Business Modeling Quarter

Business Modeling Quarter (hereinafter, the Quarter) is a lecture introducing the learners to product design primarily through key topics related to business modeling. The Quarter is the third of four lectures of Business Quadrivium, which is the second of seven modules of Septem Artes Administrativi (hereinafter, the Course). The Course is designed to introduce the learners to general concepts in business administration, management, and organizational behavior.

Outline

Business Analysis Quarter is the predecessor lecture. In the enterprise modeling series, the previous lecture is Enterprise Architecture Quarter.

Concepts

1. Product engineering. The application of scientific principles to designing and/or modifying the product.
   • 

     Product mix
     Product mix. A model representing distinguishable components of any product, which must include a deliverable, product delivery, and product charge.
2. Product. (1) A solution or component of a solution that is the primary result of a project or operations; (2) An article or substance that is produced or refined for sale. Tangible goods such as produce or hardware, intangible items such as data, ideas, or software, such complex things as places and enterprises, as well as services, labor, personal time, events and other experiences are examples of products.
   • Product scope. All the features and functions that characterize a product.
   • Service. Any product in a form of work carried out or on behalf of others.
3. Product vision statement. A brief statement or paragraph that describes the why, what, and who of the desired software product from a business point of view.
   • Product vision statement. a high-level description of a product which includes who it is for, why it is necessary and what differentiates it from similar products.
   • Feature. A cohesive bundle of externally visible functionality that should align with business goals and objectives. Each feature is a logically related grouping of functional requirements or non-functional requirements described in broad strokes.
   • Defect. A deficiency in a product or service that reduces its quality or varies from a desired attribute, state, or functionality. See also requirements defect.
4. 

   Product lifecycle
   Product lifecycle. The cycle through which products tend to go through from their introduction to withdrawal or eventual demise.
   • Lifecycle. Important phases in the development of a system from initial concept through design, testing, use, maintenance, to retirement.
5. Market engineering. The application of scientific principles to segmenting and/or development of the market.
   • Segmentation. Division into separate parts or sections. In enterprise administration, division of the broad market into separate market segments in order to identify high yield markets.
   • Market segment. A group of potential customers who share one or more common characteristics. Marketing professionals identify such a group in order to identify high yield markets and, if these markets will be chosen as target ones, craft business strategies for each of those groups.
   • High yield market. Any market segment that is likely to be the profitable or that have high growth potential.
   • Target market. Any high yield market that the enterprise selects for its operations and for which a separate business strategy is developed.
   • Niche market. Any target market to which the enterprise tailors its specific product.
   • Market share. The portion of a market controlled by a particular business.
6. Segmentation base. A customer characteristic used to define market segments.
   • Demographic segment. A group of potential customers who share some biographical characteristics such as age, gender, income, education, socioeconomic status, family size, or marital situation.
   • Geographic segment. A group of potential customers who share their physical location or region such as continent, country, state, town or city, suburb, area, postcode, etc.
   • Social segment. A group of potential customers who share lifestyle, behavior, and/or social affiliation characteristics.
   • Historical segment. A group of existing and/or former customers of the enterprise with similar buying behavior.
   • Situational segment. A group of potential customers whose behavior change based on context and situation such as seasonal promotions.
7. Business strategy. A strategy that determines the behavior of the enterprise on a particular segment of its market.
   • Growth strategy. A business strategy that's used when the enterprise wants to expand the number of markets served or products offered, either through its current business(es) or through new business(es).
   • Innovation strategy. A business strategy that emphasizes the introduction of major new products and services.
   • Stability strategy. A business strategy in which an enterprise continues to do what it is currently doing.
   • Cost-minimization strategy. A business strategy that emphasizes tight cost controls, avoidance of unnecessary innovation or marketing expenses, and price cutting.
   • Imitation strategy. A business strategy that seeks to move into new products or new markets only after their viability has already been proven usually by competitors.
   • Startup pivot. The act of a startup quickly changing direction with its business strategy. For example, an enterprise server startup pivoting to become an enterprise cloud company.
8. Sales. (1) Selling; (2) Enterprise efforts that contribute to selling; (3) The amount of products sold in a given period of time. The seller or the provider of the products completes a sale in response to an acquisition, appropriation, requisition, or a direct interaction with the buyer at the point of sale.
   • E-commerce. The process by which goods and services are bought and sold via the internet utilizing web sites that are virtual stores. Examples include businesses from banking to baked goods and everything on between.
   • License selling. A way of granting multiple people access to the same shared software application. An ERP buyer pays a one-time fee for each named or concurrent user to use the software.
   • Value-added reseller (VAR). A reseller that adds value to an existing software product through the addition of features or services, then resells it to end users.
   • Point of sale (POS). The time and place that a sales transaction took place. In ERP software, this is normally the ability to handle retail or counter sales.
9. Business transaction. (1) A sale or procurement, lease, assignment, award by chance, any other acquisition or transfer of a product; (2) Transmitting of funds over an electronic network or physically.
   • Business-to-consumer (B2C). (1) A business transaction of sale in which a business sells its products directly to individual customers and end consumers; (2) A situation in which a business targets individual customers with its products.
   • Business-to-business (B2B). (2) A business transaction of sale in which the vendor and consumer are both businesses, not end consumers; (2) A situation in which a business targets other businesses with its products.
   • Business-to-government (B2G). (1) A business transaction of sale in which a business sells its products to the government; (2) A situation in which a business targets the government with its products.
   • Business-to-employee (B2E). (1) A business transaction of sale in which a business sells its products directly to its employees; (2) A situation in which a business targets employees with its products.
10. Business administration. Administration of a business.
    • Administration. People, process, or period of being in charge of somebody or something.

Roles

1. Customer. Any stakeholder who is a direct beneficiary of usage of a particular product. Ideally, the product is designed for its customers. Usually, customers pay for the product as well. All product customers are product consumers.
   • External customer. A customer, such as a supplier or client, beyond the boundaries of the enterprise.
   • Internal customer. A customer, such as a top officer, manager, subordinate, team member or coworker, and/or other department representative, within the boundaries of the enterprise.
2. Marketing professional. A practitioner involved in discovery, analysis, design, and development of (a) markets, (b) products, and (c) connection of the potential customers to the developed products.
3. Product owner. A person who holds the vision for the product and is responsible for maintaining, prioritizing and updating the product backlog. In Agile methodology, the product owner has final authority representing the customer's interest in backlog prioritization and requirements questions. This person must be available to the team at any time, but especially during the Sprint planning meeting and the Sprint review meeting. Challenges of being a product owner: (1) Resisting the temptation to "manage" the team. The team may not self-organize in the way you would expect it to. This is especially challenging if some team members request your intervention with issues the team should sort out for itself. (2) Resisting the temptation to add more important work after a Sprint is already in progress. (3) Being willing to make hard choices during the sprint planning meeting. (4) Balancing the interests of competing stakeholders.

Methods

1. Lean startup. “Lean startup is a term coined and trade marked by Eric Ries. His method advocates the creation of rapid prototypes designed to test market assumptions, and uses customer feedback to evolve them much faster than via more traditional product development practices, such as the Waterfall model. It is not uncommon to see Lean Startups release new code to production multiple times a day, often using a practice known as Continuous Deployment.” (Source: Wikipedia) You should note the slight differences between lean and bootstrapping. “Bootstrapping provides a strategic roadmap for achieving sustainability through customer funding (i.e. charging customers), lean startups provide a more tactical approach to achieving those goals through validated learning.” (Source: Ash Maurya) An Example of 3 Stages of a Lean Startup (Source: Ash Maury): 1. Customer Discover (Problem/Solution Fit) 2. Customer Validation (Product/Market Fit) 3. Customer Creation (Scale) Note that a bootstrap and lean startup have differences and bootstrapping does not mean spending any money.
   • Lean. Also referred to as: lean manufacturing, lean enterprise, lean production. “The core idea is to maximize customer value while minimizing waste. Simply, lean means creating more value for customers with fewer resources.” (Source: Lean Enterprise Institute) The definitions and usage of ‘lean’ vary depending on context and application. The origin of the word in business can be linked back to the 90’s. “Lean manufacturing is a management philosophy derived mostly from the Toyota Production System (TPS)”. (Source: Wikipedia) The key focus is around the reduction of waste whiling focusing on delivering value to the customer.
   • Bootstrap startup. “Bootstrapping involves launching a business on a low budget. Practically this means that you’ll outsource (most likely offshore) your design and development, you‚’ll rent your servers, you won‚’t have an office and you’ll have no salary. Prior to launch, the only expensive professional services which you’ll buy will be your legal advice and accountancy services. Everything else, you’ll have to pick up yourself and learn as you go along.” (Source: RWW) An Example of 3 Stages of a Bootstrap (Source: Ash Maurya): 1. Ideation (Demo) 2. Valley of Death (Sell) 3. Growth (Build) Note that a bootstrap and lean startup have differences and bootstrapping does not mean spending any money. “Bootstrapping and Lean Startups are quite complementary. Both cover techniques for building low-burn startups by eliminating waste through the maximization of existing resources first before expending effort on the acquisition of new or external resources. While bootstrapping provides a strategic roadmap for achieving sustainability through customer funding (i.e. charging customers), lean startups provide a more tactical approach to achieving those goals through validated learning.” (Source: Ash Maurya)
2. Make-or-buy decision. The act of choosing between manufacturing a product in-house or purchasing it from an external supplier.

Instruments

1. 

   Business Model Canvas
   Business Model Canvas. “The Business Model Canvas is a strategic management template for developing new or documenting existing business models. It is a visual chart with elements describing a firm’s value proposition, infrastructure, customers, and finances. It assists firms in aligning their activities by illustrating potential trade-offs.” (Source: Wikipedia) A business model is a dynamic document that describes how your company creates, delivers and captures value. The 9 Business Model Canvas Building Blocks (Source: Business Model Generation): (1) customer segments, (2) value propositions, (3) channels, (4) customer relationships, (5) key resources, (6) key activities, (7) key partnerships, and two summary blocks, (8) revenue streams and (9) cost structure.
2. Product mix. A combination of components of a product that a business controls in order to influence consumers to purchase this product. Any product mix includes a (1) deliverable, which can be divided in an unpackaged deliverable and packaging, (2) product delivery, which may incorporate delivery personnel, and (3) product charge, which can be divided in a price, financing, and acceptable payment methods.
   • Product delivery. The action of delivering products either ordered or for sale. Delivery personnel may be important for this delivery.
   • Product charge. A payment asked for a product. Not only its price, but also financing and acceptable payment methods may be important for this charge.
   • Product presentation. The proffering or giving of a product to its potential consumers, particularly, through product manuals, official website, and public relations.
   • Branding. The marketing practice of creating a name, symbol, or design that identifies and differentiates a product from other products.
3. Sales mix. A combination of components of sales and those enterprise efforts that contribute to sales.
   • Personal selling (or face-to-face selling). Selling in which the salesperson personally makes a sale or tries to make a sale of a product.
   • Sales promotion. The techniques to urge a potential customer to buy the product. Most of techniques such as money off coupons, competitions, discount vouchers, free gifts, and/or point of sale items are designed to be used as a short-term tactic to boost sales. However, some techniques such as loyalty cards are suitable as a method of building long-term customer loyalty.
   • Advertising. The activity or profession of design, production, and commercial placement of advertisements.
   • Product publicity. The activity or profession of design and production of events in order to provoke the notice or attention by the media.
   • Channel partnership. Formal or informal partnership of at least two legal entities, one of which uses another one's channels in order to design, produce, or sell its products usually in exchange for some portion of the sales. This partnership usually incorporates a co-branding relationship.
4. Incubator. An organization that helps develop early stage companies, usually in exchange for equity in the company. Companies in incubators get help for things like building their management teams, strategizing their growth, etc.
   • Ground floor. A reference to the beginning of a venture, or the earliest point of a startup. Generally considered an advantage to invest at this level.
5. Business orientation model. A model that represents concentrations of a business on one or more components of its products, processes, sales, and/or markets and customers.
   • Product development model. Concentration of a business on one of more components of its products. In this model, development starts with a product idea followed by months of building to deliver this idea to the target markets.
   • Process orientation. Concentration of a business on one of more components of its processes.
   • Sales orientation. Concentration of a business on one of more components of its sales.
   • Society orientation. Concentration of a business on one of more components of enterprise environments which this business serves with its products.
6. Customer development model. Concentration of a business on one of more components of its target markets and/or specifically customers. In this model, development begins by talking to prospective customers and developing something they are interested in purchasing or using. Steve Blank and Eric Ries encourage startups to get early and frequent customer feedback before developing their products too far (in the wrong direction). The four steps to the model are customer discovery, customer validation, customer creation, and business building.

Results

1. Business model. The core part of the strategic plan that suggests how an enterprise is going to make money in its business. The business model usually answers two key questions: how the enterprise is going to earn and how it is going to spend in a particular business or a group of them. Its competitive strategy may answer the question about its earning. Its business strategy may answer the question about its spending. Because an enterprise can be involved in several businesses, it can have several business models.
   • Model. An abstraction of reality, a simplified representation of either some real-world phenomenon or a new concept developed to convey information to a specific audience to support analysis, communication and understanding.
   • Business domain model. A conceptual view of all or part of an enterprise focusing on products, deliverables and events that are important to the mission of the organization. The domain model is useful to validate the solution scope with the business and technical stakeholders. See also model.
2. Product scope. The features and functions that characterize a product, service or result.
   • Scope. (1) The extent of the area and/or subject matter that somebody or something deals with or to whom or which it is relevant; (2) The opportunity or possibility to do or deal with something. In project management, two different scopes, (a) product scope and (b) project scope, are widely used.
   • Scope model. A model that defines the boundaries of a business domain or solution.
   • Scope statement. The scope statement provides a documented basis for making future project decisions and for confirming or developing common understanding of project scope among the stakeholders. As the project progresses, the scope statement may need to be revised or refined to reflect approved changes to the scope of the project.
3. Business architecture. A subset of the enterprise architecture that defines a business' current and future state, including its strategy, its goals and objectives, the internal environment through a process or functional view, the external environment in which the business operates, and the stakeholders affected by the business' activities.
   • Business portfolio. The collection of products provided by one strategic business unit. Many businesses will engage in business portfolio analysis as part of their strategic planning efforts by categorizing the products they offer by relative competitive position and rate of sales growth.

Practices

Project Management Quarter is the successor lecture. In the enterprise modeling series, the next lecture is Effort Engineering Quarter.