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IT Understanding of Customer Business Model

Oct 15, 2010 by     4 Comments    Posted under: Understanding the Other Side
 

Connecting the Business-to-IT Puzzle

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.

  1. 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.
  2. Value Proposition: This describes the bundle of products services that create value for specific customer segment.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.

Business Model 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.

  1. •Require different offers,
  2. •Reached thru different channels,
    •Require different types of relationships,
    •They have different profitability levels,
    •Willing to pay for different scales.
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4 Comments + Add Comment

  • I liked the idea and very thanks for you care, and Insha’ Allah with your support will succeed to achieve this target

     
    • Thanks Sameh – the idea or the theme of the whole blogs is to share all of our ideas that are not may be not fully reflected in literature but they are derived from practice and experience.

      regards,
      Mohamed Abdel Moneim

       
  • Congratulations on the new blog. I’m one of those excited about the idea of “spreading the word”. and that blog is a very strong idea…

    I hope everybody share his thoughts in the sake of improving our skills. I believe that this blog would be very useful for us as it touches the heart of our career and expands our knowledge.

    I suggest to write another part in the same subject shows an example of extracting the elements/blocks and their relations of business model from a real or virtual organization in a brain storming form. It would be very helpful to combine between the application of theories beside their abstracts.

     
    • Thanks Ahmed a lot – I believe that we need to invest in this and make it a motivation for everyone to transfer experience from just thoughts into a written material and knowledge.

      Your suggestion is very valid and we will work together on it in future posts under the same thread.

      Mohamed Abdel Moneim

       

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