COMSATS Institute of Information Technology

(CIIT) Vehari Campus

Business Models

Khalid Abubakr

1
 How the Internet and the Web Change
Business: Basic Business Concepts
• Important to understand how Internet and
Web have changed business environment,
including
– industry structures,
– business strategies, and
– industry and firm operations

2
 What is Industry?
• An industry is a collection of firms offering goods or
services that are close substitutes of each other ‘OR ‘An
industry consists of firms that directly compete with each
other.
 Fragmented industry
 Where all firms in an industry are small in size, relative to the size of the
industry.
 No single firm has large enough share of the market to be able to influence
the industry's direction.
 Consolidated industry
 Where small number of firms controls a large share of the industry’s output
or sales
 Industry dominated by a few large firms that shape its direction and
evolution.
3
 Industry Analysis
 Industry Analysis:
 Is an effort to understand and describe
 The nature of Competition in industry
 The nature of substitute products
 The barriers to entry
 Relative strength of Consumer and Supplier
 An industry can be defined rather broadly or more
precisely
 It is generally better to define an industry as precisely as
possible.
 For example, in discussing companies like Coca-Cola and Pepsi,
one would want to define the boundaries of the “carbonated soft
drink industry” rather than that of the “beverage industry”
4
 Industry Structure
• Refers to the number and size distribution of firms in an
industry ‘OR’
• The nature of players in an industry and their relative
bargaining power
• It impacts an industry’s economic performance and
profitability
• A large number of firms in an industry
– Reduces opportunity for coordination among firms
– Increases competition among firms
• The size distribution of firms in an industry is important
for
– Business policy and
– Public policy
5
 Business policy
• Business policies are the guidelines developed by an
organization to govern its actions
• Define the limits within which decisions must be made
• Deals with acquisition of resources with which
organizational goals can be achieved
• Study of the roles and responsibilities of top level
management
• Features of Business Policy
– Specific- Policy should be specific/definite
– Clear- Policy must be unambiguous
– Reliable/Uniform- Policy must be uniform enough
– Appropriate- Policy should be appropriate to the present organizational goal
– Simple- A policy should be simple and easily understood
– Inclusive/Comprehensive- In order to have a wide scope, a policy must be
comprehensive
– Flexible- Policy should be flexible in operation/application.
– Stable- Policy should be stable
 Public Policy
• Public policies are the guidelines developed (by
government or organization) to deal with public issues.
• Developed in terms of
– Laws
– Regulations
– Decisions and actions.
• There are three parts to public policy-making:
– Problems: issue that needs to be addressed
– Players: individual or group influential in forming a plan to address the
problem
– Policy: decided course of action
• Examples: Restrict the emergence of monopolies and to
avoid restrictive trade practices by dominant firms
 Industry Structure and Ecommerce

• E-commerce changes the nature of players in an

industry and their relative bargaining power by
changing:
 the basis of competition among rivals
 the barriers to entry
 the threat of new substitute products
 the strength of suppliers
 the bargaining power of buyers
 Describing the industry structure is describing the
business environment of industry and overall profitability
of doing business in this environment 8
How the Internet Influences Industry Structure

Int nd
ern t a
Threat of Substitute e
W et an Products t e n
r B
EB d In WE

Bargaining Power of Rivalry among

Bargaining Power of
Suppliers existing Competitors
Buyer

n d In
et a ter
r n n
Inte EB Barriers to Entry W et a
EB nd
W

SOURCE: Adapted from 9

Porter, 2001.
 Industry Value Chains

• A set of activities performed in an industry( by

suppliers, manufacturers, transporters, distributors, and
retailers) that transform raw inputs into final products
and services
• Each of these activities adds some economic value to
the product/service.
• Reduces the cost of information and other transactional
costs, Internet offer the key players to maximize their
position.

10
E-commerce and Industry Value Chains

11
 Firm Value Chains

• A set of activities that a firm engages in to

create final products from raw inputs
• Increases operational efficiency
• Business Process are the atomic units of the
value chain.

12
 Business Strategy

• A set of plans for achieving superior long-term

returns on the capital invested in a business firm
(i.e., a plan for making a profit in a competitive
environment)
• Profit ?
– Represent economic value
• Four generic strategies
 Differentiation- way producer make their products unique
 Cost
 Scope
 Focus

13
Q/A!

14