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Lecture 3 Crafting Strategy-based Business Models? MGMT 6180 - © 2012 Houman Younessi Lecture 3 Silk, Sword and SUV – Global Business The interaction of enterprise, markets and the environment. MGMT 6180 - © 2012 Houman Younessi Lecture 3 Providing value: need for high quality products and services 1. Why do business at all? 2. What products should we make and where should we sell them? 3. How do I get the most reward for my enterprising effort? 4. How long can I/ should I continue in that enterprise? MGMT 6180 - © 2012 Houman Younessi Lecture 3 Why do business at all? Profit What is Profit? Accounting profit versus economic profit Opportunity cost MGMT 6180 - © 2012 Houman Younessi Lecture 3 What products should we make and where should we sell them? Demand If you do not think that there is anyone out there who wishes to buy the product under question, then it should not be offered MGMT 6180 - © 2012 Houman Younessi Lecture 3 How do I get the most reward for my enterprising effort? Determining which item should be sold where and when Demand manipulation: Price setting, Advertising, Market generation, Income, Wealth, etc Supply management: Amount of supply, Competing Products, Complementary products, etc. Elasticity of Demand MGMT 6180 - © 2012 Houman Younessi Lecture 3 How long can I/ should I continue in that enterprise? Risk Opportunity MGMT 6180 - © 2012 Houman Younessi Lecture 3 The Value of Firm Model: pt rt c t V t t t 1 (1i) t 1 (1i) n n MGMT 6180 - © 2012 Houman Younessi Lecture 3 r Firms would have revenue if there was demand for their products. There will be demand only if the product: Satisfies a need or want Represents an adequate level of quality The required quality is offered at an acceptable price MGMT 6180 - © 2012 Houman Younessi Lecture 3 INFORMATION on What products and, products that we contemplate offering in the future are (or will be) needed? What level(s) of quality of products will be demanded by the market and where? What is the quality level of the products we currently make and how much does it take to improve that quality? What level of demand will there be for our products and when will that demand manifest itself? What prices should the firm set for their products, and should the prices be uniform or vary in their different markets? use MGMT 6180 - © 2012 Houman Younessi Lecture 3 c Capability Production Quality Technology Resources MGMT 6180 - © 2012 Houman Younessi Lecture 3 i MGMT 6180 - © 2012 Houman Younessi Lecture 3 n MGMT 6180 - © 2012 Houman Younessi Lecture 3 Element Concept Information Category Information System Revenue Demand Market trends and marketing Product quality Pricing Data Acquisition Data Analysis Control Forecasting Optimization Cost Production Process capability Technology Forecasting Estimating Optimization Control Risk Uncertainty Economic Environment Internal control Forecasting Control Longevity Sustainability Environment Integration and systemicity Forecasting Optimization MGMT 6180 - © 2012 Houman Younessi Lecture 3 Business Model Aggregate Demand and Aggregate Supply Demand and Supply Supply Side Demand Side MGMT 6180 - © 2012 Houman Younessi Lecture 3 The Product, Quality, Demand Stage Aggregate Demand and Aggregate Supply Demand and Supply Supply Side Demand Side MGMT 6180 - © 2012 Houman Younessi Lecture 3 Product Orientation Element Revenue Concept Demand Information Category Market trends and marketing Product quality Pricing Information System Data Acquisition Data Analysis Control Forecasting Optimization MGMT 6180 - © 2012 Houman Younessi Lecture 3 Quality - Design - Meeting requirements - Control - Meeting specifications - Delivery - Meeting expectations Example: Hospital MGMT 6180 - © 2012 Houman Younessi Lecture 3 Product Orientation Element Revenue Concept Demand Information Category Market trends and marketing Product quality Pricing Information System Data Acquisition Data Analysis Control Forecasting Optimization MGMT 6180 - © 2012 Houman Younessi Lecture 3 The pitfall of Ceteris Paribus • The demand side of the market can be represented by the demand curve • The shape of the demand curve determines demand points (levels of demand) • Demand points in turn determines supply levels needed to maximize revenues However The demand curve (function) changes and shifts with respect to changes in consumer taste, income, population, commodity prices, availability of other products, product quality, access, and price stability MGMT 6180 - © 2012 Houman Younessi Lecture 3 Consumer taste, We need to not only acquire data on these but also to analyze and present the information such data might imply. Income, Population, Commodity prices, Availability of other products, Product quality, Access, and Price stability • • • • • Data Acquisition Data Analysis Control Forecasting, and Optimization applications are to be used. MGMT 6180 - © 2012 Houman Younessi Lecture 3 EXERCISE: Pick a product (as if it is yours) and position it, so that you can estimate annual revenue. MGMT 6180 - © 2012 Houman Younessi