Rudiments of an Effective Business Model
To develop an effective business model for your company, draw a picture that establishes a structure so your employees can produce products or services for customers in a profitable way. A business model typically includes a description of your customers, how customers use your product, how you distribute your product and details about how you promote your business. The model also describes key operational tasks, staffing and other resource requirements as well as details about how business is conducted. A business model describes your business using visual images, typically on a single page, while a business plan describes your business in a lengthier document
Understanding the problem you are solving for your customers is undoubtedly the biggest challenge you’ll face when you’re starting a business. Customers need to want what you are selling and your product needs to solve a real problem. But, ensuring that your product fits the needs of the market is only one part of starting a successful business. The other key ingredient is figuring out how you’re going to make money. This is where your business model comes into play.
Upon completion of this course, you should be able to understand;
- Value propositions in business
- Business Models
- Business Plans
- Transaction Cost Economics
- And many more.
SECTION 1: INTRODUCTION TO BUSINESS MODEL DEVELOPMENT
Business Model Development
Developments in the global economy have changed the traditional balance between customer and supplier. New communications and computing technology, and the establishment of reasonably open global trading regimes, mean that customers have more choices, variegated customer needs can find expression, and supply alternatives are more transparent. Businesses therefore need to be more customer-centric, especially since technology has evolved to allow the lower cost provision of information and customer solutions. These developments in turn require businesses to re-evaluate the value propositions they present to customers e in many sectors, the supply side driven logic of the industrial era has become no longer viable.
The Origin of Business Model
Understanding how business works and how value is created for different stakeholders has become the shibboleth of management scholars in recent years. Millions of dollars were raised to fund flawed “business models” during the dot-com era. However, the problem does not lie with the term itself but with its lack of understanding and misuse. If a business model’s core stands on untested or speculative assumptions about the future, the firm is doomed to an uncertain outcome. For example, Pets.com assumed its extravagant marketing expenses and consequent brand
Business Models Vs. Business Strategy and Process
Business model in relationship to Strategy, Process and information system
What is a Business Model?
At its core, your business model is a description of how your business makes money. It’s an explanation of how you deliver value to your customers at an appropriate cost. According to Joan Magretta in “Why Business Models Matter,” the term business model came into wide use with the advent of the personal computer and the spreadsheet. These tools let entrepreneurs’ experiment, test, and, well, model different ways that they could structure their costs and revenue streams. Spreadsheets let entrepreneurs make quick, hypothetical changes to their business model and immediately see how the change might impact their business now and in the future.
Understanding Business Models
A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition. This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors. A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy, a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies.
Types of Business Models
There are as many types of business models as there are types of business. For instance, direct sales, franchising, advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA. Each business plan is unique within these broad categories. Consider the shaving industry.
Business Model Vs. Business Plan
The business model is the mechanism through which the company generates its profit while the business plan is a document presenting the company's strategy and expected financial performance for the years to come. The business model is at the center of the business plan. The business model describes how the company is positioned within its industry's value chain, and how it organizes its relations with its suppliers, clients, and partners in order to generate profits. The business plan translates this positioning in a series of strategic actions and quantifies their financial impact.
The Different Kinds of Business Models
You don’t have to invent an entirely new business model to start a business. In fact, the vast majority of businesses use existing business models and refine them to find a competitive edge. Here’s a list of business models you can use to start your own business.
SECTION 2: DEVELOPING A BUSINESS MODEL
Business Model Development
Creating a business model isn’t simply about completing your business plan or determining which products to pursue. It’s about mapping out how you will create ongoing value for your customers. Where will your business idea start, how should it progress, and when will you know you’ve been successful? How will you create value for customers? Follow these simple steps to securing a strong business model.
Business Models, Strategy and Sustainable Competitive Advantage
A business model articulates the logic, the data, and other evidence that support a value proposition for the customer, and a viable structure of revenues and costs for the enterprise delivering that value. In short, it’s about the benefit the enterprise will deliver to customers, how it will organize to do so, and how it will capture a portion of the value that it delivers. A good business model will provide considerable value to the customer and collect (for the developer or implementor of the business model) a viable portion of this in revenues.
Barriers to Imitating Business Models
At a superficial level all business models might seem easy to imitate e certainly the basic idea and the business logic behind a new model is unlikely itself to enjoy intellectual property protection. In particular, a new business model, being more general than a business method, is very unlikely to qualify for a patent, even if certain business methods underpinning it may be patentable.
A PESTEL analysis
A PESTEL analysis is an acronym for a tool used to identify the macro (external) forces facing an organisation. The letters stand for Political, Economic, Social, Technological, Environmental and Legal. Depending on the organisation, it can be reduced to PEST or some areas can be added (e.g. Ethical) In marketing, before any kind of strategy or tactical plan can be implemented, it is fundamental to conduct a situational analysis. And the PESTEL forms part of that and should be repeated at regular stages (6 monthly minimum) to identify changes in the macro-environment.
To get a good understanding of the Apples potential in business, the direction of operation and to know the situation of the future market we will make the use of PRESTCOM analysis. PRESTCOM analysis entails several factors that include political, economic, social, technological factors, organizational, regulatory, and competitive and market factors. These factors affect the sale of Apple products in the market as explained below.
Strategic Gap Analysis
Strategic gap analysis is a business management technique that requires an evaluation of the difference between a business endeavor's best possible outcome and the actual outcome. It includes recommendations on steps that can be taken to close the gap. Strategic gap analysis aims to determine what specific steps a company can take to achieve a particular goal. A range of factors including the time frame, management performance, and budget constraints are looked at critically in order to identify shortcomings.
The Ansoff Matrix, also called the Product/Market Expansion Grid, is a tool used by firms to analyze and plan their strategies for growth. The matrix shows four strategies that can be used to help a firm grow and also analyzes the risk associated with each strategy. The matrix was developed by applied mathematician and business manager, H. Igor Ansoff, and was published in the Harvard Business Review in 1957. The Ansoff Matrix has helped many marketers and executives better understand the risks inherent in growing their business.
Ratio analysis refers to the analysis of various pieces of financial information in the financial statements of a business. They are mainly used by external analysts to determine various aspects of a business, such as its profitability, liquidity, and solvency. Analysts rely on current and past financial statements to obtain data to evaluate the financial performance of a company. They use the data to determine if a company’s financial health is on an upward or downward trend and to draw comparisons to other competing firms.
Use SWOT Analysis to assess your organization's current position before you decide on any new strategy. Find out what's working well, and what's not so good. Ask yourself where you want to go, how you might get there – and what might get in your way. These are big issues, and you'll need a powerful but simple technique to help you: SWOT Analysis.
Definition of ‘Strategic Business Unit
Definition: A strategic business unit, popularly known as SBU, is a fully-functional unit of a business that has its own vision and direction. Typically, a strategic business unit operates as a separate unit, but it is also an important part of the company. It reports to the headquarters about its operational status.
A strategic business unit or SBU operates as an independent entity, but it has to report directly to the headquarters of the organization about the status of its operation. It operates independently and is focused on a target market. It is big enough to have its own support functions such as HR, training departments etc. There are several benefits of having an SBU.
What are the Seven Elements of McKinsey’s 7s Framework?
The seven ‘S’ of the model are systems, strategy, structure, shared values, staff, skills, and style. They are classified into soft and hard elements. The ones that fall under the hard elements include strategy, structure, and systems. While the elements that are cataloged for being soft are shared values, skills, style, and staff. We can also understand these categorization as external and internal organs. Like the former, the hard elements are visible and concrete. In the same manner, soft elements like internal organs are not noticeable, yet they play an equally significant role.
All businesses, either explicitly or implicitly employ a particular business model. A business model describes the design or architecture of the value creation, delivery and capture mechanisms employed. The essence of a business model is that it crystallizes customer needs and ability to pay, defines the manner by which the business enterprise