Business Modeling Quarter

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Business Modeling Quarter (hereinafter, the Quarter) is the third of four lectures of Product Quadrivium (hereinafter, the Quadrivium):

The Quadrivium is the first of seven modules of Septem Artes Administrativi, which is a course designed to introduce its learners to general concepts in business administration, management, and organizational behavior.


Outline

The predecessor lecture is Business Analysis Quarter.

Concepts

  1. Product engineering. The application of scientific principles to designing and/or modifying the product.
  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, as well as services, experiences, labor, personal time, places, and enterprises are examples of products. Product mix clarifies distinguishable components of any product, which must include a deliverable, product delivery, and product charge.
  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 backlog. A set of user stories, requirements or features that have been identified as candidates for potential implementation, prioritized, and estimated.
    • Product backlog. The list of requirements requested by the customer. The product backlog is not a to-do list; rather, it is a list of all the features the customer has requested be included in the project. The requirements include both functional and non-functional customer requirements, as well as technical team-generated requirements. While there are multiple inputs to the product backlog, it is the sole responsibility of the product owner to prioritize the product backlog. During a Sprint planning meeting, backlog items are moved from the product backlog into a sprint, based on the product owner's priorities.
    • Backlog. A changing list of product requirements based on the customer’s needs. The backlog is not a to-do list; rather, it is a list of all the desired features for the product. The Agile team uses the backlog to prioritize features and understand which features to implement first.
    • Backlog grooming. The process that occurs at the end of a sprint, when the team meets to make sure the backlog is ready for the next sprint. The team may remove user stories that aren’t relevant, create new stories, reassess priority, or split user stories into smaller tasks. Backlog grooming is both an ongoing process and the name for the meeting where this action occurs (a backlog grooming meeting).
    • Product backlog item (PBI). A single element of work that exists in the product backlog. PBIs can include user stories, epics, specifications, bugs, or change requirements. The product owner of an Agile team compiles and prioritizes the product backlog, putting the most urgent or important PBIs at the top. PBIs comprise tasks that need to be completed during a Scrum sprint—a PBI must be a small enough increment of work to be completed during a single sprint. As PBIs move up to a higher priority in the product backlog, they are broken down into user stories.
    • Sprint backlog. A segment of Product Backlog Items (PBIs) that the team selects to complete during a Scrum sprint. These PBIs are typically user stories taken from the product backlog.
  5. Product life cycle. The cycle through which every product goes through from 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.
  6. Market engineering. The application of scientific principles to segmenting and/or development of the market.
  7. 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.
  8. Competitive strategy. A formulated strategy for how a strategic business unit is going to compete. This formulation usually states which one of four types of competitive strategies the strategic business unit is going to pursue, what it considers as its competitive advantage or advantages, defines its business model, and may or may not include (a) what products, (c) resulted from what production, (d) at what price, (e) using what presentation and promotion, (f) on what market or markets with regard to the region or regions and/or segment or segments of customers, (g) with what front-end office personnel, (h) with what level of enterprise's support this enterprise is going to offer, as well as (i) what financial results and/or competitors' actions would trigger what changes in those decisions. Rarely, a mature enterprise formulates just one competitive strategy; usually, there are several competitive strategies in the enterprise portfolio since different strategic business units are supposed to have their own competitive strategies.
    • Core competency. An organization's major value-creating capability that determines its competitive weapons.
    • Competitive advantage. What sets an enterprise apart; its distinctive edge.
  9. Cost leadership strategy. The competitive strategy that strives to achieve the lowest cost of operation in the industry. The lowest cost of operation is usually driven by (a) significant economy of scale, which requires a substantial market share, and/or (b) learning curve, which requires substantial experience in the operations. The lowest costs do not necessarily mean the lowest prices; a cost leadership strategy is about two competitive advantages: (1) business opportunities to lower prices when and if the competition requires it and (2) maximization of the difference between sales and cost of operation.
    • Mass production. The production of items in large batches.
    • Mass customization. Providing customers with a product when, where, and how they want it.
    • Exporting. Making products domestically and selling them abroad.
    • Importing. Acquiring products made abroad and selling them domestically.
  10. Differentiation strategy. The competitive strategy that strives to charge high prices. These high prices are commonly driven by unique features (or differences) of the product that are offered for sale on the market. Customers usually are willing to pay high prices when products are uniquely desirable.
    • First mover. An enterprise that's first to bring a product innovation to the market or to use a new process innovation.
  11. Focus strategy. The competitive strategy that strives to offer specialized products on a niche market.
  12. Business strategy. A strategy that determines the behavior of the enterprise on a particular segment of its market.
  13. 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.
  14. Business transaction. (1) A sale or procurement, lease, assignment, award by chance, any other acquisition or transfer of a product; (2) Solicitation to supply a product; (3) Transmitting of funds or data over an electronic network or physically.

Roles

  1. Customer (or client). 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.
  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.

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. Business development model.
    • Product development model.
    • Customer development model. “The ‘traditional’ way to approaching business is the Product Development Model. It starts with a product idea followed by months of building to deliver it to the public.” (Source: Find The Tech Guy) However the Customer Development Model begins by talking to prospective customers and developing something they are interested in purchasing/using. These concepts are promoted strongly by Steve Blank and Eric Ries who 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 (Source: Find The Tech Guy): 1. Customer Discovery 2. Customer Validation 3. Customer Creation 4. Company Building

Instruments

  1. 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. Business orientation mix. A combination of concentrations of a business on one or more components of its products, processes, sales, and/or markets.
  3. 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.
  4. Sales mix.
  5. 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.

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.

Practices

The successor lecture is Project Management Quarter.

Materials

Recorded audio

Recorded video

Live sessions

Texts and graphics

See also

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