Tuesday 21 March 2023

VARS Model

VARS is an acronym describing a simplified business model innovation framework:

  • Value Proposition: What product or service can the new business model offer customers to increase the Economic Value Added (EVA). EVA is the difference between what it costs to provide a product or service and what can be charged for that same product or service. Thus a business model can increase their EVA, by either providing more value to it's customers or lowering the cost of providing it's product or service.
  • ARCs (Activities, resources capabilities): What new activates, resources and capabilities does the organisation need to invest in to provide value to its customers, how will these increase the EVA. These activities, resources and capabilities do not need to be inhouse, they can be outsourced or provided by strategic partners, in the VARS framework we are concerned with identifying and understanding how they impact the EVA.
  • Revenue: How will the new business model convert EVA into a revenue stream, how will these changes increase rents for the business, will they generate more revenue by decreasing costs, or by providing more value and charging a premium. Understanding the right revenue model for a business, specific to the particular business context of that model and industry. 
    • Subscription model: organisations charge a monthly fee to access their services Netflix, Disney+, many online premium content providers use this model.
    • Razor-blade model: organisations sell a relatively low cost product that then requires the purchase of a compliment to the original product, Razor handles and their blades, Gaming consoles and video games, printers and ink cartridges.
    • Freemium model: organisations offer some basic features for free to get users to engaged with their product but than require an upgrade to use premium services, Figma, Invision, and linkedin are great examples of this
    • Two-sided model: organisations provide a service but then earn rents in either to form of a commission are a reselling of information, google is a great examples of this.
    • Multi-sided model: organisations bring buyers and sellers together, and extract a commission, Uber, Airbnb, Ebay are examples of this type of model
  • Scope: An enterprise's scope refers to the footprint of what the business does and can be mainly envisioned along three key dimensions.
    • Customer segments: the groupings of customers the organisations provides value for, these could be: Males, aged 16 to 22 or Females 30 to 54, or both or some other segmentation of customers, it could be as specific as 'Male chefs of Japanese decent', it is a logical grouping of customers types. 
    • Horizontal scope: how many products and services are organisations it, what do they sell or provide to their customer segments, and which things to which segments.
    • Vertical scope: where does the organisation sit in the value chain what do they source from suppliers and what do the provide to whom, maybe they sell directly to consumers, maybe they are a supplier themselves, or maybe they control the entire of part of the value chain to the consumer.

The four properties of a VERS model are interconnected changing one of them impacts the others and for the model to be effective it must be in cohesive balance, each part must be aligned with the others.

At the end of the day, whether we are discussing the VARS model or some other business model framework we are creating a theoretical abstraction or mental representation of how a business provides ore will provide value to it's customers and generate revenue from that value. However beyond being just a mental model it is also a pragmatic design that explains how an organisation will generate value for customers and convert that value into revenue.