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Value propositions are at the centre of a systemically dynamic business model of the firm, in which all the activities of the firm and the needs or problems of customers must be linked (Figure on the right). The PROFIT indicator, which as an accumulation collects all the cost and revenue data of the firm's business model, is the key dynamic variable. This model variable varies according to the difference between the revenues for the goods supplied (i.e., invoiced) and the costs that must be used to produce and distribute them. Costs also include data on investment in design and marketing methods. The PROFIT indicator is affected by the inflows of invoiced production volumes (revenue manager1X) and two (out)flows: costs (cost manager1X) and income tax paid (income tax manager1X), which the firm pays when it makes a profit. The unit of these flows is [CZK/Month]. The unit for PROFIT is [CZK].
Thus, although PROFIT is calculated in the model as the accumulated profit by the difference between revenues and costs, its volume is also continuously controlled in the model for the difference between assets and liabilities. PROFIT according to the balance sheet and PROFIT according to the income statement must be equal for the firm's model to be credible. If the flow of costs is higher than the flow of revenues, the level of PROFIT is negative. Section Verification of the model as a perfect accounting system discusses this problem more.
The building block of the Value Proposition business model is the model variable UX manager1X. This variable is computed as the arithmetic mean of four UX sub-variables: UX in distribution1X, UX in brand1X, UX in emotion1X, and UX in function1X. All values for these dynamic variables enter the model from the Design Value Calculator research participant interview tool. UX is a dimensionless variable.
The company focuses on one or more customer segments. In the system dynamic model, customers are defined as a level, which implies customer accumulation. Figure on the left shows all model variables, flows and levels. The main flow in the part of the model that represents the Customer Segment is the flow from the level of the potential market (Potential market manager1X) to the level that represents the actual customers of the firm (Customer base manager 1X). The calculated Design Value Algorithm indicator (DVA manager decision 1X) is connected in the model to the flow to the dynamic variable Customer base manager 1X (customer accumulation). The flow of new customer by advertisement manager1X is influenced by the variable UX manager1X, whose numerical values are always set by the research participant in the Design Value Calculator, see later in the thesis. Building block of the business model The customer segment influences the other building blocks of the business model through feedback causal loops via the following four dynamic variables (flows): new customers by design manager 1X, new customer by advertisement manager 1X, WOM customers flow manager 1X, early adopters manager 1X. The unit that defines these flows is [customer/Month]. Dynamic variables that are influenced outside the Customer segment are mainly found in the building block of the business model Distribution channels and Customer Relationships. In this part of the business model, they affect a dynamic variable that is a flow in the model: new ordering manager 1X. The unit of this flow (orders) is [item/Month].
Each company communicates value propositions to customers through distribution and sales channels. The two main dynamic variables, in this case accumulation (Figure on the right), are:
Goods order accumulation (Orders in process manager1X);
Accumulation of goods ready for delivery (Product ready for shipment manager1X).
The flow between the levels of orders and products ready for delivery is mainly influenced by the firm's capacity, which belongs to the building block of the business model Key Resources and Key Activities of the firm. The flow of new ordering (new ordering manager1X) is therefore influenced from the Customer segment, see the description in Figure on the right, which shows how these model variables are generated in the system. The dynamic variable new ordering manager 1X (see Figure) is crucial for the further development of the system dynamic modelling, without orders there is no production of products and no company revenue can be generated.
However, some product orders cannot be fulfilled and have to be rejected, as shown by the (un)flow from the Orders in process manager1X level, which is the dynamic variable rejected orders manager1X. The ability to fill product orders depends on the model variable total productivity manager1X. This model variable (total productivity manager1X) is part of the building blocks Key Resources and Key Activities.
Customer relationships are well represented by the dynamic variable WOM success manager1X, which influences the flow to the customer level (WOM customers flow manager1X).
Customer relationships are well represented by the dynamic variable WOM customers flow manager1X, which affects the inflow to the customer level. Word-of-mouth success is calculated as the positive number of the multiple of contacts of people who are not yet customers with people who have already become customers. Another important constant here is the model variable recommendations, which is represented in the model by the number 0.01, which means that 1% of noncustomers will respond positively to customer recommendations (customers).
The model variable contacts of noncustomers with customers manager1X is a multiple of contacts of customers and potential customers. The dynamic variable contacts with customers manager1X is affected by the sociability of customers (sociability constant). It has a value of 4 contacts per customer [contact/customer].
A company can only offer, produce and deliver products, thereby creating value for customers, if it has Key Resources and is dedicated to Key Activities. The building block of the model (Figure on the left) is another rather complicated sub-part of the overall dynamic business model. The Key Resources building block and Key Activities contain five main dynamic variables, all of which are accumulations:
The workforce that generates the firm's activities (Workforce manager1X) unit [worker];
Inventory of components for product production, which provides the ability to produce and deliver the required products based on orders (Inventory of components manager1X) unit [item];
Assets and other assets of the firm that the firm's management must replenish according to the number of its workers (Assets manager1X) unit [CZK];
Bank loan that provides sufficient cash flow to purchase components for production and pay for all company expenses (Bank loan manager1X) unit [CZK];
The balance of the firm's bank account is also the only indicator of the firm's Cash Flow (BANK manager1X) unit [CZK].
In this building block of the business model, for example, the link between the model variable BANK manager1X and budget for development manager1X is important. If a firm does not have sufficient free resources in its bank account, it cannot develop the firm and buy labor, stock components, develop production, cannot pay for marketing activities, and therefore cannot finance better product design.
The model firm distinguishes between two types of budget: the budget for development manager1X and the dynamic variable marketing budget manager1X. Only if the firm has financially covered production can it invest in marketing, whose budget also pays for better design. The decision to invest in marketing also depends on the amount of credit and the amount of bank reserve that the firm has to keep in its account (dynamic variable BANK manager1X).
A prudently managed small firm, which has its model reflected in this habilitation paper, limits its bank credit to a certain amount. The business algorithm is set up so that the firm's management does not decide to borrow more than 250 CZK for the business. CZK per month. The bank loan is accumulated in a level, dynamic variable Bank loan manager1X, the firm repays the loan monthly, always 10 percent of the principal. The interest (interest manager1X) is 5 percent and is part of the firm's costs.
The firm's assets (Assets manager1X) are affected by the dynamic flow variable investment manager1X, which depends on how the firm expands its production and increases capacity, and hence total productivity. Assets are depreciated only through depreciation (dynamic variable depreciation manager1X), the depreciation rate is 36 months uniformly (obsolence rate).
The cash flow of the firm, i.e. the dynamic variable BANK manager1X, is generated by an inflow that includes a model variable representing a loan (bank loan inflow manager1X) and a payment from customers for products sold (payment of receivables manager1X). The inflow is also influenced by the initial investment from the venture capitalist, which belongs to the building block of the Key Partnerships model. The outflow is represented by the dynamic variable payments manager1X and consists of the repayment of debt incurred as an initial investment in the business (payment of debt to the investor manager1X), the repayment of a short-term bank loan and the payment for all liabilities of the firm.
Sources of revenue are based on value propositions that have been successfully produced and delivered to customers and customers have paid for the products. This part of the model is simpler than other parts (see Figure), it includes only one model variable (level) which is the dynamic status of invoicing in each month of the business (Receivables manager1X). Revenue sources are directly affected by the price per product, which is a constant (basic product price), and the ability to distribute products (shipments manager1X). The calculation of the dynamic variable shipments manager1X is part of the building block of the business model Customer Relations and Distribution Channels. The unit of Receivables manager1X is [CZK].
Another important dynamic variable that affects the verification of the model as a perfect accounting system is the payment of receivables manager 1X and the model variable receivables maturity, which is set to 1 month and is an input constant (Figure on the left). The unit for the flow of payment of receivables manager1X is [CZK/Month], for the maturity of receivables [Month].
The outflow from the liability level is represented by liability payments (liability payment manager1X), which are paid on a regular monthly basis, unit [CZK/Month], see Figure above.
The costs are accumulated into one level, which is the dynamic variable Liabilities manager1X. In this way, a liability item can be tracked, which, along with other dynamic variables, is part of the balance sheet. The inflow to the liability level is represented by these costs:
total costs manager1X, unit [CZK];
investment costs that increase asset accumulation (investment manager1X), unit [CZK/Month];
income tax costs if the firm makes a profit (income tax manager1X), unit [CZK/Month].
The building block of the Key Partnerships business model (Figure on the right) is very simplified in this dynamic concept, consisting of only one level that represents the venture capital entering the firm at the beginning (External Investor manager1X). The inflow is the model variable startup investment manager1X, for which the investment from the second month of the business for the subsequent three months (months 2, 3, 4) is a total amount of 580 CZK. The outflow is the payment of debt to the investor after 36 months of business (payment of debt to the investor manager1X). The unit for External Investor manager1X is money [CZK], flows are represented by the unit [CZK/Month]. This building block of Key Partnerships is only linked to the building block of Key Resources, which is well represented in the following figure, which shows the decline in Cash Flow at the time of the capital repayment to the investor in the 36th month of the business (Figure).
Fig.: Accumulation BANK manager1X in Vensim
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