17 Jan A Core Strategy in the Entertainment Industry
The Corporate Business Model (Core Strategy)
In 2004 Alexander Osterwalder presented his thesis on the Business Model Ontology. By combining his self-invented Business Model Framework and the Balanced Scorecard Approach of Kaplan & Norton, he created the Business Model Ontology. By applying this ontology to corporations operating in the entertainment industry, the following corporate strategy framework has been created.
Product determines what business the company is in, as well as the products and the value propositions it offers to the market. The product has two main elements: the value proposition element and the offering element. The value proposition represents value for one or several target customers and is based on one or several capabilities; it can be further decomposed into its set of elementary offerings. A value proposition is characterized by its attributes description, reasoning, value level and price level; optionally the product’s life cycle can be taken into account in this part. The second element of the product, namely the offering element, is an elementary component of an overall value proposition. It is characterized by its attributes description, reasoning, life cycle, value level and price level.
The second pillar of the business model ontology is the client’s relationship, also known as customer relationship management or CRM. The relationship with the customer is, without a doubt, essential for companies. The customer relations determine who the company’s target customers are, how it delivers them products and services, and how it builds a healthy relationship with them. The client interface of a company involves the target customer element, the distribution channels element, and the relationships element. A target customer segment defines the type of customers a company wants to address. The target customer element involves a subset of criterion elements, which set the characteristics of the target customer. The distribution channel describes how a company delivers a value proposition to a target customer segment. Frequently, it involves disposing of one or several direct and indirect channels that can be decomposed into their link(s). The link element if part of a channel, and describes a particular channel role. It may be part of the value proposition, or it may be related to another link. The third element of the business model ontology which concerns the customer interface is the relationship a company builds with its clients. The relationship element described the relationship a company establishes with a target customer segment. A relationship is based on customer equity and can be decomposed into several relationship mechanisms.
Infrastructure Management determines how the company efficiently performs infrastructural or logistical issues, with whom, and as what kind of network enterprise. Infrastructure management consists of six elements: the capability element, the resource element, the value configuration element, the activity element, the partnership network element and the agreement element. A capability describes the ability to execute a repeatable pattern of actions; a firm has to dispose of some capabilities to be able to offer its value proposition. The resource elements are the inputs into the value-creation process. They are the source of the capabilities a firm needs to provide its value propositions. The value configuration element describes the arrangement of one or several activities to provide a value proposition. The activity element is an action a company performs to do business and achieve its goals. The partnership network element consists of voluntarily initiated cooperative agreements formed between two or more independent companies to carry out a project or particular activity jointly by coordinating the necessary capabilities, resources, and activities. The agreement element specifies the function and the terms and conditions of a partnership with an actor.
Financial Aspects determines the revenue model, the cost structure, and the business model’s sustainability. Financial aspects of a company include the revenue model element and the cost structure element. The revenue model is the measures the ability of a form to translate the value it offers to its customer into money and incoming revenue streams. A firms’ revenue model can be composed of different revenue streams that can all have different pricing mechanisms. The cost structure element measures all the costs the firm incurs to create, market and deliver value to its customers. Its sets a price tag on all resources, assets, activities and partner network relationship and exchanges that cost the company money.
In 2004 Alexander Osterwalder presented his thesis on the Business Model Ontology. By applying this ontology to corporations operating in the entertainment industry, it can be used for two purposes. The first purpose is to produce a corporate strategy around a business initiative, creating the framework for success around your business idea. The second purpose is to identify where existing business can find development, both on their processes and competitive edge. Using such a framework, your company can create a unique and sustainable strategy and competitive advantage. Interested in more strategy articles? See our branding in the entertainment industry article.