?
your Sales does it
strength of Index value for my
Extended Value
(Yes=1, No=0) Competitors / industry
apply to?
Customers
A B C D AxBxCxD
Commodity with cost
disadvantage 1 0.0
Commodity with cost
parity 2 0.0
Commodity with 10%
to 20% cost 3 0.0
advantage
One Year lead in
Product development 4 0.0
Two Year lead in
Product development 5 0.0
Strong Brand,
Copyright or Patent 6 0.0
protection
Own the Customer
Relationship 7 0.0
String of super-
dominant positions 8 0.0
Control the Value
Chain / Distribution 9 0.0
Own the Industry
Standard 10 0.0
Total Strategic Control Rating 0.0

58. Examples
INTEL GE
Strength vs. Strength vs.
Possession Reach Competitors / Index Value Possession Reach Competitors / Index Value
Customers Customers
Strategic Control Countervailing Strategic Control Countervailing
What %age of What %age of
Point Do you Posses it?
your Sales does it
strength of Index value for my
Extended Value
Point Do you Posses it?
your Sales does it
strength of Index value for my
Extended Value
(Yes=1, No=0) Competitors / industry (Yes=1, No=0) Competitors / industry
apply to? apply to?
Customers Customers
A B C D AxBxCxD A B C D AxBxCxD
Commodity with cost Commodity with cost
disadvantage
1 0.0 disadvantage
1 0.0
Commodity with cost Commodity with cost
parity
2 0.0 parity
2 0.0
Commodity with 10% Commodity with 10%
to 20% cost 3 0.0 to 20% cost 1 100% 70% 3 2.1
advantage advantage
One Year lead in One Year lead in
Product development
4 0.0 Product development
4 0.0
Two Year lead in Two Year lead in
Product development
1 60% 40% 5 1.2 Product development
5 0.0
Strong Brand, Strong Brand,
Copyright or Patent 1 100% 70% 6 4.2 Copyright or Patent 6 0.0
protection protection
Own the Customer Own the Customer
Relationship
7 0.0 Relationship
1 100% 70% 7 4.9
String of super- String of super-
dominant positions 8 0.0 dominant positions 8 0.0
Control the Value Control the Value
Chain / Distribution
1 80% 50% 9 3.6 Chain / Distribution
9 0.0
Own the Industry Own the Industry
Standard
10 0.0 Standard
10 0.0
Total Strategic Control Rating 9.0 Total Strategic Control Rating 7.0