Thursday, 17 September 2020
BOM NOTES WEEK 2
CM2033
Sun, Zhao, Zang - Building
Business Models through
Simple Rules
- Introduction
• Digital revolution has altered traditional industries structures by lowering barriers to
entry and exposing companies to greater competition
• Business innovation is key to form performance
• Business model: “a cognitive structure that operates as a focusing device, making
decision-making of boundedly rational decision makers facing conditions of imperfect
information and cognitive complexity more efficient”
• SImple rules: rules-of-thumb that save time and effort by focusing attention and
simplifying decision-making
• Three stages of business model development
- Emergence stage, business models emerge from simple rules learned from
entrepreneur’s experience
- Materialization stage, simple rules help entrepreneurs actualise opportunities with
the right business model
- Scaling stage, simple rules help business models evolve through market feedback
- Simple Rules
• How should we proceed? Where should we be? What should we be?
• Organization scholars have also long pointed out that organizational behavior,
particularly decision-making, involves following rules more than calculating
consequences
- Methods
- Emergence: Business models emerge from ample rules learned from entrepreneurs’
experience
• In rapidly changing markets, entrepreneurs usually recognize and seize opportunities to
provide value through interpreting and using their past experience to develop simple
rules
- Ex. When Zhou left Yahoo to launch Qihoo
360, initially he visualized it as an online
community search company. However, the
search did not gather momentum, but a
side product of malware-blocking software
really took off. Based on market feedback,
he reshaped the company’s business
1
, Thursday, 17 September 2020
model to focus on Internet security.
• Materizalization: Simple rules help entrepreneurs actualise opportunities with the right
business model
- Ex. Xiaomi’s value proposition is compelling: selling high-quality smartphones at or
near cost. Xiaomi knew that users in the mid-range market in China aspired to own a
high-quality smartphone but could not afford an iPhone or a high-end Samsung
smartphone.
- Scaling: Simple rules help business models evolve through market feedback
• Ex. Since August 2016, Xiaomi has added traditional marketing approaches and
distribution channels, including celebrity endorsements and opening offline stores, to
complement its previous sales and marketing strategy that mainly relied on e-
commerce and social media.
• Ex. After growing and expanding for 16 years, Alibaba is still holding fast to its simple
rules of “making it easy to do business anywhere” and bringing new meaning to it.
- Discussion
2
BOM NOTES WEEK 2
CM2033
Sun, Zhao, Zang - Building
Business Models through
Simple Rules
- Introduction
• Digital revolution has altered traditional industries structures by lowering barriers to
entry and exposing companies to greater competition
• Business innovation is key to form performance
• Business model: “a cognitive structure that operates as a focusing device, making
decision-making of boundedly rational decision makers facing conditions of imperfect
information and cognitive complexity more efficient”
• SImple rules: rules-of-thumb that save time and effort by focusing attention and
simplifying decision-making
• Three stages of business model development
- Emergence stage, business models emerge from simple rules learned from
entrepreneur’s experience
- Materialization stage, simple rules help entrepreneurs actualise opportunities with
the right business model
- Scaling stage, simple rules help business models evolve through market feedback
- Simple Rules
• How should we proceed? Where should we be? What should we be?
• Organization scholars have also long pointed out that organizational behavior,
particularly decision-making, involves following rules more than calculating
consequences
- Methods
- Emergence: Business models emerge from ample rules learned from entrepreneurs’
experience
• In rapidly changing markets, entrepreneurs usually recognize and seize opportunities to
provide value through interpreting and using their past experience to develop simple
rules
- Ex. When Zhou left Yahoo to launch Qihoo
360, initially he visualized it as an online
community search company. However, the
search did not gather momentum, but a
side product of malware-blocking software
really took off. Based on market feedback,
he reshaped the company’s business
1
, Thursday, 17 September 2020
model to focus on Internet security.
• Materizalization: Simple rules help entrepreneurs actualise opportunities with the right
business model
- Ex. Xiaomi’s value proposition is compelling: selling high-quality smartphones at or
near cost. Xiaomi knew that users in the mid-range market in China aspired to own a
high-quality smartphone but could not afford an iPhone or a high-end Samsung
smartphone.
- Scaling: Simple rules help business models evolve through market feedback
• Ex. Since August 2016, Xiaomi has added traditional marketing approaches and
distribution channels, including celebrity endorsements and opening offline stores, to
complement its previous sales and marketing strategy that mainly relied on e-
commerce and social media.
• Ex. After growing and expanding for 16 years, Alibaba is still holding fast to its simple
rules of “making it easy to do business anywhere” and bringing new meaning to it.
- Discussion
2
