Choices and Consequences Framework

In their article Casadesus and Ricart propose a way to design winning business models. They believe that making the right choices as part of the business model will help weaken rivals or turn them into complementaries. They suggest looking at the choices of managers, and the consequences of these choices, rather than using the established formats. According to them there are three types of choices and two types of consequences. See figure to the left. One choice is policy and it is related to action. For example, new employee or location of plants. The next one is asset choice and it is related to tangibles. “Any enterprise can make choices that allow it to build assets or resources. They can either be they project management skills, production experience, reputation, asset utilization, trust, or bargaining power—that make a difference in its sector” (Casadesus-Masanell & Ricart, 2011, p. 4). And lastly, the governance choices are related to decision-making on policy or asset choices -- for example, to lease or to buy equipment. As for the consequences they can be either flexible or rigid. Flexible consequences are instant to take place, for example if price goes up the quantity goes down. Rigid consequences are difficult to imitate because they are built with time -- for example, culture.

Furthermore, the concept of virtuous cycle is defined as a positively self-reinforcing feedback loop of chain of events. For example; if a hypothetical firm made choices “A” and “B”, and choice “A” lead to a consequence “AB” that reinforced choice “B”, while choice “B” would lead to a consequence “BA” that reinforces the choice “B”, a self-reinforcing loop would be created. It must be noted that cycles are not virtuous forever, and some reverse for variety of reason. For example; if RyanAir workers formed a union the cycle became vicious due to increase in costs causing higher prices, lower amount of customers and lower profit (Casadesus-Masanell & Ricart, 2011, p. 5). There are three characteristics to business model that leads to virtuous cycle. First is aligning business model with the goal of the company so that the consequences of choices allow reaching the goal. Second is making self-reinforcing choices so that they complement one another and there is internal consistency. And third is being robust in order to maintain effectiveness despite competitive forces that were explained in Porter’s Five Forces analysis.

Authors give recommendation to firms that compete with other firms based on their business models. They are: to form rigid consequences that will destroy or block the competition, to strengthen virtuous cycle with tactics mentioned above or, if they have different business models that are complementary, they should become partners in value creation.

Ryanair Example of C&C Business Model Framework Applied

business models' analysis and optimization
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