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HOW TO DESIGN A WINING BUSINESS MODEL
Strategy has always been one of the most important elements of competitiveness over the past few years, but in the future, the need for having a sustainable competitive advantage may be linked with the business model. A 2009 study shows that seven out of 10 companies are involving in business-model innovation, and a 98% are rectifying their business models to a great extent. Our paper will dig out that how we can create a winning business model and why it is important for a new venture to develop a business model. In general, model is a plan that is use to make or describe something. A business model is a firm plan or image for how it competes, uses its resources, structures its relationships, reacts with customers and create value for customers in order to have a sustainable competitive advantage.
It is important to understand that a firm business model takes it beyond its own boundaries. It is important for a firm to have a vertical marketing system (a marketing system in which the manufacturer, the distributor and retailer work together just for the sake of customer satisfaction) in order to make your model more comprehensive. In Dell's case, it needs the cooperation of its suppliers, shippers, customers and many others to make its business model possible. For example, if dell suppliers weren't able to deliver up-to-date parts to the company on just-in-time basis, dell would have higher inventory costs and wouldn't be able to deliver its customers state-of-art products at competitive prices. A company's business model involves its network of partners along with its product. It is composed of the capabilities of different firms, all of which must be willing and motivated to move forward.
Some business models are developed in such a way that others, especially competitors, won't be able to understand how the firm move forward. This strategy may make the business model the part of its hidden competitive advantage. It is important for a firm to have a hidden competitive edge which cannot be easily copied or imitate by others. For example look at Google web site and try to analyze how the firm generates money. It isn't clear. Google makes money through:
- Carefully placing discreet ads that run alongside search results.
- Licensing its search technology to portal such as America online.
- Licensing its search technology to companies for internal search engines
- Whatever else Google is up to that's hard for even informed observers to discern.
Google is so curious to have its business model in top secrecies to try to keep other firms from duplicating it.
THE IMPORTANCE OF BUSINESS MODEL:
A business model is very important for a business to succeed, because it describes how that business will earn revenue. A business model is important for different reasons. A company must craft a strategy, use resources both effectively and efficiently, develop a partnership model and interact with customers effectively to be successful. A business model is important for the following reasons:
- Serves an ongoing extension of feasibility analysis.
- Analyze that how all the elements of a business fit in a way and constitute the whole work.
- Describe why the network of participants needed to make a business idea more sound and attractive.
- Describes the company's core logic to all shareholders, including the company's employees.
Once the model is clearly defined, companies should need to examine it an ask the following question:
- Does the model make sense?
- Do the businesses I need participate as partners?
- What about customers? Does my business worth to them?
- If I do get customers, how I will create the customer retention process?
- How my business model differs from other?
There is no standard business model, no thumb rules that dictates how a firm in a particular industry should compete. In fact it is very dangerous for a company to copy a business model of some other firm even the company is the market leader. This is true for two reasons. First, it may be difficult to examine specifically about the business model of another firm. Second a firm business model is innately dependent on the collection of capabilities and resources needed to process. At a business model development stage, it is difficult for a new venture to raise money and hire a lot of employees, institute partnerships or execute a marketing plan. A firm need to have its business model in position before it can make further substantive decisions. Failure to develop a sustainable business model generally stems from a immature understanding or a rush to get a new product or service to market.
Components of effective business model:
There are different elements that help an organization to make a wining business model and they are:
- Core strategy
- Strategic resources
- Partnership network
- Customer interface
The first component of a business model is the core strategy which describes how a firm can have a hidden competitive edge over its competitors. An organization can only develop a core strategy when it exactly knows about its strength and weaknesses. It is also important for a firm to keep an eye on the external environment that will help an organization to identify the basic opportunities and threats that will help them to gain a competitive edge in along run. The elements of core strategy are:
i. Mission Statement:
It is important that a firm mission should be clearly defined its reason to exist. Take Xeror for eample, the firm styled itself ‘the document company' with an embedded mission that focuses on copiers and copying. Xeror viewed itself as a company that reproduced documents that already exists causing the firm to be late participant into the market for computer printers.
ii. Product/Market Scope:
It defines the core product on which the business will ponder. The choice of the product have an huge impact on firm business model for example Amazon.com started itself as an online book seller but now has diversify themselves to sell different products as well like cd's and dvd's as well. The market on which the company focuses is also important element of its core strategy. For example dell targets business customers, students and government offices.
iii. Basis for Differentiation:
It is important for a business to differentiate itself from its competitors and the company should give the customers the reason to buy their products. If a firm product or services aren't different from those others, why should anyone buy them.
A firm is not able to execute a strategy without having resources, so companies should need to have an eye on the resources it have in order to have a sustainability competitive edge. The most common resources are:
i. Core Competencies:
A firm core competency is based on both in short term and long term. In short term that allows to firm to differiante from others. In a long run, it is important to have core competencies to nurture and set up strong position in business markets. There is rising indication that firm benefits from developing core competencies and focusing their work on core businesses.
ii. Strategic Assets:
Companies assets; plant, machinery, location, patents, highly qualified staff and distinctive partnership have a valuable effect on a firm's business model. This type of benefit is attainable when a firm has strategic resources and the skill to use them.
Partnership network also have a significant impact on the sustainability of the firm's business model. In most cases, the companies does not want to do every thing on their own, so the majority of tasks have to be done by the partners like suppliers and the distributors in order to get the competitive edge. Firms are developing more collaborative relationship with their suppliers because of the supply chain issues. But on the other hand companies are also cutting down their suppliers in order to get the better quality of the supplies.
It is very important for a firm to have a healthy relationship with the customers. The type of customer interface depends on how a firm decides to compete. One of the most important elements of customer interface is the target market that who exactly are the customers of the company. The only reason for a company to exist is its customers. A firm generally get benefit from having a clear target market because of the specifically of the targeted customers, it can focuses on its marketing and promotional campaign and it can build up profound core competencies pertaining to its specific market place.
BUSINESS MODEL OF COMPUTER INDUSTRY
The model which we have developed is quite simple model which can be easily applied in the computer industry. It's a six step model; in the first step the customer can replace order through phone or email or by going directly to the retail shop. The second step the company instantly orders the order information and the component parts. In the third step the company assembles the components according to the need of customers and that help the company to maintain customer retention process. In the next step the computer is shipped through the currier service or it can also be available on the retail outlet according to the demand of the customer. And now in the last the computer is in the hand of customers.
Characteristics of effective business model:
There are several characteristics of an effective business model but a good business model will definitely meet this criteria:
1. Is it aligned with company goals?
While designing a business model a firm must have to think that what are there goals and objectives and what is the mission of the business. The business model should be aligned with the company goals in order to have a competitive edge. Because when business models are compatible with the goals and objectives of the company, it is good for organizations to have a sustainable or hidden edge over their competitors. There are several examples of companies whose models were not compatible with the company goals failed badly. So in order to be successful, companies must have to keep in mind the goals and objectives of the company while making their models.
2. Is it self-reinforcing?
The managers must have to think that their ideas for a business model should be compatible for each other. They should have to keep their ideas self reinforced in order to make choices for the new ones. Companies must have to think for their profits and also for the customer retention and it is only possible when the managers are reinforced by their ideas. Companies have to decide that they have to provide the solution for the problems of the customers and this is only possible when managers are reinforced by the ideas on which they have to build the business model.
3. Is it robust?
A good business model must have to be that strong that it must have the ability to sustain its effectiveness over different time periods. The have to behave or have to shown the same results in different situations. Although, today companies have different models for different products but still the element of robustness is crucial.
Business Models vs. Strategy vs. Tactics:
The business model is planned to establish the basic processes for what the business does and the business strategy defines how the can achieve its goal. In order to make business model work, a business must decide how it will implement that model in a creative way. Different companies may maneuver within almost the same business model; but this will not help them to gain a sustainable competitive advantage. A strategy is a long-term plan planned to make sure success. Business strategy is a means of understanding the market your business is planned to investigate. Understanding the market means that you have to understand the need of the customer in order to competitive advantage. Tactics are the usual base activities that go on in your business. Tactics are the definite ways in which the strategies are implemented. Tactics are quite easy to copy so in that case you can't have that hidden edge over your competitors which are needed for your company in a long run.