Decomposability also allows the study of individual business units in multi-business organizations. For example, below we represent Microsoft's business model for operating systems and productivity applications for the PC (at a high level of aggregation). Microsoft is present in many other sectors such as videogame systems or operating systems for personal digital assistants. Although there are interactions between all of these businesses, these may not be central to the particular question being addressed by the analyst and may therefore be ignored In what follows, we will abuse language and refer to business model representations as, simply, business models. In doing this, we are assuming that the representation does a good job of portraying the organizations true business model An Example: Ryanair To illustrate our notion of a business model, consider Ryanair in 1999 as described in Rivkin's (2000) classic. Important choices in Ryanair's business model include: low fares, flying to secondary airports, all passengers treated equally, nothing is free, no meals, short-haul flights, standardized fleet of Boeing 737s, low commissions to travel agencies, non-unionized, high powered incentives, and Spartan headquarters. Consequences of those choices include: low variable and fixed costs, reputation for reasonable fares, combative management team, large olume, etc. Considering what we know about the industry, we can develop theories on how choices and consequences are related. For example, an arrow from low fares (choice) to high volume(consequence) reflects the theory that the demand function for flights is downward- sloping. We employ a causal loop diagram to represent Ryanair's business model (See Figure 2 Figure 2 Ryanair's Business Model No meals Low variable cost Nothing free Large Ancillary business Low fix cost Secondary airports west Reputation for High aircraft suppliers Standardized fleet of 737s o travel agencies Attracts combative team incentives6 - IESE Business School-University of Navarra Decomposability also allows the study of individual business units in multi-business organizations. For example, below we represent Microsoft’s business model for operating systems and productivity applications for the PC (at a high level of aggregation). Microsoft is present in many other sectors such as videogame systems or operating systems for personal digital assistants. Although there are interactions between all of these businesses, these may not be central to the particular question being addressed by the analyst and may therefore be ignored. In what follows, we will abuse language and refer to business model representations as, simply, business models. In doing this, we are assuming that the representation does a good job of portraying the organization’s true business model. An Example: Ryanair To illustrate our notion of a business model, consider Ryanair in 1999 as described in Rivkin’s (2000) classic. Important choices in Ryanair’s business model include: low fares, flying to secondary airports, all passengers treated equally, nothing is free, no meals, short-haul flights, standardized fleet of Boeing 737s, low commissions to travel agencies, non-unionized, high￾powered incentives, and Spartan headquarters. Consequences of those choices include: low variable and fixed costs, reputation for reasonable fares, combative management team, large volume, etc. Considering what we know about the industry, we can develop theories on how choices and consequences are related. For example, an arrow from low fares (choice) to high volume (consequence) reflects the theory that the demand function for flights is downward￾sloping. We employ a causal loop diagram to represent Ryanair’s business model. (See Figure 2.) Figure 2 Ryanair’s Business Model Short haul flights No meals Nothing free All passengers treated equally Lowest fares Secondary airports Low commissions to travel agencies Non-unionized workforce High-powered incentives Spartan headquarters Standardized fleet of 737s Attracts young & pleasure travelers Reputation for “fair” fares Large volume Ancillary business. High aircraft utilization Bargaining power with suppliers Word of mouth advertising Attracts combative team Tough negotiators Low variable cost Low fix cost