Innovating business model by using business model canvas the case of phuc hung holdings = b đổi mới mô hình kinh doanh bằng công cụ mô hình kinh doanh canvas

They also have spent a lot of their time with my team for the interview that my team was able to collect necessary answers serving for analyzing of current performance of Phuc Hung, as w

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

-

NGÔ QUỐC ANH

INNOVATING BUSINESS MODEL

BY USING BUSINESS MODEL CANVAS:

THE CASE OF PHUC HUNG HOLDINGS J.S.C

ĐỔI MỚI MÔ HÌNH KINH DOANH BẰNG CÔNG CỤ

MÔ HÌNH KINH DOANH CANVAS:

TRƯỜNG HỢP CỦA PHỤC HƯNG HOLDINGS

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

Hà Nội - 2017

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

-

NGÔ QUỐC ANH

INNOVATING BUSINESS MODEL

BY USING BUSINESS MODEL CANVAS:

THE CASE OF PHUC HUNG HOLDINGS J.S.C

ĐỔI MỚI MÔ HÌNH KINH DOANH BẰNG CÔNG CỤ

MÔ HÌNH KINH DOANH CANVAS:

TRƯỜNG HỢP CỦA PHỤC HƯNG HOLDINGS

Chuyên ngành: Quản trị kinh doanh

Mã số: 60 34 01 02

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: TS NGÔ VI DŨNG

Hà Nội - 2017

DECLARATION

The author confirms that the research outcome in the thesis is the result of author’s

independent work during study and research period and it is not yet published in other’s

research and article

The other’s research result and documentation (extraction, table, figure, formula,

and other document) used in the thesis are cited properly and the permission (if required) is

given

The author is responsible in front of the Thesis Assessment Committee, Hanoi

School of Business and Management, and the laws for above-mentioned declaration

Date: 30th September, 2017

ACKNOWLEDGEMENT

I would like to acknowledge my advisor PhD Ngo Vi Dung for his wealthy

advices He has guided and promptly given me a lot of instructions and comments in order

to help me moving forward with the right direction to the completion of my final research

I would like to express my deeply thank to PhD Ngo Vi Dung for his support since

the beginning of my research that was selecting the very interesting research topic, then

going through research outline, until the end of this research From this research, I can

have a deep understanding of business administration in general and innovative business

model of a business firm in particular

I would like to thank everyone who are Phuc Hung’s staffs and Phuc Hung’s

customers, who have assisted me to be fulfillment with this research’s aims and scopes

They also have spent a lot of their time with my team for the interview that my team was

able to collect necessary answers serving for analyzing of current performance of Phuc

Hung, as well as external environment factors affecting Phuc Hung’s business model

In addition, I would like to express my special thank to every member of the team

who took part in and supported me in every study activities during implementation of the

research Without their support, I was not able to complete my assignment of the research

study

Because limited time and ability so it cannot avoid some mistakes in my research I

look forward to receiving comments from lecturers and colleagues in order have more

completed and better achieved of research result

Date: 30th September, 2017

Ngo Quoc Anh

CONTENT

CHAPTER 1 INTRODUCTION 1

1.1 Rationale 1

1.2 Literature review 5

1.3 Aims of research 6

1.4 Object of research 6

1.5 Scope of research 6

1.6 Thesis structure 6

CHAPTER 2 THEORETICAL BACKGROUND 7

2.1 Definition of Business Model 7

2.2 Business Model Canvas and Value Proposition Design 8

2.2.1 Business Model Canvas 8

2.2.2 Successful application of using Business Model Canvas 10

2.2.3 Value Propositions Design 11

2.2.4 Innovating Business Model 13

2.2.5 Summary of research theoretical background 14

CHAPTER 3 RESEARCH METHODS 15

3.1 Research strategy 15

3.2 Data collection methods 15

3.2.1 Internal Interview Form 15

3.2.2 Customer Interview Form 15

3.3 Research Process 16

3.3.1 Assemble team 17

3.3.2 Preliminary ideas 17

3.3.3 Internal interview 18

3.3.4 Customer interview 18

3.3.5 Group discussion 19

3.3.6 Design Innovating Business Model 20

3.3.7 Prototype 20

CHAPTER 4 RESEARCH RESULTS 21

4.1 Overview of Vietnam’s Construction Industry 21

4.1.1 History 21

4.1.2 Character 21

4.2 Introduction of Phuc Hung 23

4.3 Key players’ current business models: Classification, Strength and Weakness 25

4.3.1 Classification 25

4.3.2 Current business models of key players 26

4.3.3 Strength 27

4.3.4 Weakness 28

4.4 Phuc Hung’s current business model: Characteristics and Performance 28

4.4.1 Characteristics of Phuc Hung’s existing business model 28

4.4.2 Performance of Phuc Hung’s current business model 30

4.4.3 Phuc Hung’s existing business model: Strength and weakness 31

4.5 Innovating Phuc Hung’s business model 32

4.5.1 Study external environment 32

4.5.2 Collection of ideas and opinions 39

4.5.3 Design Business Models 40

4.5.4 Select the most satisfactory Business model 52

4.5.5 Innovating Business Model Discussion 55

4.5.6 Recommendation 56

CHAPTER 5 CONCLUSION, LIMITATION AND IMPLICATION 58

5.1 Conclusion 58

5.2 Limitation 59

5.3 Implication 60

REFERENCES 61

APPENDIX A: INTERNAL INTERVIEW FORM 63

APPENDIX B: CUSTOMER INTERVIEW FORM 68

APPENDIX C: INNOVATIVE BUSINESS MODEL CANVAS 71

APPENDIX D: “FIT MAP” CALCULATION SHEET 74

ABBREVIATION

GDP: Gross Domestic Product

WTO: World Trade Organization

TPP: Trans-Pacific Strategic Economic Partnership Agreement

FTA: Free Trade Agreement

PPP: Private Public Partners

FDI: Foreign Direct Investment

GSO: General Statistics Office of Vietnam

MOC: Ministry of Construction

HNX: Hanoi Exchange Market

CEO: Chief Executive Officer

VND: Vietnamese Dong

FPTS: FPT Security

ROE: Return On Equity

ROA: Return On Assets

DBB: Design – Bid – Build

DB: Design and Build

EPC: Engineering – Procurement – Construction

BIM: Building Information Modeling

ERP: Enterprise Resource Planning

LIST OF FIGURES

Figure 2.1: A business model – a link between strategy and operations

Figure 2.2: Business Model Canvas

Figure 2.3: Value Proposition Canvas

Figure 3.1: Flowchart of the Research’s process

LIST OF TABLES

Table 4.1: Phuc Hung’s finance performance of 2013, 2014 and 2015

Table 4.2: Customer Profile ranking result

Table 4.3: Value Map ranking result of “Resource Driven” business model

Table 4.4: Value Map ranking result of “Offer Driven” business model

Table 4.5: Value Map ranking result of “Customer Driven” business model

CHAPTER 1 INTRODUCTION

1.1 Rationale

Vietnam is one of the fastest growing countries in the last decade As reported by

World Bank: “Vietnam is a development success story Political and economic reforms

(Doi Moi) launched in 1986 have transformed the country from one of the poorest in the world, with per capita income around $100, to lower middle income status within a quarter of a century with per capita income of over $2,000 by the end of 2014 Vietnam’s growth rate averaged 6.4% per year in the 2000s, but begun to slow in the wake of the global financial and economic crisis However, driven by strengthening domestic demand, GDP has accelerated to 6.3% during the first half of 2015, the fastest first-half-of-the-year growth rate in the past five years” (World Bank, 2015) “GDP at market prices (current US$) of Vietnam 2014 is $186.2 billion” (World Bank, 2015)

Since the reform launched, Vietnam has been joined with serials of economic organizations in the World Vietnam has joined WTO since 2006 and Vietnam’s economy had stepped toward a deeper integration to global and regional market The newest singed trade agreement TPP will be a strong motivation and will be an opportunity for domestic economic development in general and for construction industry in particular Number of FDI (Foreign Direct Investment) firms and investment capital has been increased rapidly in

recent years In 2014, “total FDI capital was VND 265.407 billion, equal to 22% total

economic investment and increase 9.8% in comparison with 2013” (GSO, 2015) FDI

become important part of Vietnam’s economic and opportunities are increased from this investment activity

In the pathway of economic development, industrialization and modernization, the construction industry has paid an important role in the aspect of economic contribution,

urban and rural development, and housing increase “The production value of the

construction industry in 2014 at current prices is estimated at VND 201.203 billion and contributed 5.11% of GDP” (GSO, 2015) The development of urban and rural areas in the

recent year is growing fast At the end of 2014, “there are 774 urban (increase 4 urban in

comparison with 2013), in which 02 special urban, 15 urban Grade I, 21 urban Grade II,

42 urban Grade III, 67 urban Grade IV and 627 urban Grade V Housing area for living also increase at high rate recently In 2014, there are 92 million sqm of housing increased, average housing area per person nationwide is 20.6 sqm, increase 1 sqm per person in

comparison with 2013” (Baoxaydung, 2015) These figures clearly show how the

importance of construction industry to Vietnam economic

During the development of socio-economic, there are many opportunities created for Vietnamese contractors In parallel challenges for local contractors are also increased from investors’ side and international contractors’ side From investors’ side, requirements

of both local and international investors are higher and higher together with economic development This means that local contractors has to improve their capabilities in term of corporate governance ability, technology-innovation capability, financial and accounting status, management skill, branding development, human resources management, corporate social responsibilities, environment protection, etc., to meet high requirements from investors (FPTS Report, 2015) From international contractors’ side, which are origin from America, Europe, Japan, Korea, China, etc., they have come into Vietnam market together with several advantages of high construction technology, high management skills, good finance ability, several years of experience, etc These advantages of international contractors create a big challenge for local contractors (FTPS Report, 2015)

In order to compete internally among local contractors and internationally with foreign contractors, the urgent requirement for Vietnamese contractors is to find the way to improve their capabilities, corporate strategy, as well as business model, etc., to enhance competitive advantage to survive, and sustainable develop in long-term

There are some successful contractors in re-structuring their company When finding the trend of development, Coteccon, Hoa Binh Construction, Cofico, Delta Construction have had early privatization process from State – Owned enterprise Most of them today have a good position of branding, market share, and profit Moreover, they also are able to compete equally with international contractors in the civil projects of construction industry Within these contractors, innovating business model is an important solution to enhance competitive advantage for them when they are facing high requirements from market

However, the above successful contractors are few in comparison with the scale of Vietnam Construction Industry There is still a big gap among local contractors with international contractors, such as: Turner Construction from America; Vinci, Colas from Europe; Shimizu, Sumitomo Mitsui, Obayashi, Taisei, from Japan; Posco, Hyundai, Dealim, Keangnam from Korea in the field of infrastructure projects, industrial projects and airport projects Contractors of these construction fields are still very slowly in

corporate governance model Vinaconex, Hanoi Construction Corporation, Cienco, Contrexim, among others, are examples Indeed, they are newly privatized, but state is still owned over 90% of total shares They are getting several difficulties in innovating business model, enhancing capabilities as well as competitive advantage to compete with local and international competitors

Vinaconex 9 – a company of Vinaconex is an example Although the company's Board of Managers has made great efforts to improve the business situation, its production and business results in 2015 was be less effective than in 2014.As reported by the Board of Managers, the company's revenue in 2015 increased compared to 2014, but profit of the company in 2015 reduced more than half compared to 2014; the profitability ratio of profit after tax / net sales also decreased.The company’s Board of Directors assessed the business performance reduced its effectiveness due to several reasons that the main reason leading

to this difficulty is due to the overall difficulty of the socio-economic situation Another reason come from the high competition of domestic and international competitors.Regarding the level of construction, the company has not had a bigchange in construction technique and technology compared with other contractors; in construction management, the company also has no advantage management model compared to foreign contractors.Although the Board of Directors has strategic direction, however, the Board of Managers has not had a strong restructuring solution to innovate the business model, to meet the economic fluctuations as well as challenges from both local and international competitors (Vinaconex Report, 2015)

ICON4 – a company of Hanoi Construction Corporation is another example.Recent years have been seen as a step backward of ICON4 in the company's boom over the past decade In 2015, the company's revenue and profit is both decreased at the same time in compared to 2014 The profitability ratios of its business activities are lower than the industry average.Facing with the difficulties in business in recent years, the Board of Directors has strongly directed the Board of Directors to propose solutions to improve the situation of business development, as well as its business model to develop the company However, the medium and long-term solutions of the Board of Managers is still focused on the construction - the traditional business of the company As a result, the company focuses all resources internal and external of the company to find jobs, improve the quality

of bidding; healthy financial situation, increased debt recovery; improve the organizational model and its the quality of management… (ICON4 Report, 2015) Thus, despite facing

company, ICON4 has not had a breakthrough solution to innovate the business model to meet requirements of the Board of Directors, overcome the difficult period, thus creating a basis to increase company’s competitiveness and sustainable development

Phuc Hung Holdings JSC – a previous Contrexim’s member company of Ministry

of Construction (MOC), has established in 2001 under the originated name: Phuc Hung – Constrexim Construction Investment and Export-Import Co Ltd In 2002, Phuc Hung Co Ltd was reformed to Joint Stock Company and by 2009; Phuc Hung JSC was successfully listed in Hanoi Exchange Market – HNX with stock code PHC Similar to most of other local contractors, Phuc Hung Holdings has been being got difficulties in innovating business model when facing with high demand of market, as well as high competition from both international and local contractors

Phuc Hung is also in the same difficult situation of their business as Vinaconex 9 and ICON4 In 2014, Phuc Hung’s business revenue and profitability ratios are decreased compared with 2013 In 2015, although the situation has been improved in which revenue

is increased almost double compared to 2014, but the revenue mostly came from the construction of the project The Light Complex which is invested by the company in associated with Viettel Real Estate Company The competition with industry players in

2015, Phuc Hung still faced with many difficulties as they still focused on maintaining their activities in construction projects based on traditional “Design - Bid –Build”bidding process.Despite the entire staff’s effort, the company often fails to compete with major local and foreign competitors in large scale projects; in small and medium scale projects, Phuc Hung has difficulty in competing with other small and medium sized competitors who are dynamic and compact in their management model.The Board of Directors of Phuc Hung assessed the business situation that despite its improvement in 2015, but generally not meet the expectations and not in compliance with the long-term growing strategy of the Company (Phuc Hung Report, 2015) Thus, the Board of Managers has to find out solutions to innovate the business model and create competitive advantage to develop its business sustainably

The current research will come up with the following questions:

- What is current business model of Phuc Hung Holdings?

- Does Phuc Hung Holdings need to change its current business model?

- If yes, how Phuc Hung Holdings to innovate business model?

1.2 Literature review

Assessing the current researches on business model innovation in Vietnam shows that there are numbers of different tools for studying the business model of a business, thus findingpotential solutions/ways for innovating a business model

In research of“successful e-commerce business models in the world and lessons for Vietnam”, author Nguyen Phuong Chi analyzes the successful business models of Amazon, eBay, and Alibaba and then finds outlessons learned for e-commerce in Vietnam (Nguyen Phuong Chi, 2010) The author uses B2B, B2C, C2C e-commerce business models to analyze business models of Amazon, eBay or Alibaba

Author Nguyen Dinh Van has conducted a study of “the franchise model of mineral franchising in Ho Chi Minh City”, whereby the author relies on franchise business concepts to analyze the franchise business model The study is case study with the case of Trung Nguyen Coffee and Pho 24, then design a suitable franchise business model for mineral drinks in Ho Chi Minh City (Nguyen Dinh Van, 2007)

Recently, author The Cuong has posted in the Young Knowledge Newspaper on the topic of “What is Business Model Canvas of Google, Facebook” (Trithuctre, 2015) The author uses the business model canvas tool to analyze in detail every aspect of Google and Facebook’s business model

The aboveliterature review found that there are few researches regarding business models And literature review of current researches in Vietnam also found that Business Model Canvas is a new research tool that has not yet been widely applied in Vietnam despite the fact that the tool is now becoming popular all over the world Especially in the Vietnam construction industry, there is no research which has used the Business Model Canvas tool to study and foundpotential solutions/ways to innovate the business model, then creating competitive advantage as the basis for building businesses for sustainable development In the case of Phuc Hung Holdings, the company did not have any research related to its business model analysis to find out how to innovate and restructure the company

Therefore,a research of using Business Model Canvas tool to study the business model of Phuc Hung Holdings or of domestic construction contractors is necessary, then find out potential solutions/ways to innovate its business model, and so that the research questions can be solved

1.3 Aims of research

Aims of this research are to:

- Describing major type business models of local contractors in construction industry of Vietnam and analyze the strength and weakness of those business models

- Identify the business model of Phuc Hung Company and evaluate its performance

- Applying the Business Model Canvas to identify potential ways/solutions for innovating business model of Phuc Hung Company

1.6 Thesis structure

Thesis structure of this research includes 5chapters, and major content will be described in 03 chapters from Chapter 2 to Chapter 4 as below:

Chapter 1: Introduction

Chapter 2: Theoretical background

Chapter 3: Research method

Chapter 4: Research result

Chapter 5: Conclusion, limitation, implication

CHAPTER 2 THEORETICAL BACKGROUND

2.1 Definition of Business Model

There are many ways to define what Business Model is “In essence, a business

model is a conceptual, rather than financial, model of a business” (Teece, 2010) Pekuri

et al summaries: “Business models are seen as an essential part of successful businesses

as they define the way companies create value for their customers and subsequently make profit from their operations A good business model has a potential to separate a company from its competitors by creating a competitive advantage” (Pekuri et al., 2013)

“Business models are sometimes confused with strategy However, literature review found that business models provide a critical link between strategy and operation

by explaining how the activities of the firm work together to execute strategy” (Pekuri et

al., 2014) The link between strategy and operation by a business model is modeled as a 3 Level Pyramid: Bottom of the Pyramid is Operation Level, Middle of the Pyramid is Business Model Level and Top of the Pyramid is Strategy Level The Pyramid Model is shown as Figure 1 below:

Figure 2.1: “A business model – a link between strategy and operations” (source:

Pekuri et al., 2014)

“Business model has the main functions that it is able to enable managers of an organization to understand, study and develop the whole their businesses Beside, business model also relates to a subject of innovation as it is more important to success than innovating of product or service” (Pekuri et al., 2014)

Within this research, the definition of Business model is “A business model

describes the rationale of how an organization creates, delivers, and captures value”

(Osterwalder & Pigneur, 2010)

Strategy

Business Model

Operation

2.2 Business Model Canvas and Value Proposition Design

2.2.1 Business Model Canvas

Osterwalder & Pigneur (2010) recently developed a tool for analyzing, developing, improving and innovating business model that is called Business Model Canvas This tool

is strongly visualized and can help us to better understand and communicate/share different business logics for effective management and execute strategy

“Business model canvas is a shared language for describing, visualizing, assessing, and changing business models Business model canvas – which consists of nine basic building blocks that show the logic of how a company intends to make money – is the best way to describe a business model The nine blocks including: (1) Customer Segments (CS), (2) Value Propositions (VP), (3) Channels (CH), (4) Customer Relationships (CR), (5) Revenue Streams (RS), (6) Key Resources (KR), (7) Key Activities (KA), (8) Key Partnerships (KP), (9) Cost Structure (CS); they cover the four major areas of a business: customers, offer, infrastructure, and financial viability” (Osterwalder & Pigneur, 2010)

Business Model Canvas is modeled as Figure 2 as below:

Figure 2.2: “Business Model Canvas” (Source: Osterwalder& Pigneur, 2010)

2.2.1.1 Customer Segments (CS)

The Customer Segments is the first block to be studied of the business model canvas Itis different groups customers which a company aims to reach and that company

has to find out for them (profitable) customers in order to survive in long-term A company can group their targeting customers into distinct segments with common needs, common behaviors, or other attributes, so they will able to serve their customers better There are one or several large or small Customer Segments of a business model However, a companyshould make a right decision to select which segments to serve and which segments to ignore After making this decision, a business model can be carefully designed around a strong understanding of specific customer needs (Osterwalder& Pigneur, 2010)

2.2.1.2 Value Propositions (VP)

The second block of the business model canvas to be studied is Value Propositions block.It is the bundle of products and services that create value for a specific Customer Segment.The Value Proposition is the reason why customers select a company’s products

or services instead of another It solves a customer problem or satisfies a customer need Each Value Proposition consists of a selected bundle of products and/or services that caters

to the requirements of a specific Customer Segment There are some Value Propositions to

be innovative and represent a new or a disruptive offer, while others may be similar to existing market offers, but with added features and attributes (Osterwalder& Pigneur, 2010)

2.2.1.3 Channels (CH)

The Channels block describes how a company communicates with and reaches its Customer Segments to deliver their Value Proposition.Channels are customer touch points that play an important role in the customer experience (Osterwalder& Pigneur, 2010)

2.2.1.4 Customer Relationships (CR)

The Customer Relationships block describes the types of relationships a company establishes with specific Customer Segments.A company should establish with each Customer Segment with an appropriatedtype of relationship which is personal or automated relation (Osterwalder& Pigneur, 2010)

2.2.1.5 Revenue Streams (RS)

The Revenue Streams block represents the cash a company generates from each Customer Segment.A company must find out what value is each Customer Segment willing to pay A successful answerwill allow the firm to generate one or more Revenue Streams from each Customer Segment (Osterwalder& Pigneur, 2010)

2.2.1.6 Key Resources (KR)

The Key Resources block describes
 the most important assets required to make a business model work.It is required by every business model Different type of business model will need different Key Resources which can be physical, financial, intellectual, or human (Osterwalder& Pigneur, 2010)

2.2.1.7 Key Activities (KA)

Like Key Resources, every business model will have its Key Activities.The Key Activities block describes the most important things a company must do to make its business model work and there are the most important actions a company must take to operate its business model successfully (Osterwalder& Pigneur, 2010)

2.2.1.8 Key Partnerships (KP)

The Key Partnerships block describes the network of suppliers and partners that make the business model work.Now a day, suppliers and partners provide a very important input for a company, therefore partnerships are becoming a cornerstone of many business models Companies, whohave a strong partnership with their partners, will able to reduce risk, or acquire resources (Osterwalder& Pigneur, 2010)

2.2.1.9 Cost Structure (CS)

The Cost Structure block describes all costs incurred to operate a business model.This building block describes the most important costs incurred while operating under a particular business model It can be calculated after defining the business model’s Key Resources, Key Activities, and Key Partnerships Some business models can base on Low-Cost strategy to build up Value Proposition to offer their Customer Segments In this case, the business model is more cost-driven than others (Osterwalder& Pigneur, 2010)

2.2.2 Successful application of using Business Model Canvas

There are several examples of successful cases by using Business Model Canvas as

an important tool to innovate their business model These cases become patterns as Osterwalder and Pigneur summarized in Business Model Generation

Bhati Airtel – an India’s leading telcos, is one of the first mobile telcos using Business Model Canvas to be considered as a pattern of Unbundling Business Model After unbundling its infrastructure business which was outsourced network operation to Ericsson and Nokia Siemen Networks and IT infrastructure to IBM, the company focuses

on its core competency: building Customer Relationships (Osterwalder & Pigneur, 2010)

The other typical pattern of using canvas to innovate business model is The Tail Business Model which applying in the transformation of book publishing industry is

Long-an example The old book publishing model is built on a process of screening mLong-any authors and manuscripts by publishers to find out potential ones which seem to archive minimum sales targets In the contrast, the new book publishing model of Lulu.com is innovated by using model canvas which known as the pattern of The Long-Tail Business Model Lulu.com is a multi-sides platform in which authors and readers is connected with

a Long-Tail of user-generated niche contents Authors by using Lulu.com self-service tools are able to publish and sell their books to actual orders (Osterwalder & Pigneur, 2010)

Multi-Sided Platforms Business Model is an innovating model that brings together two or more distinct but interdependent groups of customers and iPhone & App Store is known as the Evolution of a Platform Operator App Store allows users to browse, buy and download application directly from iTunes Store and install them on their iPhones Application developers must sales of all applications through App Store and Apple get 30% royalty on each application sold (Osterwalder & Pigneur, 2010)

There are some other patterns of business model using the canvas as an innovating tool such as Freemium or Open Business Models Freemium model can be applied as getting basic functions for free, but has to pay for advance functions; or customers are able

to use products for free, but their revenue from advertisements which combine together Open Business Models can be used by companies to create and capture value by systematically collaborating with outsides partners It can be “outside-in” by using external ideas within the firms, or “inside-out” by providing external partners with ideas or assets lying idle from the firm (Osterwalder & Pigneur, 2010)

The above examples show that Business Model Canvas can be an important tool for innovating a firm’s business model In order to innovating a business model, the firm should have a team who has business model design ability, strategic thinking and understand how to process the model design with adapting the firm’s specific needs

2.2.3 Value Propositions Design

Value Propositions is the center part of Business Model Canvas and it will be linked to the most important part of the canvas which is Customer Segments To ensure the innovating business model is workable, we have to use the Value Proposition Canvas as a design tool Osterwalder & Pigneur (2014) proposed Value Proposition Canvas which will help the firm create value for customers

The Value Proposition canvas has two sides, Customer Profile and Value Map With the Customer Profile, you will clarify your customer understanding With the Value Map, you will describe how you intend to create value for your customer And you will archive Fit between Customer Profile and Value Map when one meets the other Value (Propositions) Map breaks down value proposition detailed into Products/Services, Pain Relievers and Gain Creators And Customer (Segments) Profile breaks down customer detailed into its Jobs, Paints, and Gains (Osterwalder & Pigneur, 2010)

Figure 2.3: “The Value Proposition Canvas”

(Source: Osterwalder& Pigneur, 2014) Value (Propositions) Map describes the features of a specific value proposition in business model in a more structured and detailed way It breaks down value proposition into products/services, pain relievers and gain creators Customer (Segments) Profile describes a specific customer in business model in a more structured and detailed way It breaks down customer into its jobs, paints, and gains

According to author Osterwalder, Value Proposition Canvas is a tool for objectively assessing as well as monitoring needs of the selected customer segments, and analyzing in detail the company's designedvalue that is able to create to meet the needs of the segments In this research, Value Proposition Canvas is used as the basis for designing customer interview questions to find out what their specific needs are

Value Proposition Canvas can also be used as a finding tool among potential innovative business model, which one is the best fit between offered value propositions and the objective needs of the selected customer segments To calculate level of fit, the author proposes to use ranking method as customer job importance from important down

to insignificant, pain severity from extreme down to moderate, gain relevance from essential down to nice to have Value map also uses ranking method as its relevance from essential down to nice to have After applying ranking map, fit map will be drawn to calculate fitting level Each item is considered as fit (to map as 1) or not-fit (to map as 0) The more items fitted, the more value map fit with customer segments’ needs

From “Fit Map” calculation result, it is able to select the best fit business model to

be recommended as a prototype for innovating a business model

2.2.4 Innovating Business Model

“Why innovating business model is an essence today? In the context of rapid economic development and more competitive day by day, thus, innovating business model

is necessary and can itself be a pathway to competitive advantage if the model is sufficiently differentiated and hard to replicate” (Teece, 2010) According to the report of

IBM of worldwide CEO (IBM Report, 2010), “almost CEO agreed that worldwide

economic environment will be rapidly changed with the four below aspects: (1) More crises’: bigger, faster and riskier, (2) Higher instable: more difficult to forecast, (3) More complicated: multidimensional, cross-link, (4) Structure: rapid change”

The report also found that “most of CEO is implementing modification of business

model and 2/3 among them considers innovating the whole business model” That why,

innovating business model is an essential

CEO worldwide recommends (IBM Report, 2010) that “when a firm facing with

the three below environment’s elements that is the time to consider innovating their business model:

(1) Changing of Macro elements: Macroeconomic, law, regulation, economic environment

(2) Changing of Industry/Market elements: changing of Value Chain, new entrances, customer needs, market segments, technology, etc

(3) Internal element: changing of products, services, operations, available of resources, etc.”

Therefore, it is necessary to study external environment including macro-economic forces, market forces, industrial forces, as well as key trends of market to find out how to innovate and if it is the time to innovate a firm’s business model

2.2.5 Summary of research theoretical background

According to author Osterwalder, in order to innovate a business model, firstly, it is necessary to study internal environment to find out what current business model is, its status and performance Business Model Canvas can be use as a tool to study existing business model as a basic to assess performance of the business model In this research, the business model canvas will be used to design internal interview form to collect then analyze collected data objectively From the analysis result, it is able to find out what is existing business model of Phuc Hung Holdings and its performance

As mentioned in item 2.2.3 and 2.2.4, in order to assess external environment and selected customer segments’ needs to find out changing elements of macro economic, industry/market force affecting to the business So secondly, the Value Proposition Canvas can be used to design external interview form to study these changing elements From result of analyzingdata collected regarding (1) changing macro elements, (2) changing industry/market elements, and (3) internal elements, it is able to find out if it is necessary

to change business model

Thirdly, the author recommends to use Business Model Canvas to design potential business model which are innovative for the company It also need to use Value Proposition Canvas to calculate fit level of the potential innovative business model with objective customer segment’s need to find out the best fit as a prototype

Finally, according to the author, to find out how to innovate business model of a company, after select the prototypes, it is needed to test its workability and monitor its effectiveness and from the testing and monitoring result, we can find out which prototype

is the best innovative business model for the company

CHAPTER 3 RESEARCH METHODS

3.1 Research strategy

Our research strategy is case study with the case of Phuc Hung company This case was selected by using Non-Probability Sampling – Typical purposive case sampling method The research will carry out in-depth and systematical analysis of Phuc Hung

3.2 Data collection methods

To collect data for analysis, the used method is questionnaire which the forms is designed for interviewing following Standardized Question Form The interview formis designed specifically for different purposes including internal interview questions and customer interview questions Based on Business Model Canvas and Value Propositions, questions are grouped to make interviewees easy to follow The answers are filled in the form with the choice that best fits with the interviewee's opinion And so the interview results are collected as major inputs for analysis

3.2.1 Internal Interview Form

The Standardized Question Form for studying internal environment is designed based on Business Model Canvas and Customer’s Jobs of the Value Propositions which divided in to 3 parts of question, including:

(1) General questions consist of interviewee’s personal information, his/her position in the firm, and years of working experience with the firm

(2) Firm’s Performance questions consist of the firm’s customer segments, current value propositions, channels to deliver values to its customers, customer relationships with its customers, its revenue streams, key resources, key activities, key partners and its cost structures These groups of question are in accordance with the nine blocks of Business Model Canvas

(3) Other questions consist of interviewee’s suggestions and/or their comments, opinions, recommendation to have better understanding of the firm’s performance out of the specific question given in Performance questions The Internal Interview Form can be found in Appendix A

3.2.2 Customer Interview Form

The Standardized Question Form for studying external environment is designed based on Business Model Canvas and Customer Profile which divided in to 3 parts of question, including:

(1) General questions consist of interviewee’s personal information, customer’s information, his/her position in the firm, and years of working experience with the firm

(2) Customer profile questions consist of Customer profile’s questions which are customer jobs; customer pains: type of investment questions, effectiveness comparison among investment’s type questions; key local contractors’ performance questions; and customer gains

(3) Other questions consist of customer’s satisfaction with key local contractors’ performance and/or their comments, opinions, recommendation to have better understanding of the customer’s profile

The Customer Interview Form can be found in Appendix B

3.3 Research Process

The method of data collection is interview and focus group discussion with managers and staffs of Phuc Hung during the period of the research

Figure 3.1: Flowchart of the research process

2 Data and information collection:

2.1 Interview internal of PHC about

Business Model

2.2 Interview Customers of PHC about

their needs

3 Design Innovating Business Models

by using Business Model Canvas

3.2 Discussion of Selected Innovating

Business Model 4.Recommendation

3.1 Work shops Phuc Hung Case Study

1 Literature review, Expert interview

&Questionnaire design

3.3.1 Assemble team

As proposal of the researcher, it is necessary to assemble the team to work in business model using Business Model Canvas tools to make study plans, scan internal/external environment, create innovating business ideas/opinions, and design business model prototype The key point to assemble the team is to assemble a Diverse Team

The team has been set-up with members from Directors Board and departments of Phuc Hung including: (1) Deputy General Director, (2) Director Board’s Assistant, (3) Finance and Account Department, (4) Contract Management Department, (5) Tender Department, (6) Asset Management Department, (7) HR Department, (8) Sub-company Director

The frame objectives of the team are (1) to create preliminary ideas for Generating business ideas for Phuc Hung, (2) to assess existing business model of Phuc Hung, study existing as well as potential customers and prospects, (3) to expand the range of possible solutions, aiming to generate as many ideas as possible, (4) to analyze ideas and prioritize shortlisted ideas, reducing the number of ideas to management few, using Business Model Canvas to sketch out 3 to 5 potential business models, and (5) to use “Fit Map” tools to find out the most satisfaction business model as a Prototype

3.3.2 Preliminary ideas

The team shall use Brain-storming rules to expand business ideas and opinions from the below preliminary ideas in construction business:

 Design – Bid – Build (DBB) model: DBB model is a traditional bidding model

in construction In this model, client shall divide the project into several contract packages in accordance with construction work sequences from project’s pre/feasibility study, detailed design, construction execution, procurement and installation of building equipment, post-construction management, etc This means that it is necessary to have detailed design of each work sequence to be approved before performing bidding for selection of contractors and then building the work

 Engineering – Procurement – Construction (EPC) model: EPC bidding model is

a common model in world wide’s construction industry In this model, EPC contractor based on client’s requirement and concept design shall take all the work from detailed design, procurement and installation of building equipment,

construction execution, to test and commissioning, put the work in to use and handover to the client

 Design and Build (DB) model: DB bidding model is another type of EPC bidding model which contractor also base on client’s requirement and concept design shall develop to detail design and then execute construction and installation of the work except for procurement of equipment This model is a very common model and it is beginning to apply in Vietnam construction industry

Contractor when approaching with which bidding model, their business model shall

be developed in accordance with that bidding model So the team shall be spend time on these preliminary ideas to brain storm business ideas/opinions as much as possible

3.3.3 Internal interview

The team will select 12 directors/managers/team leaders of Phuc Hung to carry out in-depth interview regarding current business model, as well as its performance up to this moment The 12 interviewees include:

 1 General Director – member of Board of Directors

 1 Deputy General Director

3.3.4 Customer interview

In order to study the external environmental factors affecting the selection of a suitable business model for Phuc Hung to innovating their business, the team will select 12 customers out of several previous, current, and potential customers of the company Among them are:

what is current macro-economic forces, market forces, industrial forces, and key trends of construction market

3.3.5 Group discussion

Beside internal and customer interviews, the research team will also hold several focus group discussions In which, the group will focus on discussing the classification of local contractors and their key players within local contractors, their current business models and strengths/weaknesses of each business model

In order for this discussion to be effective and objective, the team will select and invite foreign experts in the field of project management who have extensive experience with various local contractors The research team will interview experts to give their opinions on the current business model of key players of Vietnamese construction industry and strengths/weaknesses of each business model as the basis for the focus group discussion From that, the research team will be able to have the most objective identificationsregarding the issue

The research team has invited Mr Brian Val Davies – a senior project manager of HBP Project Management Company – who has over 40 years of international experience and over 20 years of experience in construction project management in Vietnam Mr Brian

is an Australian Civil Engineering University graduated specialized in project management Before coming to Vietnam, he was involved in managing a number of construction projects in Australia In Vietnam, he has had worked for HBP Project Management and held the position of Project Manager at various projects in various construction sectors

In civil construction field, he has had managed a number of projects such as the Avalon, Ho Chi Minh City;High-class apartment building project – The Manor Saigon; Luxury apartment project – The Manor Hanoi; The Nam Hai Resort project – Hoi An, etc

In industrial and infrastructure construction field, he has been involved in managing projects such as Hiep Phuoc Cement Distribution Terminal - Nghi Son Cement Plant, Phu

My Fertilizer Plant Project, Phu My general infrastructure, etc During 20 years of project management in Vietnam, Mr Brian has worked and managed a lot of different contractors such as: Vinaconex, Hanoi Construction Corporation, Saigon Construction Company No.1, Coteccons, Descon, Hoa Binh Construction, Lilama, PEB, Zamil, Kirby, Shimizu With his experience, he contributed a lot of precious opinions to the research team

3.3.6 Design Innovating Business Model

Based on the analysis result of the current Phuc Hung’s internal environment and external environmental factors, the team will organize a number of sessions to expand the range of possible solutions, aiming to generate as many ideas as possible Based on the analysis result of interview, which deeply studied the value map and customer profile to generate ideas and opinions of business model where each block of the canvas can be a starting point These ideas and opinions are considered as quantity aspect but not quality aspect

From the above ideas and opinions, the team will select appropriated ideas which match the strengths of the company’s resources, as well as over take opportunities come from external environment

Among the selected ideas and opinions, the team will use Business Model Canvas

to design a potential Innovating Business Model for Phuc Hung

3.3.7 Prototype

In order to find out the most satisfactory business model for Phuc Hung, the team will rank customer profile factors including “Jobs Importance” from insignificant to important, “Pain Severity” from moderate to extreme, and “Gain Relevance” from nice to have to essential In parallel, value map is also be ranked including “Product and Services”, “Pain Relievers” and “Gain Creators” from nice to have to essential

By using “Fit Map” tools between “Customer Profile” map and “Value Map” of each designed business model, the team is able to find the best fitting satisfactory business model for Phuc Hung

Then a discussion will be arranged to finalize the most satisfaction business model

as a Prototype for Phuc Hung to innovate their business

CHAPTER 4 RESEARCH RESULTS

4.1 Overview of Vietnam’s Construction Industry

4.1.1 History

Vietnam’s construction industry has a long development history in parallel with the development of country It can be divided into 2 major stages: before economic reform (1986) and after economic reform Since the economic reform, Vietnam’s construction industry also has made important changes

During the years of 1986-1990, the most important change is the application of Bidding Regulation which impacted deeply on local contractors in re-structuring of labor, technical, machinery, etc in order to high up quality and efficiency

From 1991 to 2000, there are several new construction projects which had been built serving for the high rate of economic development and the typical project of this period is the 500kV Electric Line from the North to the South This is also beginning period of formation of Real Estate market which has positive impact on development of Vietnam’s construction industry These years, besides continuously re-structuring of state owned construction companies, it was also appearance of private owned construction companies

And from 2001 up to now, this is widely integration period of economic into regional as well as international economic with the approval of WTO in 2006 It is also the high development rate of Vietnam’s construction industry with several huge and typical projects such as PetroVietnam Head Quarter, Keangnam Landmark 71, Lotte Hotel Hanoi, Bitexco Financial Tower, Vincom Center, VSIP Industrial Park, Samsung Vietnam Factories, Bai Chay Bridge, Nhat Tan Bridge, My Thuan Bridge, Can Tho Bridge, Ha Noi – Lao Cai Highway, Ha Noi – Hai Phong Highway, Phap Van – Cau Gie – Ninh Binh Highway, Ha Noi – Thai Nguyen Highway, Trung Luong – My Thuan Highway, Ben Luc – Long Thanh – Giau Day Highway, Hai Van Tunel, Thu Thiem Tunel, etc During this period, Construction Law, Housing Law, Real Estate Law, Urban Planning Law, Bidding Law has been approved to create a sufficient framework for construction management Together with this, local contractors are well-developed and improved competitiveness among local contractor and with internationally

4.1.2 Character

Construction industry as a supporting industry as well as a foundation for the other industries of economic, construction industry has character of its development depending

of the development economic such e.g GDP growth rate, urbanization, FDI capital, fiscal and monetary policy, interest and inflation Therefore, government’s investment in economic especially in infrastructure is strong affect to construction industry Beside, since the FDI attraction policy is implemented, FDI capital becomes important factor for development of construction industry

In consideration of the above factors, with GDP growth rate is 6,3%, spent of government’s investment, and FDI capital, it is forecasted that growth rate Vietnam’s construction industry is at average of 6,3% per year in the period of 2015-2016 (FPTS Report, 2015)

4.1.3 Local Key Players

4.1.3.1 Key player of Civil construction

Civil construction of Vietnam’s construction industry has important contributions

in the country's urbanization and significant contribution in the overall output of the construction industry to GDP Along with the development of the industry, now a day, there appear key players in civil construction of Vietnam, such as:

4.1.3.2 Key player of Industrial construction

Under industrialization process of Vietnam, industrial construction is an important part of the process In addition, international economic agreements have been signed supporting for FDI in industry and it has also created opportunities for industrial construction:

4.1.3.3 Key player of Infrastructure construction

Infrastructure is a weak point of Vietnam It is un-consistent and old planned of road transportation, railway transportation, river-sea lines transportation, airlines transportation, IT infrastructure, power supply, water supply, sewage drainage, etc that affected to eco-socio investment in general, industrial investment in particular In future,

needs of investment capital in infrastructure is the highest needs in comparison with the other disciplines

4.2 Introduction of Phuc Hung

Phuc Hung Holdings JSC is a typical construction contractor at Level 2 Vietnam

and Phuc Hung will be selected as the case for study of this research “Phuc Hung has

established in 2001 under the originated name: Phuc Hung – Constrexim Construction Investment and Export-Import Co Ltd In 2002, Phuc Hung Co Ltd was reformed to Joint Stock Company In 2003, Phuc Hung JSC became member of Constrexim Holdings – the mother company belong direct management of MOC And in 2009, Phuc Hung JSC was successfully listed in Hanoi Exchange Market – HNX with stock code PHC Phuc Hung’s business license has changed the 7 th time in 2010 with the current name Phuc Hung Holdings JSC In this year, Phuc Hung was successful in increasing of Chartered Capital from VND 30 billion up to VND 100 billion In 2011, Chartered Capital of Phuc Hung was increased to VND 110 billons through paying share profits to current shareholders By

2014, total PHC’s share listed in HNX is 10.999.977.” (Phuc Hung Profile, 2016)

Phuc Hung organization is divided into 4 levels Over the top is shareholders, the first (1) is Director Level, then the second (2) is Manager Level, the third is (3) is Department Level consists of 9 departments which are Administration, Finance and Accounting, Contract Management, Tender Management, Construction Management, Health – Safety – Environment Management, Equipment Management, Research and Development and the fort (4) is Subsidiaries, Construction teams, Project teams Level With the current organizational model of the Phuc Hung, the corporate governance and functional departments, as well as the implementation parts direct involved in the project is organized comprehensively, regular interfaced and information well-transmitted throughout the entire organization

Phuc Hung has 4 subsidiary companies which are Phuc Hung Investment and Construction No.3 JSC, Phuc Hung Investment and Construction No.7 JSC, Phuc Hung Construction No.8 JSC, and Phuc Hung Real Estate Co Ltd The 4 subsidiaries have contributed important part of business success of Phuc Hung

Over all human resource of Phuc Hung consists of 472 staffs divided into 6 categories: (1) Master – 7 equal to 1.5%; (2) Engineers – 150 equal to 31.8%; (3) Architects – 5 equal to 1.0%; (4) Accountants – 25 equal to 5.3%; (5) Technicians – 30 equal to 6.4%; and (6) Skill Works – 255 equal to 54% Beside the direct human resource, Phuc Hung has contracts with indirect human resources which can supply more than 1000 workers for Phuc Hung to implement projects

Regarding financial status of Phuc Hung, revenue of Phuc Hung in fiscal year 2013

is VND 566,95 billion, profit after tax is 8,70 billion, profitability ratios including Profit Margin: 1,5%, ROE: 5,5%, ROA: 1,3%, Operating Margin: 0,6% (Phuc Hung Report, 2013) In 2014, revenue of Phuc Hung is VND 528,59 billion decrease 6.8% in comparison with 2013, profit after tax is 5,63 billion decrease 35.3% in comparison with 2013, profitability ratios including Profit Margin: 1,0%, ROE: 3,5%, ROA: 0,8% Operating Profit Margin: 1,5% (Phuc Hung Report, 2014) In 2015, revenue of Phuc Hung is VND 1.219,92 billion increase 130,8% in comparison with 2014, profit after tax is 14,91 billion increase 164,8% in comparison with 2014, profitability ratios including Profit Margin: 1,2%, ROE: 7,6%, ROA: 2,0% Operating Profit Margin: 1,3% (Phuc Hung Report, 2015) Phuc Hung’s finance performance of 2013, 2014 and 2015 as Table 1 below:

Table 4.1: Phuc Hung’s finance performance of 2013, 2014 and 2015

(Source: Phuc Hung Report 2013, 2014, 2015)

No Year Revenue

(Billion)

Profit after tax (Billion)

Profit Margin ROE ROA

Operating Profit Margin

1 Year 2013 566,95 8,70 1,5% 5,5% 1,3% 0,6%

2 Year 2014 528,59 5,63 1,0% 3,5% 0,8% 1,5%

3 Year 2015 1.219,92 14,91 1,2% 7,6% 2,0% 1,3% Phuc Hung owns a wide variety of different tangible assets such as real estate, leasing office floor, to the several type of machinery and tool/equipment for construction Among these kind machinery and tool/equipment, Phuc Hung owns important one with technological know-how that they have learn a lot of experience It is the construction tool/equipment for construction of concrete structure as silo, chimney, and air traffic control tower using slip-form Or tool/equipment is used for construction of concrete structures using climb-form such as elevator wall, tower cable-stayed bridge, cable bridges There is also construction tool/equipment for concrete structure such as

column/beam using table-form in civil construction of high-rise apartment buildings, offices, hotels, etc

Over more than 15 years of history, Phuc Hung has taken part in construction of more than 500 large and small scales of projects throughout nationwide Phuc Hung has constructed serveral civil construction projects such as: The Manor Hanoi, The Garden, The Light, The Legend, The Five Star Garden, MITEC, VICEM Center, HH2 De La Thanh, Green Park Cau Giay, British Council Hanoi, Vincom Sai Dong Village Villas, A

La Carte Da Nang, Phu My Residence, Vung Tau Plaza, Pullman Vung Tau Hotel, The Beach Hotel, Lotte Mart Vung Tau ., and industrial construction projects such as: Chinfon Hai Phong Cement, Thai Nguyen Quan Trieu Cement, Ha Long Cement, Cam Ranh Cement, Vietnam Wheat Silo, Southern Cement Silo, Coke Silo Hoa Phat, Grain Silo for Binh Duong, Clinker silo Chinfon Cement Hiep Phuoc, Ha Long Cement chimneys, DAP Lao Cai chimney, TH Dairy Farm Nghe An , and infrastructure construction projects such as: infrastructure of Nghi Son Refinery, infrastructure of Northeast Ninh Thuan Urban

4.3 Key players’ current business models: Classification, Strength and Weakness

As proposed in Chapter 3, Sub-item 3.3.5 – Group discussion, the team has had an in-depth interview with expert – Mr Brian Val Davies – a senior project manager of HBP Project Management Company – who has over 40 years of international experience and over 20 years of experience in construction project management in Vietnam He has contributed a lot of precious opinions to the research teamregarding local contractors’ classification, key players’ current business models and its strength/weakness Based on the, the team has focused in discussing and found out below identifications

4.3.1 Classification

After having focus group discussion, the team has an identificationthat currently in Vietnamese Construction Industry, it can be divided into 3 classes of contractor: Class 1: Big contractor, Class 2: Medium contractor, and Class 3: Small and Tiny contractor Class 1’s contractor is nationwide contractors with big market share and revenue over VND 4.000 billion annually, such as Cotecon, Hoa Binh, Delta Construction, etc Class 2’s contractor is nationwide or region wide contractors with medium market share and revenue from VND 100 billion to less than VND 4.000 billion such as Hancorp’s companies, Vinaconex’s companies, Contrexim’s companies, Cienco’s companies, etc Class 3’s contractor is remaining contractors with small market share with revenue less than VND

100 billion who are private and company limited Most of Vietnamese contractors are Medium, Small and Tiny contractors With the above classification, Phuc Hung is a Class 2’s contractor

4.3.2 Current business models of key players

The second identification after having focus group discussion of Mr Brain’s opinion that within key players of Civil construction, such as Hoa Binh Construction, Vinaconex, Fecon, or most of other local contractors such as Hancorp, Contrexim, etc., currently they are using DBB model in operation of their business

As same as civil contractors, industrial and infrastructural contractors such as, Licogi, Lilama, Viglacera, Cienco, Truong Son, Lung Lo, etc., they also have the same business model of DBB model

The 09 building blocks of DBB business model are as below:

(1) Customer segments (CS): contractor is not select a clear market segment

(2) Value Proposition (VP): contractor concentrates in constructing only

(3) Channel (CH): contractor delivers value through bidding process

(4) Customer Relationship (CR): contractor does not maintain

(5) Revenue Streams (RS): through construction contracts

(6) Key Resources (KR): contractor focuses in investing for construction equipment

(7) Key Activities (KA): using labor, construction equipment to process raw material to construction products

(8) Key Partners (KP): contractor does not pay attention to

(9) Cost Structures (CS): material, labor, equipment and overhead cost

Another aspect of this identification is that Coteccons has started innovating their business model Their business model is still DBB model, however, they innovated their approaches with the followings building blocks:

(1) Customer segments (CS): Coteccons selects a clear market segment of private economic sector and Foreign Direct Investment (FDI) sector

(2) Value Proposition (VP): Coteccons concentrates in Construction management and starting providing civil design value for customer

(3) Channel (CH): contractor delivers value through competitive quotation, limited and/or nominated bidding process

(4) Customer Relationship (CR): Coteccons has a department of Customer Care to manage their customers

(5) Revenue Streams (RS): Coteccons has revenue streams of constructing, procurement, construction management

(6) Key Resources (KR): Coteccons focuses in investing for construction equipment and management system

(7) Key Activities (KA): tender process management, construction management and procurement management Recently, Coteccons established civil design department as a key activity and BIM technology study team

(8) Key Partners (KP): Coteccons has a list of key partners of labor teams, suppliers and sub-contractors

(9) Cost Structures (CS): Coteccons has cost structures of material, labor, equipment, management and overhead cost Coteccons does not use lowest pricing strategy to win a contract

4.3.3 Strength

Design – Bid – Build bidding method is very common in Vietnam since bidding regulation was applied The research team has identified that the traditional business model has its strengths which are:

 Simple in application, not require high standard of management

 Not require investment for research and development of technology

 Not require using computer technology in their works

 Compact organization chart

 Suitable for small and medium enterprises and average level of labor

The team has also identified strengths of the innovative business model of Coteccons are including:

 Coteccons is able to concentrate in segments of customer to design a suitable value propositions to deliver to the segments through a reasonable of channels

 Coteccons has capability of well-managed construction process to minimize project delays, variation costs, deputes, etc

 Coteccons has bigger profit margin than the industry average to re-invest for human resource, equipment resources, management capability development, etc., to create competitive advantages for the company

4.3.4 Weakness

The DBB business model of local contractors contains of several weaknesses recently, especially in big and complicated projects According the team’s identification, weaknesses of the business model are:

 Time to implement construction project is longer

 It is usually need extension of time to complete construction project

 Project delay may occur due to complicated coordination during implementation of project

 Cost increase easily due to extension of time, cost variation due to longer project implementation

 Not suitable with big and complicated projects

 Profit margin is small

The innovative business model of Coteccons has its above advantages but it still owns weakness which can be specified as below by the team after focus group discussion:

 The Conteccons’s innovative business model was not designed with a proper design tools,

 Design values provided to customers are limited in civil engineering aspect,

 Due to the rapid growth of business, Coteccons’s human resources has to increase rapidly and it contains also newly graduated staffs without appropriated experience and in accordance with the company needs

 Organization chart of Coteccons is quite complicated and does not ensure the major principles of a organization chart to show the report system among departments and levels within the company It causes the duplicated of human resources in the company management and construction management and therefore the effectiveness of management system is less

4.4 Phuc Hung’s current business model: Characteristics and Performance

As proposed in Chapter 3, Sub-item 3.3.3 – Internal interview, the team selected 12 directors/managers/team leaders of Phuc Hung to carry out in-depth interview regarding current business model, as well as its performance up to this moment

4.4.1 Characteristics of Phuc Hung’s existing business model

According to analysis result of Internal interview including 7 groups of question including Customer segments, Value propositions, Channels, Customer relationships, Key

resources, Key activities and Key partners, below characteristics of Phuc Hung’s existing business model have been found out:

4.4.1.1 Customer Segments:

According to the interview result, 58% of interviewees agreed and 42% total agreed that Phuc Hung just got an average number of customers and within medium scale And there is still a number of customers in big scale that Phuc Hung has not been reached

Regarding Customers Gains, there is still a gap between Phuc Hung’s products and Customers’ Gains that just required gains is covered but not expected, desired and unexpected gains have not been covered

4.4.1.3 Channels:

Among interviewees, 58% of them agreed and 33% total agreed that Phuc Hung gets jobs through open bidding channel, hardly ever gets jobs through other channels as limited bidding, nominated or competitive price quotation

4.4.1.4 Customer Relationships:

67% of interviewees agreed that Phuc Hung creates relationship with customers through collecting open bidding advertisements, and few through bidding invitation And 75% among them could agreed that Phuc Hung is able to maintain good relationships with customers, receive client’s belief, and several customers nominate Phuc Hung as contractor

4.4.1.5 Key Resources:

Among interviewees, most of them agreed that Phuc Hung has high capability of key resources including human, management board, finance, assets, and technology resources

50% of them agreed and 50% total agreed that Phuc Hung is balance in structure and has high quality human resource who are able to promote and develop company’s capability to upper level

In parallel with human resource, 45% of them agreed and 25% total agreed that Management Board of Phuc Hung is at high level and at young generation who are flexible and adaptable to go forward with innovative business model

Finance resource, which 67% of interviewees could agreed and 17% agreed, is as good as expectation This resource is an important part of Phuc Hung and need to be improved to ensure transparency and stability of financial status to create competitive advantage for the company

67% of them agreed and 25% total agreed that Phuc Hung has high capability level

of assets resource which are modern model, and fit for large range of project purposes

And also 45% of them agreed and 50% total agreed that Phuc Hung also has their owned modern technology resource which is difficult to imitate, especially that Phuc Hung has gained a lot of experience in operating the technology in projects through several years

4.4.1.6 Key Activities,

Key Activities of Phuc Hung, including project management, procurement, construction management, construction machine management and application of technology, are supposed that is at good level which 50% of interviewees agreed and 42% total agreed with this identification

4.4.1.7 Key Partners,

77% of interviewees agree that Key Partners of Phuc Hung, who are contractors, labor teams, material and machine suppliers, have been engaged with the company through approved lists in a long period and contributed an important role in the company’s business operation

sub-4.4.2 Performance of Phuc Hung’s current business model

Performance of Phuc Hung’s current business model can be identified by analyzing Revenue Streams and Costs Structure of the interview result

4.4.2.1 Revenue Streams:

58% of interviewees agreed and 33% total agreed that Phuc Hung has medium revenue as planned, but revenue growing is at low rate and under target rate In addition,

Profit of Phuc Hung is still small and profit growing at low rate Moreover, profitability ratios of the company are under industry average and do not fully utilize the company’s resources as 75% of interviewees agreed and 17% total agreed on the identification

4.4.2.2 Cost Structure:

58% of interviewees agreed and 25% total agreed with the identification that costs structure of Phuc Hung is on the basis of pricing on costs and bidding advantage by low cost strategy

Direct cost of Phuc Hung’s product is still able to reduce due to 75% of interviewees disagreed that direct cost of Phuc Hung is already at the lowest possible cost Therefore, it is still able to reduce the actual rate of material, labor, machine’s wastage to minimize direct cost of product

Management and overhead cost of Phuc Hung is at high rate in comparison with direct cost as 67% of interviewees disagreed that overhead cost is already at the lowest rate So it is able to reduce the rate of these management cost by innovating business model

Phuc Hung has to find the way to utilize economic of scale to have better direct cost of material, machine and labor as 67% of interviewees disagree that Phuc Hung has already able to maximize advantage of economic of scale at the moment

Economic of scope is another part to exploit to create supporting among business scopes to have the best cost structure for Phuc Hung

4.4.3 Phuc Hung’s existing business model: Strength and weakness

4.4.3.1 Phuc Hung Existing business model:

It can therefore be concluded that most senior managers / head – deputy head of departments agreed that the current business model of Phuc Hung is the traditional business model of construction companies is DBB With the current resources of Phuc Hung, this traditional business model has made the company not yet able to fully exploit its potential for growing

So it can be concluded that most senior managers / head – deputy head of departments agreed that the current business model of Phuc Hung is not at the most effective level Direct costs have not been reduced and indirect costs are high On the other hand, turnover is not stable and not diversified, leading to many financial risks for the

company And the business model’s profitability ratios are all lower than the industry average and do not meet the expectations of the Board

4.4.3.2 Strength and weakness

Strength: Phuc Hung’s existing business model has the strength of Design – Bid – Build bidding method The DBB model’s strength are easy to operation, not require high qualification of managers and staffs, less cost for research and development of technology,

do not require using computer technology in their works Therefore, it need a simple and compact organization chart and management cost is also low

Weakness: most of interviewees agreed that Phuc Hung’s existing business model has the same weakness with local contractors’ DBB business model Project implement time is normally long, and it is usually need extension of time to complete construction project Project delay often occur due to complicated coordination during implementation

of project Therefore, construction cost increase easily due to extension of time and cost variation due to longer project implementation Profit of Phuc Hung is also usually small and the company’s projects mostly are under medium and simple

4.5 Innovating Phuc Hung’s business model

In order to innovate Phuc Hung’s business model, as suggested by Osterwalder & Pigneur (2010), the team has pursued the following procedure: (i) studied external environment, then (ii) generated as many ideas as possible, analyzed ideas and prioritized shortlisted ideas, reducing the number of ideas to management few; (iii) used Business Model Canvas to sketch out 3 to 5 potential business models, and (iv) used “Fit Map” tools

to find out the most satisfaction business model as a Prototype

4.5.1 Study external environment

As proposed in Chapter 2, sub-item 2.2.4 – Innovating Business Model, it is necessary to study external environment including macro-economic forces, market forces, industrial forces, as well as key trends of market to find out how to innovate and is it the time to innovate a firm’s business model

And as proposed also in Chapter 3, Sub-item 3.3.4 – Customer interview, in order

to study the external environmental factors affecting the selection of a suitable business model for Phuc Hung, the team will select 12 customers out of many previous, current, and potential customers of the company The Customer Interview Form is used to carry out an in-depth interview with the selected interviewees,

Result of interviews is recorded for analysis And analysis results are as below