Source:
E-mail dt.10.10.2013
The
essence and effectiveness of Business Model
R.Bhuvaneswari
Ph.D Research
Scholar
Nehru College of management
Coimbatore, Tamilnadu.
Abstract
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.
Introduction
Business model concentrates on value
creation, it describes as a company’s 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
(firm’s 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 model’s 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 –they provide the fundamental link between the product markets for the
factors of production such as labour and capital.
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 management’s 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.
Conclusion
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.
Reference
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