Source: E-mail dt.10.10.2013


The essence and effectiveness of Business Model



Ph.D Research Scholar

Nehru College of management

Coimbatore, Tamilnadu.




Business model describes how a company functions; how it provides a products or service, how generates revenue, and how it will create and adapt to new markets and technologies. A business model describes the rational of how an organization creates, delivers, and captures value (economic, social, cultural or other forms of value). The model of business construction is the part of business strategy. In theory and practice, the term business model is used for a broad range of informal and formal descriptions to represent core aspect of a business, including purpose, target customers, offerings, strategies, infrastructure, organizational structures, trading practices, and operational process and policies. The literature has provided very diverse interpretations and definitions of business model. A systematic review and analysis of manager responses to a survey defines business models as the design of organizational structures to enact a commercial opportunity.


The business model significantly transforms the process by which value is created and exchanged, existing business models become obsolete. A business model is the manifestation of a company strategy.




Business model concentrates on value creation, it describes as a companyís organization core strategy to generate economic value, normally in the form of revenue.


The models provides the basic template for a business to compete in the market place it provides a template on how the firms going to make money. And how the firm wills win in the internal players (firmís employees and managers) and external players (stakeholders, such as customer, suppliers and investor)


The business model indicates how the firm will convert inputs (capital, raw materials and labour) into outputs (total value of goods produced) and make a return that is greater than the opportunity cost of capital and delivers a return to its investors. This means that a business modelís success is reflected its ability to create returns that are greater than the (opportunity) cost of capital invested by its shareholders and bondholders.


Business models are on essential part of strategy Ėthey provide the fundamental link between the product markets for the factors of production such as labour and capital.

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What is a business model?


A business model address some basic questions


††††††† Who is the customer?

††††††† What does the customer value?

††††††† How can value be delivered to the customer at an acceptable cost?

††††††† Who is going to be the customer?

††††† What products or services should one offer to the chosen customer?

††††††† How can one offer these products or services efficiently and effectively?


The role of business model


Extract value from an innovation, a start-up needs an appropriate business model. Business model convert new technology to economic value. The business in capturing value from innovation Hnery chesbrough and Richard S.Rosenbloom present a basic framework describing the elements of a business model.††††


The business model serves to connect in two dimensions as


1) technical inputs

2) economic inputs.


A business model includes the subjects of economics, entrepreneurship, finance, marketing, operations, and strategy. The business model itself is an important determinate of the profits to be made from an innovation.


The essence of business models


The essence of a business model is that it defines the manner by which the business enterprise delivers value to customers, entices customers to pay for, value and converts those payments to profit it thus reflects managementís hypothesis about what the customer want, how they want it, and how an enterprise can organize to best meet those needs, get paid for doing so, and m to profit.


Business models are derived the value chain, a term closely associated with the famous guru, Michael porter. The activities which comprise the value chain can be divided into.


         Activities associated with making something designing, purchasing raw material†††† manufacturing and so on.

         Activities associated with selling something finding and reaching customers transacting sale, distributing the product or delivering the service.

         Supporting functions such as human resources, infrastructure and technology development.


An effective business model creates and delivers value in a better way than existing alternatives.

An effective business model creates and delivers value in a better way than the existing alternatives. Or it may be a completely new way of delivering value. On the other hand, a business model may be ineffective either due to poor conceptualization, faulty implementation or simply because competitors have superior business models. A new business model emerges:


By targeting new or currently neglected segments

By identifying new or currently neglected customers

By find a new way for producing and delivering either new (or) existing products to both new and existing customer.


Successful business model


Wal- Mart:Wal- Mart has been one d the most successful business models in corporate history in fact; today it is the largest company in the world.


Dell: another example of a great business model is Dell; the model Michael Dell created is by well- known by all.††††


Some common types of business models


Business to consumer model (B to C): Was the business makes money by selling products or services directly to consumers.


Business to business model (B to B): was the business make money by selling products and / or services to other business makes money by selling products or services directly to customers.††




The business model is simply a working description that includes the general details about the operations of a business. The components that are contained within a business model will address all functions of a business, including such these factors. As the expenses revenues, operating strategies, corporate structure, and sales and marketing producers. Generally speaking anything that has to do with the day to day functionality of the corporation and be said part of the business model.




1.             Harvard business review, May 2002

2.             Sloan management review, 1998

3.             Harvard business review, 2000

4.             Global CEO review, February 2007

5.             IBM Institute of business mission

6.             www.decloitte.com†††††††††††††††††††††

7.             www.wikepidiea.com