| What is a business model? | Business Model refers to the logic of the firm, the way it
operates and how it creates value for its stakeholders in a competitive market place |
| A good business model as the one that provides answers
to the following questions ? | •Who is the customer and what does the customer value?
• What is the underlying economic logic that explains how we can deliver value to customers at an
appropriate cost?
• How it identifies and creates value for customers?
• How it captures some of this value as its profit in the process? |
| Business Model fulfills the following functions? | - Articulates the value proposition
- identifies a market segment and specify the revenue
generation mechanism
-Defines the structure of the value chain required to
create and distribute the offering and complementary
assets needed to support position in the chain;
-Details the revenue mechanism(s) by which the firm
will be paid for the offering;
• Estimates the cost structure and profit potential
-describes position in firm with value network linking supplier and customer,
-formulate competitive strategy to have advantage over rivals |
| What are some Business Model Components | • Business models are made of concrete choices and the
consequences of these choices . |
| What are choices? | choices include (but are not limited to) compensation practices,
procurement contracts, location of facilities, assets employed, extent of
vertical integration, and sales and marketing initiatives |
| type of choices | Policy choices refer to courses of action that the firm adopts for all
aspects of its operation.
Asset choices refer to decisions about tangible resources.
Governance choices refer to the structure of contractual
arrangements that confer decision rights over policies or assets |
| what are Consequences ? | Every choice has some consequences: for example, offering high-
level incentives (a choice) has implications regarding the willingness
of employees to exert effort or to cooperate with co-workers
(consequences). |
| What is a strategy and tactic | •Strategy is often defined as a contingent plan of
action designed to achieve a particular goal.
Strategy is the plan to create a unique and valuable
position involving a distinctive set of activities.
• Tactics are the residual choices open to a firm by
virtue of the business model that it employ |
| Relationship between Business model, strategy and tactic | •Business model is a reflection of its realized
strategy.
• Strategy refers to the contingent plan about
which business model to use.
• Business models determine the tactics
available to compete in the marketplace.
• For instance, Metro, the world’s largest newspaper,
has created an ad-sponsored business model
that dictates that the product must be free. |
| Contingencies of a business model | •A strategy is much more than the mere selection of
a business model; it is a contingent plan as to how
the business model should be configured,
depending on contingencies that might occur.
Example of Competition Entry:
• If the potential entrant stays out, then I should
stick with business model A - but if the competitor
enters, I should reconfigure my business model to
B.
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| effective business model | Is it aligned with company goals?
• The choices made while designing a business model should deliver
consequences that enable an organization to achieve its goals.
Is it self-reinforcing ?
• The choices that executives make while creating a business model should
complement one another; there must be internal consistency.
Is it robust?
• A good business model should be able to sustain its effectiveness over time by
fending off four threats:
•imitation
•holdups
•slack
•substitution |
