In current era, it is very difficult to find clear boundaries between many areas in business and technology. accordingly it is very crucial for IT consultants to understand the other side of business models. This will have a great impact of IT delivery of business. This should be very clear to every team member either working in IT division or within IT service company. Everyone of the team should be fully aware of client business model. This will impact positively the bottom line delivery quality. Moreover, this will set the context for every IT deliverable within the value of chain of the organization.
I was motivated to write in this arena since understanding client business models is normally a neglected subject for most of IT organizations or companies. Moreover, understanding of clients business ensures proper response to their needs and improves dramatically IT offering. IT services companies could improve their ability to respond to market needs once build awareness of target customers business models.
In this post, I will go over a simplified business model presented by Alexander Osterwalder in his innovative book called “Business Model Generation“. The book presents the essential building block of any business model. I believe that IT understanding of those elements will improve dramatically business-to-IT alignment. Herein below I will go through those building blocks.
- Customer Segments:
Customers are at the heart of any business model. Any business model is designed around strong understanding of specific customer needs. Without profitable customers no company survives. Organization should take conscious decisions for picking its customers through discovery and validation phases.Customer could be segmented based on various criteria which could be elaborated in another post.
Value Proposition: This describes the bundle of products services that create value for specific customer segment.
- Channels: This describes full-duplex channels from organization to its customers and vice versa. Through those channels customer could transact to get required values and organization could hear to its client to maintain good relationship.
- Relationship: Modern management styles currently is putting high interest in keeping and monitoring customer relationship in a good healthy state. Knowing that new customer acquisition costs more than keeping existing customers by around 10 folds. Attrition rate is one of management performance indicators. Facilities of maintaining this relationship should be clear such as dedicated personnel assistance, through self-service channels, or personal assistance such as call centers.
- Revenue Streams: For any business those streams should be clearly identified. Those could be through one-time transactions or through a continuous revenue stream. For any business there are categories of revenue streams, such as asset sale, service sale, brokerage, lending, leasing, or subscription fees.
- Key Resources: This is the most important assets of the organization. Those key resources could be physical fixed assets, intangible intellectual property, financial, or human resources. IT services companies have human resource and intellectual property as most viable assets.
- Key Activities: Organization activities differ based on their offering and industry. This could be software development, supply chain management, financial services, etc. For example, consultancy companies is concerned upon problem solving activities.
- Partnership: There is no business could work with no partners. Partnerships could take different shapes, e.g., strategic alliances, joint ventures, or suppliers. Even competitors could be partners on transaction-basis. This would reduce the risk, increase business capacity, extend resources and activities.
- Cost Structure: This covers all costs covering all capital and operating expenses required to run the business. some organizations are cost-driven, its final offering is driven by cost such as economic airlines. On the other hand, other organizations are value-driven such as luxurious car manufacturers or big consultancy houses.
The following diagram depicts the relationship among those building blocks.
The understanding of above model would enable IT organization to perform in the light of client objectives.
I will continue elaborating upon the relationship between IT and business customers in the next posts. I would appreciate receiving your comments and interactions.