Malaysia Jewellery Business looking up

Malaysian jewellery exports are inching along; recording average growth rate of 1.7 per cent per annum exports notched Malaysian Ringgit 7,164 million. Counterpoised to this minuscule sum is the domestic sale that must be at-least several times higher than this figure. Indeed prospects are brightening and things are looking up for Malaysian Jewellery business.

Exports are tip of the iceberg of the underlying potential capacity of Malaysian jewellery. It can out-beat and out-smart even Thailand which ranks at present the second largest fabricator of jewellery after India. Room for expansion in export is immense. Just look at the figures: out of total exports of Malaysian Ringgit (RM) 7 billion about 54% goes to Dubai, UAE. Singapore accounts for 20% while three countries, namely Thailand, Japan and Hong Kong take another 20%. Strangely China the giant amongst the BRIC countries is buying less than one per cent of the total exports. According to Malaysia External Trade Development Corporation (Matrade) exports to China is paltry around RM 100 million.

Fabrication of jewellery takes place in three centres: Penang, Johor Bahru and Kuala Lumpur. Penang is the jewel amongst these; traditional Chinese craftsmen turn out jewellery pieces reflecting conventional and contemporary designs. More than that, they are credited with churning out 80% of total jewellery manufacture in Malaysia. Besides, exporting major part of their manufacture Penang Jewellers retail their wares in and around Jalan Masjid Kapitan Keling, popularly dubbed as “gold bazaar”. Tourists from India and Indonesia rub shoulders with many other nationalities in gulping up multitude of products such as gold and silver jewellery, platinum jewellery among others.

Though no reliable figures are available as regards to the volume of domestic sale, it is guesstimated to be several times that of the export sum. In my thinking the sales quantum hovers around RM 60 billion. A population of 28 million living inside Malaysia and about 10 million tourists arriving at Kuala Lumpur annually this estimate sounds reasonable. Predictably, 75% of the jewellery sold is of plainer variety sans gems, diamonds or pearls. Moreover, mass market products hold sway in both lower and higher end of the market segments.

Quite a number of initiatives taken by the jewellery industry of Malaysia have placed Kuala Lumpur in the global map. The annual Malaysia International Jewellery Fair is recognised by the global giants in jewellery as a significant event and a trading hub. Coupled to this event is Malaysia Jewellery Design Award that seeks to bring out talents in pattern and design from the ever growing trained craftsmen. While pricing retail jewellery, labour charges per gram is kept lower compared to Thailand and Chinese fabricators. Value addition is seen in customization and in blending trendy styles with elegant ones. Both cast jewellery and crafted jewellery are given due recognition. Market positioning of the jewellery to up-market and luxury market is being resorted to by many large companies. To cap it all, jewellery as mark of lifestyle is emphasized in order to upgrade customer choice towards high-end products.

Business Opportunity

Inquiries are welcome from prospective jewellers, businessmen, buyers and investors who wish to start a new business or expand existing ones. Initially a feasibility report need be prepared taking into consideration of jewellery fabrication and marketing for both export as well as domestic market in Malaysia. When that is done it is easy to go ahead and get a piece of action in Malaysian Jewellery Hub that has potential to out-smart regional competitors in style and substance.

Muthu Ashraff

Business Adviser

Mobile: +94 777 265677

E-mail: cosmicgems@gmail.com

Web: http://www.cosmicgemslanka.com

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

Why Buy Gold Jewellery?

A staggering U S dollars 160 billion of gold jewellery is bought last year. India alone accounts for a large chunk of the global sale in gold jewellery. What mesmerises people to buy gold jewellery? Aesthetic value apart, there are several features that make gold jewellery an integrated part of the human culture. Here is a canvas where I paint why people buy gold jewellery.

Mystique of jewellery lies in its design is the chorus of many jewellers who manufacture most of the branded or designer gold pieces. It is true that, in the value addition ladder branded jewellery finds top notch followed by designer products. But even the mass market jewellery is embellished with design and decoration. So like in the adage beauty lies in the eyes of beholder gold jewellery dazzles buyers by affording aesthetic value that perhaps cannot be valued adequately.

One way of differentiating the value and reason for buying gold jewellery lies in twin aspects of owning and wearing. When it comes to the question of owning people tend to give emphasis for the monetary value of the gold jewellery. By the same token in dealing with the matter of wearing it is the cultural value that matters most.

Jewellery is owned as assets need not be declared to authorities like Inland Revenue provided that these are for personal use; no taxes or levies are loaded on possessing jewellery. Neither any tax is charged when it passes hand to hand by way of sale or gift. In most countries rich families pass their gold jewellery holdings to their progeny without any inheritance tax or estate duties. Although initial sale of gold jewellery is properly receipted, subsequent transfers from one to another does not require such documentation. Moreover, no trails are left when gold jewellery changes hands. Even travelling from one country to personal jewellery is not subjected to custom duties and tariffs if the quantum is modest and does not imply any commercial purposes.

Owning jewellery is concomitant to finalizing marriage proceedings in countries such as India where the bridegroom or his family insist a specific quantum of gold jewellery as part of dowry. In most part of Asia gold jewellery is associated as a source for emergency funding. It can be re-sold at gold value to jewellers for scrapping or in exchange for newer jewellery products. Booming pawning industry in South Asia lends credence to yet another safety value; under this scheme gold jewellery is used to raise loans and advances. In other parts of the globe gold jewellery continues its functions of cash and liquidity. It is medium of exchange and store of value, both these aspects have built around gold jewellery an aura of solid investment value. More to it: as the price of gold continues to soar, the value of investment grows year after year.

If part of the gold jewellery is owned and held in safety lockers other part is worn and exhibited. Wearing gold jewellery is part cultural and part prestigious. A lady adorned with assemblage of gold jewellery is quintessence of fortune. Her presence alludes beauty, aesthetics and more than anything someone adorable. In the eyes of men she means many things from goddess of love to goddess of fortune. Cultures do not stop with bedecking jewellery on humans alone. In India, for example deities are ornamented with mounds and mounds of gold jewellery. More jewellery a deity wears it is believed more miraculous the powers of the deity would be. In Sri Lanka we witness another twist to the story. Caparisoned elephants with beads of jewellery parade in fascinating style to the accompaniment of undulating music. All said, wearing gold jewellery may be the only medium we can traverse the kingdoms of animal, humans and the gods.

Muthu Ashraff

Business Adviser

Mobile: +94 777 265677

E-mail: cosmicgems@gmail.com

Web: http://www.cosmicgemslanka.com

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

 

Working Around Slump in Jewellery Sales

Once in a while jewellery sales dip due to circumstances beyond the control of a business. One such time is when gold prices skyrocket. Yet the jewellery business can continue by working around a slump in sales. Instead of fighting shy, business must bring in out of box solutions to circumvent the problem and ensure sales momentum continues…..

Slump in jewellery occurs occasioned by rising gold price or falling real income or smouldering crisis of political, economic or social nature. Perhaps, a mixture of two or more could cause fairly deep slump. The speeds in which these causes impact sales vary. For example spike in the price of gold is reflected in plummeting sales in a medium pace whereas declining real income takes its toll on spread out basis. Crisis of political, economic and social nature is an enigma. Faced by such a crisis the sale of gold jewellery ranges in the spectrum of buoyancy to slump. Let me take the rise in gold price scenario and see how a business can work around slump in sales.

For the last five years gold price is on upward trajectory; on average the price is lifted 25% year on year basis. When gold price soars it means jewellery business has two set of results. Whatever the business holds as bottom stock in display or in store need to be adjusted for the upward price revision, leaving the cost of manufacture unchanged. On the other hand entry stock price has to be worked out with both increases in gold price as well as any additional cost of manufacture.

How to work around the slump?

1. Concentrate on cosmetic changes and tactical measures first. Look at your line of products and value addition. Value addition ladder goes one step above from mass jewellery to designer jewellery thence to branded jewellery. Leave branded jewellery out; you have two options left. Get customer feedback on designer and mass jewellery and chalk out a scheme of passing the benefit of discounted prices. Give more to the retailors if you have them; if you adopt direct sales ensure customers get deduction in price without fail. One caveat: your net margin on the product line must be at-least equal to your cost of capital

2. Review your product line once again. I have already said something about cost of capital. Extend that to the operating profit. Promote product lines that give you a healthy operating profit and phase out the laggards for the time being

3. On the same page of costing, assess the behaviour of direct and indirect cost; you cannot do much about direct cost. Still you can control the overheads and how these are absorbed into the price of final products. Sometimes reduction in absorption rate of indirect cost can help keep you float

4. Invigorate your customer relationship by re-focussing on items like personally assisted sales and third party promoted sales. Your selling people must be geared to explain the salient features of the jewellery products to the customer in a convincing manner and to do three things as Sanjay Kothari Chairman of Gem & Jewellery Export Promotion Council of India (GJEPC) urged: create emotional connect between customer and product, inspire customer confidence in the product and afford the customer a new experience in buying. Let me pop in with a quickie: look into aspects of rewarding sales people who sell line of products that have higher operating margin

5. Go extra mileage in sale promotion. Undertake customer presentation outside your store; allow customers to touch, feel and wear your jewellery products and get the spark of life and luxury. Capitalize on events, festivals and remembrance days during which sales are generally at peak levels

6. Finally, never forget to milk the existing customers who come for repeat orders; more precisely screen the wealthy amongst them and expose them to designer and branded products that you can sell these replenished with gift items. Equally, you must go through your buyer list and get in touch with those buyers who are in vicinity but have not visited your store lately.

Muthu Ashraff

Business Adviser

Mobile: +94 777 265677

E-mail: cosmicgems@gmail.com

Web: http://www.cosmicgemslanka.com

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

Jewellery Business Opportunity in Sri Lanka

Global sale of jewellery products grew about 5% in 2011. But in in Colombo, Sri Lanka it skyrocketed to about 25% punching down all the pessimists who forecast bad times dogging the 500 years old industry. It is now envisaged that jewellery would lead a major re-bound of the economic fortunes of the country slowly emerging from the ravages of civil strife. Attractive opportunity awaits willing investors who can set jewellery business in Colombo.

Burgeoning figure for the global jewellery market braces almost US$ 160 billion mark. Though Sri Lanka currently accounts for little more than one per cent of this volume it is still growing. Domestic sale went up by 25% and estimated to be around US$ 1.8 billion; in stark contrast exports is dwarfed in volume terms to few million dollars. Absence of large scale fabricator is said to be the cause for lack of enthusiasm in export drive. Size matters a lot in domestic market too. Micro fabricators who are too numerous saw their sale going up between 10 to 15%; small fabricators notched about 20 to 25% sales growth in 2011. Big share of the growth at 30% and over was recorded by middle level fabricators who are in essence family jewellers for generations.

Multitude of products on display includes gold and silver jewellery, diamond and gem studded jewellery, platinum jewellery among others. Gold jewellery is fabricated in a wide range of 9 to 22 Karats as earrings, brooches, rings, bracelets, necklaces, pendants and bangles. Value addition in jewellery fabrication is effected by patterns and design resulting in traditional and contemporary products. Simple and elegant style goes with trendy and fashionable collections. Unique and authentic style fits into traditional motifs or sometimes finds place in exotic and extravagant collections. Regional and ethnic blend brings added glamour and glitter amongst jewellery pieces.

Backed by a long history of jewellery manufacture dating back 500 years, jewellery industry in Colombo boasts skilled labour in two manifestations. Artisans from families that passes knowledge and skill from generation to generation; skilled craftsmen who emigrated from countries like India and have evolved the art of exquisite designing.

Support by the government to promote jewellery manufacture is a key game changer. 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. Micro managing jewellery sector is one of the initiatives that has witnessed several policy changes. Business friendly environment with one roof approval procedure for foreign investment is most visible one. Lifting of duties and levies on gold import is another. For an investor pitched at domestic sale and export liberal tax incentives are granted along with duty-free facility of importing raw materials such as diamond and gold. Need I say any more?

Business Opportunity

Inquiries are welcome from prospective jewellers, businessmen, buyers and investors who wish to start a new business or buy an existing one. Get a piece of action in Colombo Jewellery Centre that has potential to be the next growth story in jewellery industry 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/

 

Nine Business Model Advisory Services

Coinciding with the growth of interest in business model, companies are investing lot of money and time in designing and operating effective and efficient models. Even though many companies have internal resources to get a business model fixed discretion dictates that they opt for the services of external, neutral and confidential business advisers. These advisers have in their portfolio nine advisory services, details of which are sketched below:

1. Design: Typically, designing business model covers the understanding components suitable for a particular business and arranging these to function in logical manner. After all a business model is concerned with the logic of practising a business. Arrangement of elements necessary for the smooth functioning of a business is the primary focus in design, where logical flow and leading those who operate the business model to arrive at right conclusion and decision are chief aims. Design advisory service is recommended for new businesses.

2. Review: As the focus of any business model is to operate business in effective and efficient manner, a review must be ordered to examine and report on these two factors. A review as the title suggests is more of breath rather than on depth yet it must address the question whether business model is properly aligned with the plan and strategy of a business. Periodic review is like doing annual medical check-up; you just get a bill of good health. According to a study carried out by KPMG/EIU in 2006, it was found that 46.7% of businesses surveyed conduct a review every year and 23.4% of businesses do so between 1 to 2 years to determine the efficacy of business model and to find out whether any change is warranted. Review advisory service is recommended for existing businesses.

3. Evaluate: In contrast to review, evaluation of business model has both breadth and depth in that it examines elements, assesses their use and passes judgements as regards to their contribution in making business success. An evaluation focuses on validation of the business logic of a company and must be comprehensive. Evaluation advisory must take place in several circumstances. When a company is not doing well in terms of corporate objectives or when it is proposed to go for an IPO or private placement an evaluation must be on the wheels. Before purchasing a business or investing heavily in its equity or debt it is advisable to get an evaluation going.

4. Modify: Generally modification of business model takes place after a periodic review. In line with the gist and meaning of the word modify, an exercise of this nature tends to make few changes that are minor or partial. Modifications could be effected in elements, arrangements of the components and perhaps in business model structure to ensure operations go through seamlessly and with the purpose intended in both value network and value architecture so that cost and revenue systems get an added boost. Businesses should undertake modification advisory service on periodic basis or as and when necessary.

5. Re-design: Unlike in the case of modification, re-designing business model is like handling an over-haul of your vehicle. Revising business model components along with re-arranging them to function differently is the fundamental focus in re-design. Such a complete re-hap should cover two areas: how the business logic can be improved and how elements in value creation, delivery and capture are co-ordinated for better results. It is advisable to go for re-design  when things are falling apart.

6. Innovate: Business model innovation (BMI) basically means that you drop the old one to opt for new one. Beginning from structural changes BMI does a complete turnaround; call it 360 degree revolution of everything connected with business model. 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. Like a fine comb shaping hair evenly BMI refines customer value proposition, trowels value architecture and smoothens cost and revenue flow. Innovate when you are faced with the other alternative: shuttering of your business.

7. Describe: When it comes to put matters in writing, businesses shudder a lot. So far I have not seen a single business had the gumption to publicize its business model in any form intelligible. You have got to describe your business model by giving an account of it in words and/or diagram elaborating structure, features, characteristics, qualities in a simple yet substantive manner. Moreover, such a description must be short and inviting as mini-skirt and impressive and elegant as a flowing dress. Description of business model could appear in annual reports, company profiles and in other areas of corporate communication.

8. Analyse Risk: Identifying and assessing factors that have potential to de-rail operations or jeopardise business objectives is the subject of risk analysis in business model. As a matter of caution it is advisable to analyse risk in business model annually or when quantum change takes place in internal and external environment. Risk analysis advisory is a definite must when a business changes hands or substantial stakeholders shed their holdings.

9. Appraise Value: One of the key advisory services is to estimate and appraise monetary worth of a business model. Valuing a business by its business model is a sure-fire way of getting at the exact price in which a business could be bought or sold. Furthermore, an appraisal is recommended in times of urgency when major decision is round the corner.

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 Framework by Gary Hamel

Designing a business model is a definite pleasure if you know simple home garden truths. You always arrange flower pots in logical order displaying simplicity and style. Extend this to the business model. Make your business model simple but substantive; robust and at the same time coherent. So placing components of a business model in a logical order is as easy as arranging flower pots in your garden if you follow the framework introduced by Gary Hamel in his book “Leading the Revolution”. Though the title sounds rebellious, the elements are conveyed matter-of-factly. Let me show how this works out:

Framework for Business Model

Gary Hamel defines a business model in most simplistic language. He says a business model is “a business concept that has been put into practice”. Extending this simplicity he fashions a business model framework based on elegance and coherence. Anchored on the two dimensions of coherence, namely, internal consistency and logical order, Gary Hamel makes the elements flow seamlessly like poetry. His framework does this by firstly detailing core strategy thereafter leveraging internal resources and external partners to offer customers an effective sales interface. Allow me to detail the elements of the business model so that you can design one for your business:

1. Core Strategy: Before we talk about core strategy it is better to find business vision and mission. From vision we have goals and from mission we get objectives. Vision and goals are of fairly long term nature whereas mission and objectives are of short term duration. Strategy is framed keeping in mind the achievement of both goals and objectives. Moreover, strategy covers production, marketing and the co-ordination between these two areas to spawn a bundle of products or services. Detail description of the products need to be given along with the scope and extent of the market to which the products are aimed at. Furthermore, calibration of the market is to be done on the basis of differentiation. Each segment will be treated with a strategic focus fine-tuned to the needs and characteristics of that segment.

2. Strategic Resources: These are internal resources configured to practice the core strategy; leveraging internal strategic resource is part one of the agenda taking a designer of business model to walk through core skills, core assets and core processes. The first one, core skills relate to human resource, technical excellence, brand name and financial muscle all of which boost up a business as a strong tower with much power. For example, Louis Vuitton Brand plays a big role in driving sales for the luxury leather bag manufacturer according to BrandZ an annual survey published by Millward Brown a consultancy organisation active in the field of brands. Core assets include land, premises, factory, plants, machinery, offices all of which are generally treated as fixed assets liable for depreciation. In the case of core processes these may be fully owned and patented or used under licence for a specific period with upgrades provided by the license holder.

3. Value Network: Here we trace external partners of a business. Leveraging external value network hovers around suppliers, partners and collaborators. Suppliers may range between dedicated to on-demand ones; specialised to general ones; materials to know-how providers. On the other hand partners cover gamut of service providers such as designers, consultants, joint venture partners, assured suppliers who combine their function with technical know-how sellers. Additionally, line of business partners masquerading as agents, representatives distributors and re-sellers are functionaries in sales. Collaborators are generally likeminded businesses that seek to have common ground in persuading and pressurising government agencies and other regulators to toe their line. Or seeks degree of co-operation amongst competitors to serve a common interest. In other occasions business teams up with non-commercial entities to ensure better business climate.

4. Customer Interface: This is where a business realizes its benefits after completing the above three elements. How customer inter-acts with the business and goes through the sale experience is a subject matter of customer interfacing. An effective customer interface is built with five limbs. Fulfilment of needs is the first one entailing channels and distribution like stores and internet; communication and promotion is the second limb that makes available information of the products to the potential buyers and provides insight into the functioning of sales department. Support covers after-sales and maintenance of the products sold; customer relationship works on attracting and maintaining the pool of buyers; finally pricing consummates the sales function. Attractive and affordable price makes the deal for both the business and the buyer. And that means both parties exchange value one parts with money and the other obtains a product or service. In sum, both get the benefits, really.

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 Framework by Mullins and Komisar

Building a business model is not an easy task. The elements or components of a business model must be carefully chosen so that it knits well into the business fabric. In a popular book by John Mullins and Randy Komisar titled: “Getting to Plan B: Breaking Through to a Better Business Model”, the authors have presented an easy at the same time seemingly robust and close-knit framework to spawn equally robust business models. See how this framework evolves:

Framework for Business Model

Adopting an approach based on economic process, Mullins & Komisar prefaces their model with the following definition of business model: “By business model, we mean the pattern of economic activity cash flowing into and out of your business for various purposes and the timing there of that dictates whether or not you run out of cash and whether or not you deliver attractive returns to your investors. In short, your business model is the economic underpinning of your business, in all of its facets”.

In support of this definition they introduced five elements that should be incorporated in a business model framework as building blocks. Every element is built in such way as to find the economic result and to inter-relate with other elements. Not only that, in each element we find sub-domains that tend to answer questions related to financial and cash-flow viability so that taken as a whole we can pass judgement as regards to company’s present and future performance. The elements are: revenue model, gross margin model, operating model, working capital model and finally investment model.

1. Revenue Model: Under this lamb, the targeted or segmented customer is identified along with his specific needs. Products/services are lined up to satisfy these needs. Thereafter, the revenue model deals with the features of the customer purchase patterns by answering questions such as how often, how soon at what price the customer wont to buy. At each iteration, the purchase system highlights the amount business receives from a buyer at that instance and the forecast sales on a future date.

Along with pricing dynamics this component also relays the cost of acquisition and maintenance of a customer pool. 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 in a particular scenario.

2. Gross Margin Model: The second element of the Mullins & Komisar model deals with cost of sales and gross profit received from a specific product and across the board from a line of products. In this limb, both product mix and margin generated are compared and contrasted to arrive at lead product that remains a cash cow.

3. Operating Model: Anchored on the inter-play between fixed and variable cost third component spotlights the operating profit in terms of value, volume and percentage of turnover. What money must be spent to support the sale is the cardinal question for which this limb seeks answer. Operating profit has much to do with determining break-even level at a particular operational level and this fact must be interwoven during analysis.

4. Working Capital Model: Mapping relationship between current assets and current liabilities is the threshold of working capital model. How much and of what percentage of current assets are invested in the form of inventory, receivables and cash is looked into. On close examination, the model can trace how a business optimizes cash-flow to and fro working capital. Besides, the efficiency of the working capital in fuelling the sale is another salutary feature.

5. Investment Model: Technically, the investment model is only concerned with the amount of cash invested in a new business till such time it makes the profit which is the subject of the foregoing four components. In other words, at what point a business breaks-even from the vantage point of capital invested originally. This is fairly of static and locked-out nature. In order to circumvent this quagmire, it is suggested that once a business is on-going, analysis under this limb must be extended to include the net profit after tax for each fiscal and investigate how the net margin works as return on equity and return on turnover. Moreover, the amount paid out to the shareholder by way of dividends or retained earning must be subjected to scrutiny. Relatively speaking, the risk shareholder undertakes need always be remunerated by way of adequate returns.

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: Damas Jewellery

Recently Damas Jewellery headquartered in Dubai changed hands. Doha based Mannai Corporation along with an Egyptian investment bank bought 85% of the shares from Abdullah Brothers who owned the company previously. Its business model fetched a valuation over US Dollars 1.3 billion. Let me give you a brief description of business model of Damas jewellery:

In describing the bizmodel, I am following an easy framework introduced by Gary Hamel in his book “Leading the Revolution”. The business model is chiselled in, in four parts: core strategy, strategic resources, value network and customer Interface as identified by Hamel:

1. Core Strategy

Business Vision: To strive to be a leading multinational in the jewellery and fashion industry and a house to international brands

Business Mission: To delight customers by offering luxury wrapped in trust with the help of a team of dedicated professionals

Products: In order to delight discerning customers Damas showcases jewellery embellished with diamonds, gemstones and pearls or plain gold jewellery. In addition watches and corporate gifts are sold. Jewellery articles include anklets, bangles, bracelets, brooches, earrings, necklaces, pendants and rings. In the watch segment we find Damas brand items such as Chalyano, Talos and Visetti together with Les Exclusives brands from European luxury houses such as Armin Strom, Parmigiani and Vacheron Constantin. Finally corporate gifts including awards, trophies and objects of art complete the array of products.

Market Scope: Main strategy of Damas is to remain as key player in the retail jewellery market with a regional spread in the Middle East as home turf and faraway regions, Turkey to its west and Thailand to its east as outer wings. About 300 store networks is located in about 12 countries making Damas the Middle East’s leading international jewellery and watch retailer. Consequently, the company has succeeded in making “Damas” almost a global brand name prompting Super Brand council of UAE to award Damas the Superbrand status.

Customer Segmentation: Primarily high-end market is configured to those who relish Jewellery designs that are unique and authentic conforming to norms and standards reflecting quality and exclusiveness. Secondly, fashionable and contemporary jewellery is retailed with an affordable price to youth and middle-end market.

2. Strategic Resources: Leveraging internal strategic resources is an easy going for Damas as it has built up exquisite jewellery designing as key forte in its 95 years of existence. Huge financial resources from its present owners are at hand for financing current level of business activity and to take it to the next level. Human resource pool consists of a team of designers, craftsmen and sales people along with dedicated management. Brand name of Damas is yet another strategic resource in the company portfolio.

3. Value Network: Leveraging external value network is carried out by securing supply, partnering with celebrities and collaborating with prestigious organizations. Initialling agreement with high quality diamond supplier Kristall from Russia ensures steady supply and the chance to distribute Kristall products in the middle-East. Joint venture with Tiffany in the new entity “TCO Damas Associates” allows for the first time, Damas to wholly manage Tiffany's operational activities in the Middle East. Appointment of Nancy Agram a Lebanese singer as brand ambassador is cited in the financial press with an approving nod. Collaboration with the World Gold Council based in Dubai in promotional activity has given added fillip.

4. Customer Interface: Damas retails jewellery and watches through four type of stores in order to satisfy different customer segments: Les Exclusives Stores offer high-end luxury products while Semi-Exclusives Stores offer stylish and sophisticated products for the discerning consumer. High Profile Damas 22K and 18K Stores offer trendy, fashionable and stylish products and brands at competitive prices. Exclusive watch stores and Mono – Brand boutiques cater to specialised requirements of customers.

All these stores are staffed with customer care officers who are well trained to educate customers and help them to choose the right articles. Friendly attitude of sales people and the excellent after-sales service have received customer accolades. Fulfilment of customer needs is the first duty of a business. Considering Damas as a jeweller and watch retailer placed in personal luxury goods, its growth potential is tied irreversibly with utmost customer satisfaction. The fact that Damas recording adequate growth rate consistently proves it is just doing that. More than that, its business model is worth the valuation.

Muthu Ashraff

Business Adviser

Mobile: +94 777 265677

E-mail: cosmicgems@gmail.com

Web: http://www.cosmicgemslanka.com

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

 

Getting entrapped in Extractive Business Model

Genesis of extractive business model is from extractive industries that included a gamut of sectors such as oil, gas, gold, diamonds, minerals and chemicals where all these materials are being extracted from wells and mines. The fundamental theory behind extraction is that resources are extracted without any provision for allowing renewal and once depleted the well and mines transform into dead stock to be abandoned pronto. Parallel situation prevails when business gets entrapped in an extractive business model. How is that?

Extractive Business Model

A handy definition of extractive business model is “a business that faces dead end in the way it conducts business, its products and the process it employs in turning out such products”. In the case of wells and mines used in extraction, these can be abandoned. But business that is outside extractive industries could be rejuvenated provided such business applies innovation. Examples galore in business press about several businesses that have gotten entrapped in extractive business model.

Mass market retailers could easily get into extractive business model if they fail to change track in the way their business is conducted. For example Wal-Mart the largest retailer selling goods from electronics to baby gear and a deep player basically in the mass market got itself shackled not by accident but by way of design. Yanis Varoufakis writing in a blog post touches base with Wal-Mart extractive business model and penned his incisive criticism in his inimitable style thus: ”The Wal-Mart extractive business model reified cheapness and profited from amplifying the feedback between falling prices and falling purchasing power on the part of the American working class. It imported the Third World into American towns and regions and exported jobs to the Third World (through outsourcing), causing the depletion of both the ‘human stock’ and the natural environment everywhere it went”.

Extractive business model could suck in luxury goods as well. Tim Kastelle in a blog post alludes to Swiss watchmakers switching to extractive business model leaving the door for innovations closed permanently. Hard luxury goods including jewellery, specialist watches, pens, accessories are easy prey to extractive business model as these continue to keep the same line of products or fail to look critically into the existing manufacturing process that makes out the products.

In another twist, extractive business model is often the pole mast of monopoly or oligopoly companies. They have huge sunk cost in the form of physical assets and fear innovation as if it could either entail additional capital expenditure or render the existing assets useless. What they do not foresee is that fusion of new technology or processes with existing assets helps bring out new breed of products. Besides, these companies could easily leverage their position in the market place to their favour even if there is going to be marginal losses arising from scrapping few of the existing assets. Innovation fuels previously unknown and unimagined products and uses. Monopoly and oligopoly companies are in better positions to harness innovation better than others.

Finally, I like to add a note regarding the extractive industry that christened extractive business model. Ironically, companies involved in mining and extracting are thinking seriously about lessening the burden of their extractive business model. Though to some extent it is more of rhetoric than reality, these companies are seen incorporating corporate social responsibility as a vital policy, and are putting quite some effort to amend the business model to address the concerns of society. These concerns include, but not limited to, economic well-being, ethical business, social sustainability and developing renewable resources. Admittedly, companies in hydrocarbon and gold & diamond mines are better suited to re-configure their business model from extractive to an inclusive one. On the back of huge financial muscle and sitting pretty well on high valued resources they better do that now than later.

Muthu Ashraff

Business Adviser

Mobile: +94 777 265677

E-mail: cosmicgems@gmail.com

Web: http://www.cosmicgemslanka.com

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

 

Who are Stakeholders in Business Model?

A stakeholder is someone who is involved in a business directly or indirectly from within or outside in setting policies, framing goals, crafting strategies and in practising every activity of business operations. Stakeholder either influences a business or otherwise is impacted by it. In drawing up a business model it is necessary to find out who the stakeholders are and what are their relative positions in the value network, so that their interests are taken care of. Precisely there are nine such stakeholders. Let me chisel them for your reading pleasure:

1. Customers: Top on the list is, invariably, customers who are collectively crowned as kings of a business. They are the ones who give lifeline to business by taking up the value proposition offered to them in the form of bundle of goods or services. Beneath this simple exchange of value lies a momentous story of benefits that are passed on to different segments and markets on one side and to the rest of the stakeholders on the other side. In this equation a business per se becomes just an intermediary

2. Suppliers: The question what is on offer, invariably leads us to the production of good or provision of service. In order to produce goods or provide services a business needs materials that must be processed in a specific manner. Suppliers play multiple roles in a business: providing general materials and supplying critical/ special materials are two key functions allotted to them. A different role model is assumed when they take responsibility in providing specialised technology services. At this point they morph into service providers. Yet another role is when they give business supplier finance, a line of credit that is interest free. Here, they don the clothes of finance providers

3. Partners: Right now, we are unable to limit the role and relative position of partners in value network as they seemingly appear in value creation, delivery and capture. They are sometimes suppliers of materials and in other instances they could come as service providers as in the case of consultant designers in jewellery. Business partnership is struck as joint venture, strategic partnership or assured suppliers like the diamond suppliers in Blue Nile Jewellery. Moreover, agents, representatives and distributors are functionaries in sales who easily pass off as partners. Franchise holders and re-sellers also come on the border line

4. Service Providers: This group of stakeholders have one thing in common: they do not supply any materials. Other than this, they contribute to a wide ranging of activities beginning from the production to the final sale. A typical company deals with several of them in utilities such as power, electricity, and water; in provision of external services required in production function. The case of consultant designers alluded to above is often cited as an example of external service. Accountants, tax advisers and many others even though outside the pale of production are still considered as providers of support services

5. Finance Providers: Banks, lending institutions, leasing companies and finance companies are the main providers of finance in a business model. These offer term loans, overdrafts, credit lines, leasing and finance packages. In addition to these there are government institutions that offer finance for exports and technology. Some suppliers also provide finance. A business can borrow from the market issuing debt instruments by way of a prospectus or by private placement. In every case where such finance raising takes place the owners of these instruments must be treated as finance providers. Typically finance providers support the business operations informally in creating and delivering value and formally in value capture

6. Management & Staff: As key resources management and staff are the backbone of business operations. Their relative positions in the value network encompass every activity. Management plans, supervises and monitors business while the staff carries out the work allotted to them in pinpoint accuracy

7. Regulators: Indirectly influencing business operations, regulators come in with different robes. Government, local authorities and industry associations are few of the common regulators. Internal Revenue service is the government body that collects tax form the business. Goods & services tax or Value added tax work both in value creation and delivery. Income or company tax is inside the perimeter of value capture. Local authorities also impose taxes and dues while regulating a business. Industry associations have similar role albeit in mild manner

8. Capital Providers: Let us call them in a collective word: Equity. They are the risk takers who have put their money on the future potential of a business. In a business model they are like men on the totem poles. If the business model fails they are out of the money; if it succeeds they are in the money. To protect their interest they obtain board appointments to bring in right strategy and policies. They tend to have oversight by forming dedicated committees to examine risk, staff compensation and so on

9. Society: While the eight stakeholders described so far are within the loop society at large is an important stakeholder outside the circle. Business model must ensure that the concerns of the society are addressed, chiefly amongst these are , ethical way of doing business, contribution to economic development, protecting environment and finally enhancing quality of life for stakeholders in particular and society in general. Corporate social responsibility is now firmly etched in every successful business model.

Muthu Ashraff

Business Adviser

Mobile: +94 777 265677

E-mail: cosmicgems@gmail.com

Web: http://www.cosmicgemslanka.com

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

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

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