Nine Criteria for better Business Model

There are enough good business models in the market place. However, what we need is a better one; the one that stands out amongst many a competitor. To design a better business model we need to have a set of criteria. In this blog post I am listing nine criteria that a better business model must conform to:

1. Robust: To start with, a business model must be built on a fitting architecture that is not only strong but exhibits vibrancy in internal health. No doubt it must be powerfully built. Equally important is that a business model must be scalable in terms of expected growth of business and flexible in terms of meeting any eventuality. Acid test of better ones rest on how the model works under trying conditions

2. Coherent: The second criterion of coherence has two dimensions: one deals with internal consistency where components of a business model are consistent in purpose and in practice; other dimension is to do with being logical in arriving at a decision or conclusion. Even a consistent model could fail if it does not lead to its proper conclusions. Put it the other way, a business model must provide direction leading to a desired solution in a consistent manner

3. Complete: “Half learning is dangerous thing”, said Ben Johnson. Equally, an incomplete business model is deemed counterproductive. A better business model must have enlarged scope covering all the elements to the extent that it tells the story in full. Completeness requires both breadth and width. One cannot do without the other

4. Substantive: Being substantive is to furnish details at the level required so that components of a business model demonstrate their importance, usefulness on the back of reality. These elements are to be shown in model architecture as possessing the capacity to work independently and inter-dependently

5. Simple: So simple it is so better a business model. It must be easy to understand and must be easy to implement

6. Practical: Anyone can fantasize on business model. But a better business model designer comes out with one that easily fits into the system within a business and outside in the wide area of competition. It must do the right thing in right manner. Let me turn to the management Guru Peter F Drucker for his comment: “Efficiency is doing things right; effectiveness is doing the right thing”. Do I need to say anymore?

7. Communicative: Like every company statement, business model must have in – built feature to communicate with the business world. There is no hide and seek or cops and robbers in a business model. It explains to the people out there how the business is going to practice its business. We need two characteristics to make a business model communicative: it must be impressive and at the same time it must be elegant. Google developed this one; other search engines are going pell-mell to bring out one that can match it

8. Innovative: Who said that? When you open the subject of business model invariably you are enamoured with what the industry calls as business model innovation (BMI). Nowadays every business feels the urge that either it must innovate or bring down the shutters. Innovation does not necessarily mean new idea or new product. It means lot of other things; new mode of doing business, new use of products, new markets for products and so on. The fundamental theme underlying innovation is how to keep completion at bay for the time being. At best, using innovation a business can roll out a business model that cannot be replicated in the short run by its competitors. What about long-run?

9. Positionable: The answer to the above is given by the capability of business model of being positioned in a particular point, line and level of an industry. Everyone concerned with designing and innovating business model is aware that positioning business model is the final arbiter. Because it gives short-run survival and provides long-term safety. On the one hand your business model should be defensible against competitors; on the other hand business model must be able to mount an attack against competitors if it is really necessary.

Muthu Ashraff

Business Adviser

Mobile: +94 777 265677

E-mail: cosmicgems@gmail.com

Web: http://www.cosmicgemslanka.com

Blog: http://cosmicgemslanka.com/blog/

 

How Business Model of Richemont looks like?

Richemont group is the second largest personal luxury goods company in the world by turnover. Dealing in jewellery, specialist watches, pens, accessories and fashions, Richemont repertoire includes Cartier, Van Cleef & Arpels luxury jewellers. Standing next to Swatch Group it has the large collection of luxury brand names in watches including Piaget, Baume & Mercier, and Officine Panerai. To conclude the troika Montblanc gives the company a flagship in the pen market. It must be pretty fantastic to have all these under its management. To make this venture run seamlessly Richemont needs equally game changing business model.

Business Model

I am following the framework introduced by John Mullins and Randy Komisar in their well-known book titled ”Getting to Plan B: Breaking Through to a Better Business Model” to illustrate how the business model of Richemont looks like. This framework has five elements: revenue model, gross profit model, operating profit model, working capital model and investment model.

1. Revenue Model

Richemont is short form name for “Compagnie Financière Richemont S.A”. The company was founded by Johann Rupert who functions as executive chairman and CEO. According to the latest financials ending 31 March 2012 about 18 individual companies scripted as “Maison” handle personal luxury goods sector of the group. In the jewellery segment, Cartier and Van Cleef & Arpels conduct 52% of the group business, followed by 9 Maisons involved in specialist watchmakers pumping in 26% of the group business. Montblanc Maison is the solitary company in the writing instruments sector with a contribution of 8% of group turnover. Others such as Alfred Dunhill amount to 6 Maisons in accessory, fashion and leather goods segment bringing 14% of sales.

Even though the company continues its concentration in Europe, Asia Pacific region including Japan dominates with 51% of the total sales amounting to a staggering Euro M 4,517. As a consequence customer segmentation is now fairly skewed towards emerging markets in Asia where some 72 boutiques were opened in China alone. Europe is still a big market with 35% of share followed by 14% in Americas. To satisfy the needs of growing and wealthy population in these three regions, Richemont purveys excellent pieces of jewellery, time pieces, and pens along with apt accessories.

Purchase patterns of the Richemont products show a rising trend in three main product lines. Euro M 4,590 of jewellery was bought by customers and Euro M 2,323 is garnered from specialist watches. Montblanc pens accounted for Euro M 723. Out of the total sales retail brought about 53%. Selling, distribution and communication cost of Euro M 2,821 was paid out to bring in sales. This works out as a soaring figure of 32% of the total turnover.

The company has embarked on a revitalization programme by leveraging on group’s shared resources, hiring and training skilled craftsmen and in investing in watch and jewellery manufacturing to respond to changes taking place in economy and consumer demand. Furthermore, retail sale through own in-site boutiques is encouraged with an offset of fewer but more productive franchise outlets on the wholesale side. Supply chain management is straightened up to enhance product availability and speedy and timely delivery. Autonomy for Maisons to manage their own brands and facilitating more internet sales are path breaking initiatives adopted to see, a sea change in operational and financial performance.

2. Gross Profit Model: Across the board, the product lines give a whopping 64% gross profit.

3. Operating Profit Model: Operating profit is as high as 32.9% in jewellery, reasonable at 23.2% in watches and low at 16.4% in writing instruments. Variable cost is Euro M 2,821 while fixed cost stood as Euro M 790. Selling, distribution and communication expenses are listed in variable cost of Euro M 2,821. The break-even point is in safe zone at 28% of the turnover.

4. Working Capital Model: An overblown working capital of Euro M 5,873 is turned only one and half times to bring the annual turnover of Euro M 8,867. About 43 % of the current assets are in inventory whereas cash and financial assets are higher at 47%. Management of current liability is satisfactory. An interesting phenomenon is how cash generation and cash held at the time of closing books got almost even. Cash generation from operations is said to be Euro M 1,789 while Cash held is Euro M 1,636. Much of what Richemont got in cash was never spent out perhaps.

5. Investment Model: The stated equity of Euro M 8,618 is slightly edged out by the turnover of Euro M 8,867 making a single rotation of the amount invested, leaving a sense of inadequacy. However, the return on equity is salutary. With a Net Profit After Tax of Euro M 1,540 Richemont group has lifted the investor sentiments. ROE works out a gleeful figure of 18%. A rousing applause is necessary and must be given gladly.

Muthu Ashraff

Business Adviser

Mobile: +94 777 265677

E-mail: cosmicgems@gmail.com

Web: http://www.cosmicgemslanka.com

Blog: http://cosmicgemslanka.com/blog/

 

Revisiting Clicks and Bricks Business Model

Business that supports on-line trading by clicks and off-line collection of goods from a local store is practising, what we call as clicks and bricks business model. Clicks refer to on-line and bricks refer to stores. A combination of clicks and bricks, that is, physical presence by way of operating a shop and internet presence by way of hosting a web has, so far worked well. Let us look at this business model in the current form and see how it can be tweaked to perform better:

How clicks and bricks makes customer happy?

Today, technological advancements have made shopping a domestic affair. After surveying all goods displayed a buyer can select the one that suits him and make an order via internet at the speed of a button. That is convenience plus as there is no need to travel far and wide searching for something that is available for sale via internet. Secondly, he can find about whether the good he needed is available or not; this results in cutting down time and cost of visiting shops in vain. Wider selection of products is facilitated affording a buyer the chance of shopping through before making his choice. For all that on-line shopping itself is a pleasure.

How the Seller benefits?

Money saved in operating clicks and bricks business model is tremendous. Instead of having several stores in multiple locations a seller has to set-up few in strategic and convenient locations so that products ordered on-line could be collected by the customer in a manner lot easier. Optimizing stores means curtailing cost in terms of rent, insurance, maintenance and human resource who are assigned to look after these. It does not mean the seller can do without stores at all. Stores are still necessary but the extant depends on the type of products a seller purveys. In the case of digital products a seller needs only a limited store, but in the case of furniture he requires much bigger space.

What kind of Seller can operate clicks and bricks?

As a business model, clicks and bricks works well with a company that has two things to sell; one is a product the other one is the name or brand that has been built over a period of time. An established business with an unstinted reputation can sell a range of existing products under known brand names to existing client pool. Once this is accomplished, advertisements and sales promotion bring in more prospective customers. That behoves a business to take right marketing initiatives and exhibits a high degree of versatility in product sale. Execution of on-line orders demands extensive logistics and effective supply chain mechanism. Hence, a seller who is bent on clicks and bricks must be able to cough out money in investing logistics and supply chain. Businesses such as jewellery, lifestyle products, retailing, chain stores, super markets, hyper markets are well suited to operate this business model.

How to tweak clicks and bricks for better performance?

Pure clicks and bricks business model cannot continue amidst changes taking place in technology and buying patterns. Let me give few tweaks to make clicks and bricks perform better:

1. Order on-line and collect from nearby store could be amended to include delivery by the seller directly to the address supplied by the customer which may relates to him or another person

2. Leveraging on the fact that customer gets convenience and pleasure in making orders on-line and that as a result there is cost savings for the seller, he can pass on part of such cost savings to the customer by way of gifts or gift vouchers

3. Targeting younger customers in tween and twenties is a sure fire way to augment sales as this age group is more active in internet trading with more buying power

4. Bargain prices are to be offered for products that are fast moving in order to forestall customers making a bee-line to discount stores

5. Build strong on-line presence matched with stronger customer order follow-up system. For this purpose a central order processing system must be established in convenient location

6. Ensuring supply chain management is a critical measure. Ordered product must be despatched immediately if these are available in-store. In circumstances where a product need to be sourced from elsewhere, buyer must be noticed how the ordered product would be delivered and the time duration. Stand-by supplier network is a key to success where a business faces excess demand for a particular product

7. Where technical specifications play a big part, it is better to make on-line display for information purposes only and invite the prospective customer to visit the nearby store for the purchase. In lighter vein, the sale of lingerie for ladies with uncommon size or height measurements be better handled in a store rather than finalized over internet

8. Now that seller has invited customer to visit the store, he has to make it a fitting place. A store with a face-lift in a good and convenient location embellished with creative and aesthetic décor in ergonomic ambience is definitely an invitation to treat.

Muthu Ashraff

Business Adviser

Mobile: +94 777 265677

E-mail: cosmicgems@gmail.com

Web: http://www.cosmicgemslanka.com

Blog: http://cosmicgemslanka.com/blog/

Joyalukkas Jewellery, Business Model

Started in 1987 in the current form, Joyalukkas Jewellery is now grossing more than one Billion US$ in sales, operating in about 100 sales outlets in nine countries employing about 5,000 people. Amongst many awards won by the company in its 25 years operation, the distinction of being recognised as a super brand stands out. Its ambitious vision of ornamenting the world is being steadily realized via its business model, details of which are sketched below:

Business Model

1. Business Concept: Enhancing lifestyle with joy of confidence is the theme of business concept that has resulted in Joyalukkas becoming world’s number one 22 karat gold jewellery retailer. Valuing customers and ensuring that they get quality product and personalised service is the guiding concept built on five limbs: choice, design, service, convenience and innovation, all of them reflecting customer-centred approach

2. Value Proposition: A wide range of contemporary and traditional gold jewellery tinged with varying ethnic orientation of people of Indian origin in the form of earrings, necklaces, pendants and multi-item bridal sets is sold. Most of these products are embellished with diamonds, precious stones and pearls. In addition diamonds, precious stones and pearls are sold as collections. Value-addition is incorporated by number of brands including Aamira, Akshaya, Bakiamore, Ebru, Entice, Florentina, Madhubani, Mayuri, Mermaid, Perfekt, Resham, Sparx, Spring, teen & twenties, tre'stelle, Trisha, Veda and Zenina.

3. Key Activities: Procurement of bullion is the key activity followed by acquisition of diamonds, precious stones and pearls. Manufacturing takes place both in-house and via contracting out with craftsmen and jewellery makers conforming to stringent quality standards to check specifications, design parameters and weight not to forget lustre, glitter and richness that go with hand-crafted jewellery. Yet another activity is inventory management of gold ensuring high degree of purity along with hall-marking

4. Key Resources: Management team led by Mr Joy Alukkas remains the topmost resource supplemented with physical storing of bullion, diamonds, precious stones and pearls as well as manufacturing facilities. Financial resource is availed as term loans from banks

5. Key Partners: Suppliers of gold form the bulwark of key partners. Gold being the critical resource, the company suffers from the theory of resource dependence as pronounced by Clayton Christensen. However, Joyalukkas is making every step to minimise risk of resource dependency. It does so, choosing both re-active and pro-active approaches. It continues to re-act with meaningful steps as regards to gold price fluctuations. As a pro-active measure it has planned hedging instruments through banks and commodity exchanges to offset vagaries of gold supply

6. Market Segment: Joyalukkas serves the Indian ethnic markets within India and outside in countries such as UK, Singapore and in the Middle-East. In the latter region, it has presence in Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE.

7. Channels: Premier stores in selected cities in India along with format stores in many centres within and outside India form the main channels of sale. A useful addition is the wedding centres that cater to both men and women in their seasonal requirements. A web sale portal has turned out to be a virtual one as the shop never closes. Format stores have become super-efficient as these can stock large number of jewellery pieces with fewer staff to manage sales and admin. Besides, after-sales service and repair is entrusted to the format stores. Joyalukkas continue to reach out to the customers through marketing initiatives such as brand building and selective advertisements

8. Customer Relationship: Personal attention and customer care are frequently stressed in delivering quality goods at competitive prices to the satisfaction of customers

9. Cost Structure: Cost driven policy dictates that major part of manufacturing is contracted out to craftsmen and jewellery makers to curtail production cost whereas value-driven policy is put into works by ensuring design, quality, purity, quantity and matters concerned with fashion & aesthetics. Major minus is that, Joyalukkas is still unable to optimize working capital as per theory formulated by John Mullins & Randy Komisar. Few pointers of weaknesses: working capital turnover is 2.6 times; 90 % of working capital is in inventory; cash level is negligible

10. Revenue Stream: A Billion US $ is garnered form sales resulting in gross margin of 15% , operating margin of 8% and profit before tax of 6% over net revenue signalling success of the business model of Joyalukkas Jewellery.

Muthu Ashraff

Business Adviser

Mobile: +94 777 265677

E-mail: cosmicgems@gmail.com

Web: http://www.cosmicgemslanka.com

Blog: http://cosmicgemslanka.com/blog/

 

Common Confusions in Business Model

Confusion confounds, more so when it comes to business model. Even senior executives of large companies are confused about the intent and purpose of a business model. They use business model interchangeably, for example, with strategy. Quite a number of professionals in the IT industry thinks that business model and business process model are one and the same. This is further aggravated by those who use software languages such as Universal Modelling Language (UML). Let me give you six areas where confusion arises and give you clues as to how you differentiate business model from these:

1. Business Process Model (BPM): Generally referred to as process model, a BPM deals with representing pictorially the work-flow of an organization at its operational level. A BPM identifies and draws the activities carried out in a business as process flow charts with the help of systems theory, computer logic and communication and information network. In sum, it is an activity chart representing how an operation is carried through. Business model on the other hand, describes the logic of business at policy and strategic level

2. Business Strategy: Business strategy is defined as “a well thought out long term plan incorporating chosen methods, moves or a series of maneuverers chalked out by business to achieve goals and objectives”. Strategy is a statement indicating ways and means of achieving the goals and objectives of a business. It does something more. Strategy gives direction and sense of purpose towards achieving these goals and objectives. Indeed business model is connected to strategy; it alludes to strategy in implicit manner and reflects on it; sometimes elaborates and in certain circumstances evaluates strategy. For example management makes a strategic choice and this is extended and explained in business model along with the consequences of making such a choice. Ramon Casadesus-Masanell & Joan E Ricart asserts that a business model comprises choices and consequences and go on to explain these in their article on “ How to Design a Winning Business Model” (HBR Jan-Feb 2011). In other words business model practices what the strategy preaches

3. Business Plan: You are aware that, the business plan deals with forecasting operating and financial results over a period. Necessarily, a business plan Includes, among other things, time, activities, expected results, resources required and finally a budget. As a comprehensive document setting forth activities in operations, marketing, finance and administration a business plan serves as an agenda for business action and as an evaluation tool of its performance. Results achieved are compared with the budgeted figures to measure the success or otherwise of a firm. In contrast, business model sets up the framework of how a business creates, delivers and captures value and leave the details to the management to fill in

4. Revenue Model: Recently, I was speaking to a CEO of manufacturing company on the subject of business model. He immediately jumped at explaining his revenue model. On politely reminded, he admitted that he felt business model is just a revenue model. Predictably, a revenue model projects a firm’s income and profit potential at a particular operational level. Simply put, it is monetizing the products and services a business offers detailing what income is earned, what profit is made and what earnings are retained and what return or dividends are paid out to investors and shareholders. Business model is much more than this. It talks about how the cost structure runs and how revenue stream flows after having employed modes, channels and activities in value creation, value delivery and value capture

5. Value Chain: Introduced by Professor Michael E Porter, value- chain is an analytical tool useful in identifying and evaluating specific activities through which a firm creates value. Professor Porter divided the activities into two types: primary activities cover in-bound logistics, operation, out-bound logistics, marketing & sales and finally sales support; activities including firm infra-structure, human resource management, technology development and procurement are listed under support activities. Limited by scope, value chain analysis is bettered by business model portraying the entire gamut of activities a business must undertake to realize its value proposition

6. Business Concept: Every business starts with a business concept that acts as an interface between a chosen market and the designed value proposition to cater to that market. Though business concept has potential to influence and perhaps over-awns every business activity undertaken by an enterprise in creating value for customers, suppliers and other stakeholders, it rests in the realm of ideation only. Its translation into concrete results happens only when an organization designs and rolls-over a business model. With that an organization can watch its business grow, not to mention the rise in popularity of the business concept that was behind its success.

Muthu Ashraff

Business Adviser

Mobile : +94 777 265677

E-mail : cosmicgems@gmail.com

Web : http://www.cosmicgemslanka.com

Blog : http://cosmicgemslanka.com/blog/

 

Why Vertical Business Model still matters?

Ostensibly, large number of businesses throughout the globe still operates under the tag of vertical business model. One reason is that it is quite easy to establish a business on vertical base. The second compelling reason is that vertical business model passes two cardinal tests: it conveys its business concept clearly and its profits add up to positive integer. Read more…..

Ms Joan Magretta, management consultant penned up an article in Harvard Business Review titled “Why Business Models Matter?” (HBR May 2002). Therein she described a business model as one telling a good story. In addition she presented two tests a business model should breast-up. Narrative Test requires the story must make sense. Numbers Test commands Profit & loss must add up. When I looked deeply into this matter, I found that in most cases vertical business model passes muster in both tests. Let me explain what vertical business model is and how it functions:

Vertical Business Model

When a business manufactures and sells or otherwise deal with such activity in an upward integrated manner it comes under the portal of vertical business model. Though of common type, vertical business model deals in specific area. Its focus is specific and it sells mainly a line of product that shows high degree of specialization. Jewellery manufacture, diamond processing, manufacture of parts or components to computers, autos, electrical and electronic goods are few of these specialized ventures. Vertical business model seeks market domination in the chosen sphere or a monopoly position in a particular market segment. As a result operational activities tend to be sophisticated using technology in appropriate manner. In addition to in-house staff vertical business model seeks and obtains services of external consultants and advisers.

Both supply chain and value chain are strictly planned and maintained. In the case of supply chain machinery and materials are acquired from dedicated sources. You know that value chain deals with making and selling of products or services. Here again business reinforces the value chain by stringent quality control and sticking to delivery schedules along with dynamic sales programmes that target segmented market using varying channels anchored on a win-win customer relationship. In sum, vertical business model facilitates efficient co-ordination of key income drivers such as sales and key expense drivers such as cost of sales.

As the name goes, vertical business model depends more or less on vertical integration as part of the business philosophy. Acquiring resources such as warehouses, stores manufacturing facility is key to this business type. Hence, we notice that tremendous amount of assets are built –up within a business, financed by internal revenue, long term loans or buyer credit. The last is much more common in the case of automakers. Even though enlarging size and scope to meet up with increased demand could present, in the short term, a challenge to a vertical business, in the long term it translates such event into a rewarding business opportunity. Computer parts vendors, for example, go through this phase, mainly encouraged by what we call “scalability pluses”. Scalability refers to the ability of the business to handle growth in the market demand for its products. Scalability pluses arise when a business invests in increasing its scalability and finds that the additional capacity could be sold to different buyers. Amazon.com had invested huge money on its IT infrastructure. Later in 2006 it offered cloud computing services creating altogether new customers in the form of web companies. This event is cited and noted by Professor Alexander Osterwalder in his book on “Generating Business Models”.

A vertical business model fits easily into creator and distributor type companies. A creator is a business that manufactures product and sells it with a margin. On the other hand, a distributor business buys from a manufacturer and re-sells to ultimate buyers after adding its mark-up. Since both these types border on product or service specialization we note that many businesses today can operate a vertical business model with much ease. More than that, with lot more profit.

Muthu Ashraff

Business Adviser

Mobile : +94 777 265677

E-mail : cosmicgems@gmail.com

Web : http://www.cosmicgemslanka.com

Blog : http://cosmicgemslanka.com/blog/

 

Whose job is it, designing new Business Model?

Henry Chesbrough once lamented that business model is nobody’s job. That is changing now. Presumably after his assertion that “the most importance, effective and disruptive innovations are often the result of new business model, not new products or technologies”, many companies are learning to cope up with designing and innovating business models to keep up with competition. The job of designing new business models is now entrusted to all C-level officers.

1. Chairman/ President of the Board of Directors: The chair is responsible for drafting business concept, policy, vision & mission, goals & objectives in consultation with the senior management comprising C-level officers. He must articulate the value proposition after assessing the internal and external environment. The chair is the beacon of light and patron for designing new business model. Hence, he functions as friend, guide and philosopher to the senior management

2. Chief Executive Officer: The CEO is necessarily the team leader whose job is to define the value proposition in practical terms involving segmented markets, competitive strategy and identification of chief players in the value network comprising production and sale of a line of products. He must be squarely guided by what Peter F Drucker said about business: “The purpose of business is to create a customer”. Undoubtedly, his prime concern is to satisfy customer needs and wants which he seeks to obtain by chalking out a business model. To do that, he ropes-in his colleagues who are chiefs of operations, marketing, finance and information who by nature and training should display the same level of enthusiasm as he does

3. Chief Operations Officer: After corralling the services of human resource, supply, logistics and admin departments, the COO is tasked to identify and evaluate the supply chain along with core competencies within and the partner network outside. This helps him to design the three components in the value creation segment namely key activities, key resources and key partners

4. Chief Marketing Officer: Value delivery is his key forte. The components under this area include customer segments, distribution and delivery channels and the hallowed aspect of customer relationship. Thoroughness of identification and analysis being the chief trait of the COO, he would be in action from the time designing business model is flagged on. In fact he is the one who is most concerned with the customer and he is the one who is the bread winner

5. Chief Financial Officer: Inevitably the COO is saddled with tending the house of finance, a most difficult task to do in any business. In the case of Blue Nile Diamond and Jewellery there has been constant turnover of CFOs whose stint is invariably cut short. This does not mean that the CFOs there are not competent; simply they cannot cope up with the demands of the particular business model that was employed in Blue Nile. In every business model the CFO has unenviable tasks of assessing the cost structure in creating value in its perspective and balance with revenue stream generated from income mechanism. More than that, he has to make sufficient margin to keep the business oiled in all its wheels and return attractive dividends to owners/shareholders. CFO is never spared to mend finance alone. He has to do the thankless job of charting the strategic course; handle risk management; and top of it he is often called upon to act for the CEO when the latter is on holiday or under pressure of work

6. Chief Information Officer: While Chairman downward to the C-level officers described until now are concerned with business model and its logic at the strategic level, CIO is a different kettle of fish. He is given responsibility to identify and draw the activities indicated in a business model as process flow charts. Using systems theory, computer logic along with communication and information network, the CIO does what we call as process design at the operational level. Activities and decisions taken at various points in the conduct of business generally conform to the process design introduced and implemented by the CIO.

Muthu Ashraff

Business Adviser

Mobile : +94 777 265677

E-mail : cosmicgems@gmail.com

Web : http://www.cosmicgemslanka.com

Blog : http://cosmicgemslanka.com/blog/

 

Business Model: Blue Nile Diamond and Jewellery

As the largest on-line retailer of certified diamonds and jewellery Blue Nile Inc., has been in business even after most of the dot com companies have shuttered their doors. Founded in 1999 by Mark Vadon, the Seattle, Washington based company caters to customers in 44 countries in addition to United States. Holding about 4% of the US diamond engagement ring market, Blue Nile is noted for two opposite laurels. On the negative side, financial press often reports its CFOs quitting in quick succession. Counterpoised to this is that, the business model has stayed put in almost in the same condition Mark Vadon has designed it. Here is the Bizmodel, described in ten components:

1. Business Concept: “No pressure, No commission, you’re too smart to shop in a Jewellery store” goes the welcome statement of Blue Nile web page. True to this concept statement, Blue Nile is anchored on three limbs. Firstly, choosing engagement ring is not complicated. Secondly, diamond is simple to understand and designing jewellery is within customer reach. Thirdly, making choice is easy and affordable. All these add to a simple theorem: effective customization

2. Value Proposition: Basking on the glory of Blue Nile brand the company offers customers quality diamonds and jewellery at an affordable price with lot of convenience. The bundle of product is in two classes:

a) “Build your Own “diamond and jewellery in the form of rings/earrings/ pendants

b) “Just-in- time” diamond and jewellery in an array of products including rings, earrings, pendants, necklaces, charms and other accessories

3. Key Activities: Designing jewellery piece as agreed by the customer is the key activity. To assist this, a display of more than 60,000 individually cut and polished diamonds is exhibited for the customers to choose from. Orders for the selected diamonds are then placed with the suppliers. The design activity is also customer driven but aided and assisted by the Blue Nile jewellery consultants

4. Key Resources: Human resource is the key in this operation. About 206 employees work on full time and are supplemented with temporary hands in busy seasons. Intellectual resources in the form of design and designers are another resource. As a cash rich company, inventory policy is attuned to keep quantity of diamonds in store at lower levels in order to reduce holding risk

5. Key Partners: Exclusive relationships are struck with strong and reliable suppliers of diamonds worldwide. In addition, services of reputed diamond labs are procured as and when necessary

6. Customer Segments: The major segment catered to by Blue Nile is young, educated men with good earnings even though they may be low in assets. This segment needs help in choosing, verifying and buying diamond rings and other jewellery pieces. Quite a number of them may wish to design their own jewellery or suggest improvements in standard designs. They also wish to be in control of their buying decisions

7. Channels: Internet is the basic channel where customers are identified through search engines and initiation is made via email or chat. Telephony is another tool that is employed. A key responsibility of the channel is to make customers aware of the products in the Blue Nile catalogue and make them evaluate the products and designs and thereafter to lead them to choose the ones that they are willing to buy. Once this is done the item is ordered and delivered within 3 working days. After sales is meticulously followed. The proverbial middle-man is entirely eliminated

8. Customer Relationship: Anchored on the maxim of ‘attract, obtain and satisfy customers’, Blue Nile is doing just that in a cost-effective manner. Customer Service Groups in different product lines are formed and jewellery consultants are used. When orders are placed these are processed and shipped within three days free of charge to the address indicated by the customer. Additional frill allowed is that the customer can opt for insurance of possession of diamond and jewellery. Customers are free to return the goods, if they are not satisfied, within 30 days of purchase

9. Cost Structure: Several pluses accompany the cost structure. Working capital efficiency is indicated by its turnover. For the Fiscal 2011 cost of sales is US$ 276 Million while working capital is US$ 20 Million leaving a turnover of almost 14 times. Out of current assets of US$ 125 Million cash alone accounts for US$ 89 Million; in comparison inventory is low at US$ 29 Million indicating a mixture of cost-driven and value-driven strategy weighted more towards the former. Blue Nile is scalable in that at higher levels of sales it can reduce the cost further downward. Moreover, economies of scale is observed in the way its inventory is controlled and costed

10. Revenue Stream: Net sales is US$ 348 Million cost of sales is US$ 276 Million leaving gross profit of US$ 72 Million and returning an excellent GP ratio of 21%. Operating cost is controlled at US$ 55 Million leaving an operating profit of almost US$ 17 Million. Entire sales is booked by sale of diamond and jewellery sold at list price.

Muthu Ashraff

Business Adviser

Mobile : +94 777 265677

E-mail : cosmicgems@gmail.com

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Nine Building Blocks for Business Model

Alexander Osterwalder and Yves Pigneur authored a breath-taking book titled “Business Model Generation” in 2010. After defining a business model as “the rationale of how an organization creates, delivers and captures value” they have introduced a canvas consisting nine building blocks that sketch the core elements behind a business model. Let me show you the canvas:

1. Customer Segments: This block defines the different groups of people or organizations an enterprise aims to reach and serve. There are distinct segments and these may be small or large. The business must decide which segments to serve and which ones to ignore. This could result in mass, niche, segmented or diversified markets

2. Value Propositions: This block describes the bundle of products and services that create value for a specific customer segment identified. Each bundle of products/services caters to the requirements of a specific Customer Segment. The proposition could result in new offers, improved ones or customized products

3. Channels: In this block, we see how a company communicates with and reaches its customer segments to deliver value proposition. Communication, distribution, and sales channels comprise a company's interface with customers. Channels encourage customers to move through the process of buying starting with raising awareness of the products. Thereafter channels make them evaluate and buy the products. Delivering and after-sales are the ending part of the process.

4. Customer Relationships: Here the block describes the types of relationships a company establishes with specific customer segments. Customer acquisition, retention and boosting sales are the forces that drive customer relationships and result in develop0ment of types of sales such as personal assistance, self-service or automated service

5. Revenue Streams: This block represents the cash a company generates from each customer segment. A business model can generate two types of revenue stream: one-time sale and recurring sale. It can arise in number of ways, chiefly by asset sale, usage fee, subscription fee, and lending/renting/leasing payment, licensing fee or brokerage

6. Key Resources: This describes the most important assets required to make a business model work. These resources allow an enterprise to create and offer a value proposition, reach markets, maintain relationships with customer segments, and earn revenues. Key resources can be physical, financial, intellectual, or human. Key resources can be owned or leased by the company or acquired from key partners

7. Key Activities: In this block, the most important things a company must do to operate successfully are described. These activities include production, problem solving etc.

8. Key Partnerships: Inside partnerships block we notice how the network of suppliers and partners contribute to the success of a business model. Partnerships include strategic alliance with non-competitors, business alliance with competitors, joint ventures with new parties and buyer-supplier relationship ensuring reliable supplies. Consequently a business experiences reduction of cost, risk and uncertainty and is in a position to acquire specific resources

9. Cost Structure: The Cost Structure describes all costs incurred to operate a business mode. Such a cost schedule Includes fixed cost, variable cost and the manner in which economic scale and scope are to be managed.

Muthu Ashraff

Business Adviser

Mobile : +94 777 265677

E-mail : cosmicgems@gmail.com

Web : http://www.cosmicgemslanka.com

Blog : http://cosmicgemslanka.com/blog/

 

Business Model: Shree Ganesh Jewellery

As one of the largest manufacturer and exporter of handcrafted gold jewellery in India, Shree Ganesh Jewellery House Limited has excellent financials to report. What is more, the company has rolled out a business model that works well for its export market drive as well as the domestic retail market within India. Look at the business model:

I have canvased the business model of Shree Ganesh Jewellery on nine building blocks developed by Alexander Osterwalder.

1. Value Proposition: The bundle of product includes:

1. Handcrafted hallmarked gold jewellery and gold enamelled jewellery

2. Gold jewellery studded with precious stones like rubies, emeralds, sapphires, pearls and diamonds

3. Portfolio includes rings, earrings, pendants, bracelets, necklaces, bangles, medallions, gold coins

All these products offer quality, craftsmanship and glitter. There is something else for the buyer: insulation from price volatility. Everyone agrees that gold jewellery acts as natural hedge against inflation and that it can function as an investment vehicle.

2. Key Activities: Value configuration is from the way operational activities are scheduled. Latest technology is harnessed to reduce waste, which is concomitant in hand crafted jewellery manufacture. Efforts are made to introduce gradually machines into production. Finished goods are tested for quality and craftsmanship.

3. Key Resources: The Company uses core capabilities as follows:

1. Production capacity of nearly 21,500 kg of gold jewellery per annum, out of which major portion is manually crafted

2. Manufacturing facilities located at Manikanchan, Kolkata, where the state government has sponsored export zone. The location enjoys pluses such as easy access to skilled Bengali karigars(craftsmen) and proximity to Airport

3. Employs over 562 ‘gold karigars’ from West Bengal

4. Strong designing capability is enhanced by 15 member strong in-house design development team along with external advice on designing that result in intricate handcrafted design that is in big demand throughout India and Middle-East. Moreover, technological innovation in design methodology is appropriately used

5. Management of the company is spearheaded by the founders Nilesh & Umesh Parekh, belonging to a family of jewellers for generation who have more than five decades of experience in jewellery

4. Key Partners: Partner network includes:

1. Tie up with Sabyasachi Mukherji, renowned Indian Fashion Designer for high end exclusive jewellery

2. Shree Ganesh Jewellery continues to pursue alliances with more domestic and international designers

5. Cost Structure: Total operational cost is reported as Indian Rupees 27,307 Million

6. Customer Segment:

The company is primarily focused on export markets especially UAE, Singapore and Hong Kong which contribute over 95% of total revenue. Some of the International customers such as Ibrahim Al Sayegh Jewellery, Sparkle Jewellery FZE in UAE, Denzong in Hong Kong, Wondercut Pte Ltd, Abhusan (S) Private Limited and Excellency Pte Limited in Singapore have been company’s long standing customers.

In addition to export market Shree Ganesh Jewellery is also expanding its retail presence in domestic market. Initiatives are:

1. Expanding retailing of branded jewellery under GAJA brand through existing 13 outlets and proposed outlets

2. Focus on shops & franchisees in Kolkata, Ahmedabad, Bangalore Chandigarh, Patiala, Bhatinda, Jalandar, Rajkot, Amritsar,Ludhiana, Mangalore and Siliguri

3. Company has other brands with different themes mainly targeting young men and women

7. Channels:

1. Overseas: Establishing franchisee outlets to penetrate market at low capital expenditure on the part of the Company along with overseas retail outlets for high end customers is main focus of sales. Distribution is handled through Four Star Export House. Expanding market via nominated agency & channelizing agent is to be balanced with opening overseas subsidiaries for foray into untapped market

2. Domestic: Strengthening GAJA brand owned by the Company along with expanding from existing 13 retail outlets to 49

8. Customer Relationship: Excellent client relationship is built by nominating super distributors for bulk orders and strengthening long standing association with buyers who return with repeat orders

9. Revenue Stream: All these measures have positively impacted the sales as revenue tops Indian Rupees 29,426 Million.

Muthu Ashraff

Business Adviser

Mobile : +94 777 265677

E-mail : cosmicgems@gmail.com

Web : http://www.cosmicgemslanka.com

Blog : http://cosmicgemslanka.com/blog/

 

Taking Risk and Making Decision in Business

You are already in business or you wish to move in there. Whatever your circumstance is you know business is all about taking risk and making decisions.

In business you are constantly on the move or busy in your office handling various issues, questions or problems or be placed in a situation where you are expected to make the right decision at the right time. Successful decision making is nothing to do with your just being lucky. It is the result of your understanding and evaluating facts and associated risk surrounding a decision making situation. Thereafter, you have to take risk and make decision. Here is a list of ten situations along with major areas where you have to take business risk and make decisions:

1. Launching your own business: business idea, industry sector, business name, location, business logo, corporate colour, personal branding etc.

2. Buying an existing business: opportunities, selection, valuation, suitability, negotiation, transition management etc.

3. Timing decisions: business cycle, business confidence, opening new business, launching new product etc.

4. Planning: business concept, mission & vision, goals & targets, strategy & tactics, business model etc.

5. Finance: bank proposal, managing debt, assets & liabilities, profit & cash-flow, capital expenditure, wealth management etc.

6. Networking: business relation, business promotion, closing deals etc.

7. Controlling: monitoring, feedback, evaluation etc.

8. Investing: expansion, diversification, merger & acquisition, strategic partner, joint venture, etc.

9. Re-structuring: turn-around plan, survival strategies, revamping products, re-scheduling debt etc.

10. Divesting: disposing subsidiaries, closing joint venture, settling partners, selling core business etc.

Muthu Ashraff

Business Adviser

Mobile : +94 777 265677

E-mail : cosmicgems@gmail.com

Web : http://www.cosmicgemslanka.com

Blog : http://cosmicgemslanka.com/blog/

 

Four Business Aspects

Business is all about ideas, risk, competition, profits and finally success. To manage and achieve success you have to use appropriate strategy and right tactics; you need to have unique business concept and a workable business model. Just look at these four aspects in detail below:

Business Concept

Business concept encompasses every business activity undertaken by an enterprise in creating value for customers, suppliers and other stakeholders. Business concept drives every functional area in a business to co-ordinate activities so that goals and objectives are achieved in an optimal fashion. Creating your business concept is the primary task.

Business Strategy

Business strategy is defined as “a well thought out long term plan incorporating chosen methods, moves or a series of maneuverers chalked out by business to achieve goals and objectives”. Strategy is perceived long-term, multi-dimensional, complex, and high-flown and having huge impact on business performance. It is the thinking part of the business process driven by the vision and mission giving direction and sense of purpose towards achieving business goals and objectives.

Business Model

Business Model is primarily “a business concept that has been put into practice”. It translates strategy of a business into a framework for action. Logic of a business, choices a business takes in creating, delivering and realizing value are shown in clear and concise manner in a business model. It is a road map, a motivator cum evaluator of business performance and a communicating tool of business purpose. It broadcasts to the outside world the distinct and discerning value proposition the business offers. More than that, business model bridges strategy with tactics. It displays tactical steps that could be taken by a business at any time to implement the business strategy.

Business Tactics

Business tactics are defined as “specific moves, manoeuvres and actions taken in isolation or as in a series by a business in order to move from one milepost to another in the pursuit of business strategy”. Tactics are short-term, linear with localised focus and having fairly limited impact on business performance. It is the action part of the business process; and symbolise movement towards mileposts within business objectives.

Muthu Ashraff

Business Adviser

Mobile : +94 777 265677

E-mail : cosmicgems@gmail.com

Web : http://www.cosmicgemslanka.com

Blog : http://cosmicgemslanka.com/blog/

 

Difference between Business Vision and Mission

In the board rooms of many companies the subject of business vision and mission is consigned to, as public relation or corporate communication exercise. What disturbs more is that these words are often used by board members to denote an aim without bothering about its nature and characteristics. Understanding differences between business vision and business mission is definitely a key to survival and success.

Vision

1. In vision a business speaks of its beliefs and values. You write a vision statement indicating the philosophy in which you work, the concepts that guide and the value judgement you make in progressing towards your ideals

2. Vision portrays the standard that is set for achieving over a period of time. In other words, business makes a choice that has long haul. Hence, the overtone of vision is aspiration and inspiration. A good example is the vision of NASA in space travel

3. A vision statement answers the questions “What to become or Where to go”. It seeks an end that business wishes to achieve at the end of its business cycle. In order to do that, a vision statement provides direction and guidance in brief manner but with broad intent

4. “Brevity is better part of valour” goes the adage. Vision does just that. Savour the vision of Department of Commerce of USA: “By assisting the private sector, our vision is that the United States continues to play a lead role in the world economy”. Do I need to say any more?

5. Vision is chiselled as policies of a business that govern the conduct of transactions in every circumstance. Such policies are of general nature and do not give facts and figures but ideas and concepts. In fact, vision is born out of conceptual thinking. This type of thinking trains you to spot the missing link or information that is needed to solve a puzzle. In a vision statement you are looking for an over-awning concept or all-prevailing idea in global manner.

6. Vision relates to goals of a business. That is to keep the big picture intact and behind your table so that you turn back and watch your vision and then watch your steps

7. Board of directors is entrusted with the formulation of vision and accompanying goals and policies. Being lofty in nature and broad in outlook and perhaps too distant to view analysts are prompted to dub vision as star in the sky.

Mission

1. In mission a business sounds its attitudes and behaviour. Hence, concrete steps are laid within a mission statement indicating the methodology in which you segment your work along functional lines so as to achieve the stated mission. Therefore a mission statement includes, but not limited to, the following components: Customers & market, Products & operation, Profits & growth, Survival & solvency, Customer relation, Employee relation and finally Research & development

2. Mission indicates the states that arise in aiming for the standard proclaimed previously in vision statement. Hence, mission deals with the consequences that could arise in implementing the choice made in a vision statement. Ostensibly, mission is set for short haul. Motivation acts as the overtone in a mission statement. A good example is the way CIA fights global terrorism

3. A mission statement answers the questions “How to get there”. It seeks the means to obtain the end conveyed earlier in the vision statement. Coaching and counselling are twin tools employed to prod employees to do every mission with dedication and satisfaction

4. Mission is much longer and wordy when it comes to the subject of communicating it. But, the key factor in a mission statement must be under-lined: comprehensiveness. Let us look at the mission of Department of Commerce of USA. “The Department creates the conditions for economic growth and opportunity by promoting innovation, entrepreneurship, competitiveness, and stewardship”. As you agree all these four aspects make USA a business giant

5. Mission is crafted as practical guidelines for the conduct of a business in every circumstance. Such practices are specific in nature and exhort employees to take actions now so that at the end of the day they know where and how they have progressed. Facts and figures accompany a mission statement. A mission statement is born out of contextual thinking. This type of thinking trains you to understand the context in which you are placed in carrying out your mission

6. Mission relates to objectives of a business. That is to keep the focus on the current matter on hand. This enables you in placing mission just in front of your table so that you can glance over it as you progress

7. Senior management is entrusted with the formulation of mission and accompanying objectives and procedures. Being mundane in nature and narrow in outlook and perhaps too close to view analysts are goaded to christen mission as the moon in the sky.

Muthu Ashraff

Business Adviser

Mobile : +94 777 265677

E-mail : cosmicgems@gmail.com

Web : http://www.cosmicgemslanka.com

Blog : http://cosmicgemslanka.com/blog/

 

Pakistan Business must shift to Colombo ASAP

Business tactics dictate Pakistan business must shift to Colombo, Sri Lanka urgently to keep its momentum. Troubled by political in-fighting, economic chaos and on the top of it ever growing militancy spilling over to commercial and industrial centres in many parts of Pakistan, it is time to have breathing phase, and a new location.

Economy in Pakistan has nosedived. GDP growth rate in Pakistan has fallen terribly. At 2.4% Pakistan is fifth after China, India, Sri Lanka and Bangladesh in 2011. Placed first China enjoyed tremendous growth at 9.5 % followed by India at 7.8%. Sri Lanka recorded 7.0% while Bangladesh bagged 6.3%. For various reasons Pakistan business shifting to China, India or Bangladesh is out of question. The only viable destination is Colombo where Pakistan is most welcome due to excellent and cordial relations both countries enjoy in every field.

Let us look at what Colombo can offer to Pakistan  in terms of business relationship:

1. Peaceful domestic environment, favourable government policies and improved investor confidence in doing business in Colombo

2. The improved performances in all key sectors of the economy, especially trade and services that account for a 59.3% contribution to the national economy

3. Per capita income of Sri Lanka for 2011 is U S $ 2,836/- second highest in the SAARC countries after Maldives. It is forecast that Colombo will rise to number one rank in per capita income as political instability takes its toll in Maldives

4. Spurred on by vibrant business environment and the strategic location of the country the government of Sri Lanka is setting in motion a grand plan to transform Colombo into a strategically important economic centre by developing five hubs: knowledge, commercial, naval & maritime, aviation and energy

5. Sri Lanka is ranked as the most liberalized economy in south Asia. For example, foreign investors are allowed to own 100% ownership of investment

6. Sri Lanka is the only country to have Free Trade Agreements with both India and Pakistan, giving duty free access to over 1.3 billion consumers from the island. The Pakistan – Sri Lanka Free Trade Agreement (PSLFTA), which came into effect in year 2005, provides strategic access from Sri Lanka for nearly 4,500 products into the Pakistan market. Consequent to this Agreement, Sri Lanka – Pakistan trade has grown more than 300 per cent over the last few years

7. More than anything, Pakistan business can operate from Colombo to trade with the entire globe sans any restrictions.

Business Opportunity

Inquiries are welcome from prospective businessmen, buyers, developers and investors from Pakistan who wish to shift their present operations to Colombo or start a new business in Sri Lanka or buy an existing one for convenience sake. Get a piece of action in Colombo Business Centre that has morphed into a star performer in the region.

Muthu Ashraff

Business Adviser

Mobile : +94 777 265677

E-mail : cosmicgems@gmail.com

Web : http://www.cosmicgemslanka.com

Blog : http://cosmicgemslanka.com/blog/

 

Difference between Business Goals and Objectives

Very often business persons use the vocabulary of goals and objectives interchangeably. Their understanding is that these two words mean the same thing even if they are talking about long term purpose or a short term target. Though both are to be achieved in order to gain business success, goals and objectives have different aspects built around them. Here is a list of key differences between business goals and business objectives:

1. Goal is derived from the word “go” which is broader in meaning. Go where, is the question that props out from this. Basically a goal means an aim or purpose to be obtained. Objective on the other hand is derived from the word “object" that has specific and perhaps narrow meaning. Generally, objective is concerned with a target or mission to be accomplished

2. Goals are framed as guided by the vision of the company. The format of goal must answer the question “what we like to become”. For example, a business can declare its goal as “we like to become leading manufacturer of cars”; it does not give specifics, nonetheless. In contrast, objectives are set in reference to the mission of a company. The format of objective must answer the question “Who, What, When, Where, Why”. For example, a business can set a target of achieving 20 % of market share in sport car manufacture in Texas within 12 months by penetrating new market segments

3. We speak of goal as an end to be achieved during the business lifecycle; the effort to reach such an end is spearheaded by an objective

4. It is just easy to visualize goals; on the opposite side it is somewhat difficult to set objectives

5. Goals take global view while objectives zero in on peripheral view

6. Goal relates to a concept while objective is a construct

7. Goal focuses on long-term; objective is for short to medium terms

8. In the case of goal, results cannot be validated or measured in high degree of tangibility; whereas objective lends itself to be validated or measured in terms of tangible outcomes

9. There is something hazy, nebulous and abstract about goals. Clarity, preciseness along with concrete statements accompany an objective

10. Finally, we can move in the matter of goal in a leisurely pace; there is no need to hasten; time is the great arbiter so goal is not a matter of urgency. This cannot wash with objective; you are on the fast track; time is ticking; quite a lot of matters need to be done in achieving an objective; get cracking and this is pretty urgent.

Muthu Ashraff

Business Adviser

Mobile : +94 777 265677

E-mail : cosmicgems@gmail.com

Web : http://www.cosmicgemslanka.com

Blog : http://cosmicgemslanka.com/blog/