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The Business Model is made up of the values, concepts and different aspects of the business. A business model is important to the running of a business and will determine the eventual progress or decline of that business. It will begin at the very core of the business eg. The production line, and work all the way up. It is subject to change from time to time and will evolve along with the business and the demands of the market. Anything that is included in the functions of the business is included in the model like expenses, revenues, operating strategies, business structure, and sales and marketing procedures. A business model also helps to make the aims and values of the business known at all the levels of an organisation. Since the business model will determine the core values of the business it has some essential components that should be adhered to when one plans a business model.
Listed below are the key components of a business model.
Value Proposition: Is the proposition that will be made to the consumer depending on the demands of the consumer. The requirements that the customer demands will be met in this proposition. The results that the customer will get out of this product or service will also be considered in this part of the Model.
Market Segment: Tailoring the Product or the service to meet the needs of a particular market and consumer is a part of the business model. The market has to have a requirement for the product or service that is being circulated. If the product does not appeal to the consumers then it will eventually lead to a downturn.
Value Chain Structure: Providing valuable goods and services is the primary target of every company in order to attract consumers. In the value chain there are several factors that go into making the final product valuable to the consumer some are the receiving of raw materials, converting these into marketable items, making these products or services available to the consumer, sales and advertising, and the service that will be provided after the sale is made.
Profit Margins: The profit margin always given its due consideration in the business model since this is what the aim of the business is. It will describe how the organisation will go about creating a profit for example sales, advertising customer support etc. It will include the cost structure of products or services and how these will generate maximum profit.
Position in the Value Chain: The business model will have to identify where the organisation stands with respect to other competitors in the market. How they will deal with such competitors and how to increase the value of products and services. It will consider the factors that can be used to create more value for the consumer.
Strategy: is the integral part of any organised business and once planned and implemented in the model will affect every strata of the business. Strategy will cover how the company will get and maintain an advantage over competitors even after giving due consideration to ethics. It will discuss the components that will be used in order to develop a successful business strategy.
b) Some Successful Business Models.
Amazon: Amazon.com had started off in 1995 and became a leader in the field of internet retail. The continued success of the company can be attributed to their innovative business model. The business model adopted is basically customer driven; the term used to describe this kind of model is 'Online Retailer of Physical goods'. In spite of its humble beginnings the company has now come to be a market leader in its field. Though it started of as an on-line bookstore it now has many more products ranging from household accessories to movies and music and so on. It also has a range of services like publishing and auctions that make the customers experience a personalised one. The company also has numerous special deals, discounts and offers that are focused on the customers ease of use and overall satisfaction. Although the company has a thriving business it never ceases to make improvements and enhancement to the product that they offer. The customer has a wide choice and there is a wide range of customers that can be catered to, if a customer is looking to spend less there are options to buy and sell second hand goods. There are no extra costs that come in the form of processing and paperwork so this is an advantage to the company as well as the customer. This policy of keeping the procedures simple is what has maintained the popularity of amazon.com in contrast to the competitors. The company is popular with people looking for a career in the same field since the core values are simple and allow people to focus on their work and there is not much stress on superficial factors that prevail generally. Employees have also been given the option for ownership of the company this enhances the sense of responsibility and productivity. The strategies adopted are
Cost effectiveness thus maintaining the lowest cost but not compromising quality.
Customer Differentiation the quality and enhanced service offered by amazon.com sets it apart from competitors in the eyes of the consumer.
Focus Strategies are set on Customer Service and have a lasting impression on the markets that are being dealt with.
In order to maintain its continued growth the company has adopted certain Growth Drivers which are Product focus, Customer focus, Technology focus and Distribution focus. These will determine the potential of the company and its scope.
Google: has proved to be one of the most innovative companies in the internet world today. The concept started off as an internet search engine; today it is described as the dominant business model for commercial search engines. Advertising is one of the key concepts that has led to the continued progress and growth of Google. Google ads has allowed individuals as well as businesses to make a profit since the individuals could make money every time a user clicked on an add on their website and the company would make money and gain popularity in the form of this indirect marketing. It is due to its popularity that advertising has made Google the biggest and fastest growing search engine on the internet. Since the Google search engine is hugely popular and there is a great demand for it advertisements that appear on the website will also receive a great deal of attention. The appearance of the Google website is relatively simple and allows for the ads to be viewed as well as the search engine to be used effectively. The simplicity and minimal use of the website has not effected the popularity instead it is this that has brought about the success of the company. Although the growth was at an amazing pace and the success was good the Google enterprise did not stop there, the innovations that have come out of the company have proved to be invaluable and hugely successful. Some of the innovative services that have been offered to the individual are Google News, Google Maps, Google Earth, Fro ogle etc. This kind of enterprising innovation has allowed Google to expand in leaps and bounds. Google is also known to operate on good business ethics which is one of the factors that has contributed to its success. The level of integrity that a company is based on is a determining aspect of its success.
Sky Broadcasting: Is a British company which deals with a broadcasting network through satellite. It is also known as British Sky Broadcasting Company it was created in 1998 due to the merger of two satellite companies. It is one of the leading television entertainment providers in the UK, it also provides internet services and telephone services. Better known as British Sky Broadcasting, it has dominated the satellite TV business since the 1998 and is the market leader presently as well. The business model is based upon providing a quality product to a large network of customers which will have a continued growth and sustained profits. Presently Sky has started offering a host of services to the consumers as well as eco friendly solutions which are fast gaining popularity. They have also started offering educational and training opportunities for people who may want to join this industry. In 2008 Sky was already reaching 86% of the homes in the UK making them the market leader. As we can see with their latest innovations they are making changes to their business model that will sustain the future of the company. They have recently introduced UK's first broadband based televisions network that is fast gaining popularity. It has become an essential to have the Sky products in every home in the UK since theirs is the best affordable product and service. Thus the company has managed to create a monopoly and are now branching out into areas where they can provide value added services like training, education etc.
Facebook: comes under a business model category known as Networking, it has created a sensation on the internet and has become a networking phenomenon. It was created by three students initially to target the student community across the country but has now become the most trafficked site globally. Students use the Face book site for several needs they may have examples are to find roommates, look for friends, find accommodation, make study groups etc. The FB website offers free access to all users approximately 5,000,000. It makes its money through advertising in the form of banner ads, sponsored groups and text announcements. Due to the vast exposure of face book the big companies are more than happy to invest and advertise. The main reason for the success of this site is the ability of the owners to provide a user friendly and useful on-line interface for the advantage of society. Although there are other sites available on the internet that have the same features Face book has set itself apart due to the unique innovations that allow people to connect in a way that will allow privacy as well as give the opportunity to make close knit communities and groups.
A "Business Case" supports the planning and decision making process for initiating a project or task. It is based on a single business decision or action to be taken within a business environment and will also include options for the same. It is very important to build a strong business case to protect and strengthen a project. The purpose of a business case is to outline the financial analysis, risks, costs and expected gains which will be the outcome of the project or task to be accomplished and is usually presented in a well-structured written document.
The first and main part of the Business case should consist of the topic and objective of the project or task. The objective although specific to that particular project, should relate to the overall business operation and should be Specific, Measurable, Achievable, Realistic and Timely (S.M.A.R.T.). The objectives will define the final business results upon completion of the project. The topic and objective should indicate how the project will be successful. In order to achieve success the business case should be credible, practical and accurate.
Every business case will include solutions and methods of completion. Since the business case is developed for the purpose of a successful business project all the outcomes presented in the business case will be based on solutions and analysis. These solutions will be developed based on the results of the cost model and the risk analysis. One or more solution(s) would make up a scenario which will define the course of action to be taken in order to achieve success. In order to achieve the business results which were outlined in the objective of the business case one would need to ensure that each scenario is accurate. This can be done with the help of sensitivity and risk analysis. Sensitivity analysis would enable us to predict the outcome of a project if one scenario turns out to be different from the initial assumptions. The cost model will show the outcome when taking into consideration the relevant course of action. Using risk analysis in the business case one would be able to view different scenarios and see different results in case the primary predicted results are not achievable. Each scenario will be evaluated based on the Strengths, Weaknesses, Opportunities and Threats (S.W.O.T.). Therefore the solutions and methods of completion should be credible and practical in order to achieve success.
The Financial plan outlines details of the budget required to accomplish the project. It will include cash flow results and important impacts that are an outcome of the project. The financial plan consists of various measurements based on the cash flow and financial statements such as ROI, payback period and rate of return. This would even cover third party sources of funding like donations, partners or grants. The plan would state how these finances are used, for instance in operating, administrative and fixed costs, where the finances are used for overhead costs as well as maintenance and replacement costs for machinery if required. Finally the Financial plan will state how the returns will be credited to the business operations. Business case results include different scenarios under which a project or an entire business can perform.
In order to conclude the business case one would need a conclusion and recommendation on the best course of action for the project. This would look back at the various scenarios taken into consideration and select the best course of action to put forward. Based on the existing economic conditions the sensitivity and financial analysis results would be considered in order to achieve the highest success in the given project.
i) a product new to market, for example, the Apple iPad.
The objective of introducing a new product like the Apple iPad to a completely new market is mainly to increase market share and is a business decision that has several other reasons behind it. We will outline the business case for introducing the Apple iPad to a new market and the costs and benefits involved. One main reason for introducing the Apple iPad to a new market is to provide the market with a brand new product which has not been available in the country. This will drastically increase sales which will in turn increase the consumer coverage and improve profitability. As an advantage for consumers it will improve their way of life thereby creating a win-win situation. The main costs involved in introducing the Apple iPad to a new market include developing strategies for pricing of the product, distribution, market segmentation, advertising and promotion. We will also look at factors such as market share, profit margins, government laws, demographic information, culture, budgets, capital investment and financial analysis. While looking at the factors that contribute to the costs and benefits of a product new to market we can devise a SWOT analysis as indicated in Appendix1.
Introducing the Apple iPad to a new market involves a lot of costs. Initially there will be a cost of launching the product. Before launching the Apple iPad we should first do a complete study of the new market. This study should include a detail market plan and will investigate the existing populations, the target customers and how to reach and capture the target market. Demographic and economic data of this kind can be accumulated from statistics organisations like Nielsen. The market plan will also include geographic information on the market and the best places to begin the marketing campaign, for instance the busiest shopping centre or the cities business hub. Last but not least the market study will investigate the competition and provide solutions on how to beat the competition. Based on the competition and the target customers we will then finalise a price that the Apple iPod should be sold at. The price should be allocated based on break-even analysis. That means that the price of the Apple iPad should be inexpensive so as to attract the consumer but at the same time should be high enough to enable us to recover all the costs involved. While devising the launch of the Apple iPad we will also consider the profit margins that we would expect and the budgets involved in the whole process. There would be a distribution budget and marketing budget which will be linked to the overall capital investment.
Once we have all the information, the next step would be to devise a marketing plan or a marketing strategy which will be effective enough to create the necessary hype or demand for the Apple iPad. This would be one of the most expensive parts of introducing the Apple iPad to a new market as it would include promotions and advertisements. When devising a marketing strategy it is very important to keep in mind the culture of the market and the people i.e. the end consumer. It is very important that the advertisements and promotions are respectful to the culture of the consumer or else there is little hope for the product launch to be successful. During the promotion and advertisement of the Apple iPad we will be communicating to the customers the purpose and use of the product and this should in turn influence, inform and persuade the buyers to purchase the product as soon as it is launched. There are two types of promotions; Above the line promotion which takes care of media, TV, radio, newspapers internet and mobile phones. And the second type is Below the line promotion which involves sponsorship, product placement, public relations and trade shows. In both types we would need to sign a contract with the media and trade show agencies in order to go ahead with the promotions.
The next step is distribution of the Apple iPad to the different distribution channels. This is the actual path by which the Apple iPad will reach the consumer or the business user. In order to activate the distribution channel we would need to identify a reliable distribution partner and sign a binding or non binding contract with them. This would entitle the distribution partner to sell the Apple iPad on our behalf within the new market. They would in turn submit the sales reports to us on a daily and weekly basis. The distribution partner will resell the products to the retailer who then sells to the end customers.
The marketing and distribution of the Apple iPad will need to be dealt with in accordance to the government laws and legal structure within the country. These would include paying attention to taxes and other government rules and regulations. If these are not adhered to then the whole project will turn into a total loss.
In addition to the costs involved in introducing the Apple iPad to the new market there are several benefits as well. It is due to these benefits that the suppliers were persuaded to bring this product to the market initially. The most important objective of the organisation is to increase the market share of the Apple iPad. Once the product is available in the new markets the consumers will automatically purchase the product as their buying decisions have already been influenced by the promotions and advertisements we organised in the marketing strategy. This information stays in the minds of consumers and it increases their buying power. Thus there is a huge demand created for the product. This will in turn increase market share as we now have a new market and a large number of consumers focusing on the Apple iPad alone. An increase in market share will cause an increase in profitability thus making the whole project a success. Consumers will decide to purchase the Apple iPad for various reasons; for personal use and to improve their standard of living, for business purposes due to its user friendliness and it could even be for fashion.
ii) a structural change to your community, for example, a new road layout or a new health centre.
The objective of building a new health centre in and for the community is mainly to ensure good health of the general society, increase the standard of living for the community and thereby increase the human capital for each member of the community. A structural change such as building a health centre would improve human capital as good health cannot and should not be separated from a human being. Building a health centre will make it possible to provide all the community members with accessible and affordable health care. As of now the community does not have a good health centre and it would be beneficial to all members of the community to have one. Going forward we will study the costs and benefits of this structural change to the community while identifying the reasons behind it.
The main reason behind starting a health centre for the community is to improve the wellbeing of the members of the community. All individuals, young and old can benefit from the health centre and improve their way of life. Some of the benefits which will be available at the health centre are seen in Appendix 2.
The main costs involved in starting a health centre are building charges, project management, government permissions, legal approvals and staffing solutions. All this would need to be set upon a time line. Once the building and project plan have been finalised the same would be presented to the government after the legal approvals have been sought. The government would need to approve the plan and then give a go ahead for the permission to build the health centre. Once the permission and necessary approvals have been received then we can begin with the construction of the health centre. This would entail costs such as labour, project management, housing for the staff, transportation costs and insurance costs. The time taken to build the health centre alone would take approximately three years. Within this time the project managers would need to start working on the insurance for the staff who will be working in the health centre in the future as well as staffing solutions. In order to have efficient staffing solutions we will engage a recruitment company to carry out a head hunting procedure for the best doctors and nurses who would be interested in working in the health centre.
Upon completion of the three years the full functionality of the health centre will be achieved. The success now lies in the happiness and satisfaction of the community. This can be achieved by making sure that all the community members have tried out the health centre facilities and services and are now feeling healthier and happier in their societies.
It would seem that the costs that go into building the new health centre in the community are much higher than the returns. However it would be important to note that the rate of return on investment achieved from a health centre are never immediate. These will be long term profits that the centre would achieve after a turnaround time of approximately three years. The immediate benefits will be seen in the welfare of the community. It can be noted that the returns in community welfare are achieved much faster and are much higher than the financial gains which are long term.
Human Capital is the knowledge, education, training, skills and expertise of the employees within an organisation. Expenditure on education, training and health care is known as investments in human capital. These investments reap in profits over the entire lifetime of an individual as it increases the value of the individual within the company and in the marketplace. Investments in human capital are very important for all employees within the organisation as it helps the employees to learn more about their company and duties and it increases their productivity in the workplace. As the employees are more educated their earnings will automatically be well above average thus improving their standard of living.
Modern day managers will need to have a very high investment in human capital. They have the responsibility of defining goals, overcoming challenges, developing business relations, leading teams and making changes all for the success of the organisation. In order to shoulder these responsibilities it is important that the modern day Manager has a great level of human capital investment. It is seen that most managers today have a CMA, CFA, MBA, Masters or PHD qualification. All these qualifications are very rigorous and the individuals need to put in a lot of time and research in completing them. In order to attain a managerial level within the organisation one would also need to learn about the company and how things are done. This is why all organisations have an internal training and development program. This is where the employees learn the when, what and how of the business and their individual jobs. When joining a new company every employee has several questions about the organisation and their job scope; the training and development program enables companies to invest in their employees and resolve all their unanswered questions while at the same time identify the employee strengths and weaknesses and work on this for a better future.
Most recruiting companies have a Management training program whereby new employees who have recently completed their education can join the organisation and be trained in all areas of business. They would be given assignments for all the different aspects of the business, marketing, finance, operations and this would test their ability to perform better once they are put on the job. These Management training programs are very stringent and enable companies to bring out the best in all their Managers. It energizes people to achieve further progress and success while at the same time empowers the employees to make decisions for themselves and the success of the company.
The concept of Human Capital is useful to managers in consultancy organisations as it would enable them to select and identify the right people with the required skills, knowledge and technical know-how to perform the job well. In the fast changing economic and business environment of today it is very important that the consultancy organisations look closely into Human Capital and use highly developed management systems and skills in order to select, train and motivate employees. This will enable employees to be more committed to their job and to the company.
Who they recruit
In order to decide who they recruit the managers in a consultancy organisation need to use one or more Human Capital management strategies. This will enable the manager to categorise the employment candidates in a precise manner based on their skill sets and the job requirements. One effective method of Human Capital management strategy is using Strategic Human Resource Management with the help of the HR scorecard system. The first step is to identify the strategic goals of the organisation. Then identify the steps to be taken to select employees with the required skills and knowledge to attain these organisational goals. Once the candidate is on the job they would demonstrate these skills and their results would be monitored. Over a period of two weeks the employee results would be evaluated in relation to the organisational goals, if the goals are achieved with success then these skills are what we are looking for. On the other hand if there is something lacking in achieving the company goals then HR would need to identify what skill level and knowledge would be required. This would enable the consultants to streamline the recruitment process for each candidate.
How much of their budgets they spend on training and learning
Managers in consultancy organisations are requested to hold trainings within companies so that the companies can achieve their corporate goals and be successful. In order to have an efficient training for the company the consultancy Manager would need to conduct a performance analysis to know the employees actual performance and compare this to what it should be. The consultancy Manager can then devise a training process for the whole organisation or can have separate training processes for different departments based on their needs. This is also known as needs based analysis. Based on the type of training and learning the employees require in order to conduct their job effectively and efficiently the Managers in consultancy organisations should allocate their budgets accordingly. Different departments would require different types of training procedures. For instance the employees in the Engineering department would require a job instruction training which is a sequence of all the necessary steps in the job and how to do it well. While the employees in the Sales department require an On-the-job-training whereby they learn the job by actually doing it. On the other hand employees in the IT department would require computer based training. So it would be easy to note that the IT training would cost more than the training for the Engineering and Sales employees. Therefore based on the type of training required by each employee and department the Manager will allocate their budget accordingly.
How they manage change within their organisations
It is very important for managers in consultancy organisations to use the concept of Human Capital to drive and manage a change within a global organisation. When the manager has information on the human capital with reference to each employee in the company then he can categorise which employees would be open to organisational change and which employees would not. Being a good leader means that you would be open to change, therefore the management team should generally be open to organisational change. However not every manager is a leader based on their characteristics and their knowledge level. Therefore the consultancy manager would put down all the knowledge, education, training, skills and expertise of each employee in a chart (indicated in Appendix 3) and using this score board would help decide which employees have the qualities it would take to embrace organisational change.
In today's fast moving environment there are huge changes within global organisations which are unavoidable and help keep the organisations alive and successful. Managers are responsible for reducing the adverse impact (if any) on the workforce which are brought about by these organisational changes. Change comes around when the organisation needs to change into a flat structure, or when there are permanent employee transfers within the company, or when there are new products, processes and procedures to be followed. Some employees would not be able to cope with change due to three reasons: they cannot, they will not or they don't know how. The first category of employees are those who cannot adapt to change because they are so fixed and set in their ways and refuse to accept any type of change. The second category of employees refuse to change out of their own stubbornness. While the third category of employees really want to change but they only need the training for the same. This third category are employees who look at the future, for the benefit of the organisation, however lack the skills and knowledge to get there. It is these employees that the Managers need to develop on and train in order to make the organisational change possible and the organisation successful.
Therefore using the concept of Human Capital, today's managers will be able to carry out successful organisational changes. And if and when required they will be able to recruit new employees who serve as change catalysts and train existing employees for the success of the organisation.
In this module of Business Management, the assignment of 'Business Terminology' has given me the opportunity to research and present various ideas based on Business models, Business Case and Human Capital. The research within this assignment will show that these three concepts are fundamental factors for a successful organisation in today's business arena.
The Business Model is the core concept behind the functionality of a business and in time will determine the success or failure of the organisation. While the Business Model is based on the organisation as a whole, the Business Case is more specific to the individual projects that need to be carried out in order to maintain the functionality of the organisation. It supports the basic planning and decision making process for initiating a project or task and is based on a single business decision or action to be taken within a business environment. While the Business Model and the Business Case are more related with the business and financial aspects of an organisation, the Human Capital is more concerned with the human knowledge aspect. It teaches us that the employees are the most valuable asset to every organisation. When organisations invest in Human Capital for their employees, this is an investment with the highest returns, as employees will always use the knowledge gained during the training to improve their job environment and therefore improve the overall productivity. It will also increase the employee loyalty towards the company thus creating a win-win situation.
Appendix 1: SWOT
-New product to market-high demand
-Increased market share
-Great marketing strategy
-Difficulties in new market
-Overcome culture differences
-Identify reliable distribution partner
-New target market
-Increase sales and profitability
Appendix 2: Health care services
Appendix 3: Employee evaluation chart
Employee strong points
Employee weak points
Rate each characteristic from 1 (lowest) to 4 (highest)
Overall rating for the job