book.chapter Shape business model

In the contemporary economy, a business is essentially a collection of both tangible and intangible assets that are interconnected and optimized through technology. The primary challenge for success in this new economic landscape is to devise a business model that effectively combines these assets to create added value, rather than solely depending on historical precedents. A company's assets, which are the resources it uses to create value, have traditionally been limited to physical assets. However, intangible assets such as knowledge, customer relationships, and information are increasingly critical. While financial statements like the balance sheet, income statement, and cash flow statement have been the traditional tools for measuring a company's performance, they often fail to capture the value-creation potential of intangible assets. To address this, the Value Dynamics framework offers a more comprehensive view of the asset classes that are currently driving value. According to Value Dynamics, the most significant assets are categorized into five groups: physical, financial, organizational, customer, and employee/supplier assets. These assets can be tangible or intangible, indicate the potential for future value generation, do not necessarily need to be owned or controlled by the company, and require life cycle management. Value Dynamics suggests that companies create value by leveraging these various asset classes to develop distinct business models. For example, companies that effectively utilize physical assets, such as The Walt Disney Company with its valuable land around Disney World, Southwest Airlines with its standardized fleet, Dell Computer with its just-in-time inventory system, and Walmart with its combination of buildings and inventory, are able to generate revenues more efficiently than their competitors. Similarly, companies that skillfully employ financial assets, like Microsoft with its substantial cash reserves for acquisitions, Dell with its cash flow management, Lucent Technologies with its venture capital fund, Amazon with its convertible bonds, Cisco with its stock-based acquisitions, and GE Capital Services as a major contributor to GE's market valuation, create a sustainable competitive edge. Organizational assets, which include a company's structure, culture, processes, systems, brands, innovation capabilities, and proprietary knowledge, also play a crucial role in wealth generation. Examples include IBM's market value growth through strong leadership, Johnson & Johnson's decentralized structure, Pfizer's drug development success, Starbucks' brand building, and Idealab's creation of numerous Internet companies. Customer assets, such as end users, affiliates, and distribution channels, are leveraged by companies like Gap, Duracell, Autobytel, and Charles Schwab to own the entire chain from originator to consumer, which is reflected in their market capitalizations and sales figures. Lastly, companies that harness employee and supplier assets, including the entire supply chain, partners, and staff, like DaimlerChrysler, Virgin Group, and Psion in collaboration with Nokia and Ericsson, have seen significant benefits. When designing an ideal business model for the new economy, companies must consider three critical questions: which assets currently create value and to what extent, which assets will be required for future success, and how the current asset mix can evolve towards the ideal future combination. Strategies to achieve this include building new assets, enhancing current ones, partnering to leverage others' assets, improving underperforming assets, and avoiding duplication. As market conditions change, companies must adapt their asset combinations accordingly. Ultimately, the mix of tangible and intangible assets defines a company and determines its competitive advantage, with the most effective models outperforming the rest.