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The Value Chain
Support
activities
Primary activities
Inbound logistics
Operations
Outbound logistics
Marketing and Sales
Service
Corporate infrastructure
Human resources management
Technology Development
Procurement
Materials receiving, storing, and distribution to manufacturing premises
Transforming inputs into finished products.
Storing and distributing products
Promotions and sales force
Service to maintain or enhance product value
Support of entire value chain, e.g. general management planning,
financing, accounting, legal services, government affairs, and QM
Recruiting, hiring, training, and development
Improving product and manufacturing process
Purchasing input
The Value Chain Defines Indust ry Str ucture a nd Relationships
Source: Applegate, Lynd a M., Rober t D. Austi n, and F. War r en McFarla n, Corporate I nfor mation Strategy and M anagement. Bur r Ridge, IL:
McGr aw-Hill/Irwin, 2002.
Chapter 1 Figur e 1-3
Crafting the Network Economy
Business Model
Concept
describes the
opportunity and
strategy
Value
Measures the
benefits to
investors and
other
stakeholders
Capabilities
define resources
needed to
execute strategy
Crafting the Network Economy
Business Model
Focused Distributor Business Models
Models and
Examples
Own
Inventory
Sell
Online
Price
set
Online
Physical
product
or service
Likely
Revenues
Likely costs
Retailer
ToysRus.com
Staples.com
Yes
Yes
No
Yes
Product/service
sales
Advertising and marketing;
physical facilities; inventory
and customer services;
R&D; IT infrastructure
Marketplace
Eloan.com
nsweb.com
Possible
Yes
No
No
Transaction fees;
service fees;
commissions
Advertising and marketing;
R&D; IT infrastructure
Aggregator
Internet
Securities
No
No
No
Possibly
Referral fees;
advertising and
marketing fees
Advertising and marketing;
R&D; IT infrastructure
Exchange
ebay.com
freemarket.com
Possibly
Possibly
Yes
Possibly
Depends on
model
Advertising and marketing;
staff support for auctions
(especially B2B)R&D; IT
infrastructure; inventory
control; R&D; technical
infrastructure.
Building the Networked Business
 “ABB is an organization with three
internal contradictions. We want to be
global and local, big and small,
radically decentralized with
centralized reporting and control. If
we resolve those contradictions, we
create real competitive advantage”

Percy Barnevik, CEO Asea Brown Boveri
(ABB)
Approaches to Business Model Evolution
Extend
Enhance
EnterExtend
into a new line of
Enhance
Enhance
Extend
Add functionality
oror features
to
Add functionality
features to current
product/service
offerings
or
improve
current product/services offering
performance of existing business
or improve performance of existing
business
Enter new line of business and/or add new
business
and/or add new
business models
business model
Expand
Exit a business orExit
market
Exit a business or market or drop a
or drop a product/service
product/service offering
offering
Exit
Exit
Expand
Expand
new product/service
product/service offerings
AddAdd
new
or enter new geographic markets
offering or enter new
geographic market