A good understanding of a business model's definition is the first step in implementing it effectively. According to Osterwalder and Pigneur (2010), a business model is "rationale of how an organization creates, delivers, and captures value." Therefore, a business model is an outline or blueprint that every company or organization uses to ensure that it has an effective and efficient structure, systems, and processes. Osterwalder and Pigneur (2010) further add that there are nine basic blocks of a business model that when adequately taken care of, the business would be a success. These blocks are cost structure, customer segments, critical activities of a company, vital resources, customer relationships, key partnerships, revenue streams, value proposition, and channels.
Every organization has a different business model, thus making the definition of the business model to change from one business to the next. Also, Sabir, Hameed, Rehman, and Rehman (2012) suggest that most scholars lack a unified concept about the business model. Thus, the definition of a business model is ambiguous since every scholar has his/her description.
The aim of having a business model is the same in every company even though there is no unified definition. The primary purpose of a business model is to ensure that the organization's management can generate its values and goals that need to be achieved. As a result, it helps the company to develop itself since it will identify areas that need to be improved.
Definition of a Business Mode According to the Business Model Generation and Strategic Management Concepts and Cases literature
Osterwalder and Pigneur (2010) define a business model as a description of the logic of how an institute generates, distributes, as well as attracts the value of a product. Aside from the definition, a business model can also be described best through the identification and application of nine blocks since more things are involved in a business model than what the description provides. Business models are always part and parcel of the company that implements them. Companies like Apple and Starbucks usually credit their models for their success. Therefore, a good business model will make a company successful while a poor business model often leads to failure of the organization in achieving its goals.
The first building block here is key partnerships which involve the relationships that the company has created to conduct its activities well. The key liaisons can be between the suppliers and distributors. The second block is key activities which refer to the main activities that a company does to get revenue. The fourth block is valued propositions, which help in determining what product or service will address a customer's need. The fifth block is customer relationships, and it deals with how the company relates to its customer segments. It also helps in determining the costs (if any) of maintaining this relationship between the company and its customers. Channels are the sixth block. Channels refer to the methods in which the goods or services are delivered to customers. The seventh block is a customer segment that is used to describe an individual that the company offers its products or services. The eighth block is the cost structure that focuses on the costs that enable a company to provide goods and services.
Lastly, the revenue streams describe how a company generates revenue by providing goods and services to the consumers. The idea of using building blocks to define a business model has been used in several research studies and business journals (Bouwman, Vos, & Haaker, 2008). Casadesus-Masanell & Ricart (2010) also support this notion. Models play an essential role in ensuring that a company plans for the future, adjust accordingly when the need arises, and succeed. Business models can also be perceived to be scales that are used for implementation of ideas. Hence, they help a company to plan for the future and face any risks that may come by (Doganova & Eyquem-Renault, 2009).
The Role of Value Propositions in the Success of Business Models
Value proportions can be described as the bundle of services and products that form the value for a particular consumer segment (Osterwalder & Pigneur, 2010). Value proportions are essential building blocks for developing a business model as it provides the reasons why the consumers prefer one organization over another. The value propositions also represent the specific products that the customer can get from an organization. These products are created to meet a particular consumer needs that the customer will prefer over any other organization. Thus, the use of value propositions is essential as they meet the specific requirements of the consumer thus influencing the consumer to purchase from one company despite the competition.
Value proportions are also essential in creating customer retention as well as loyalty. Value proportions help in addressing the issue of competition that exists in the current intense markets. Through value proportion, the company sets itself aside from the other firms by providing unique choices that the customer can access by utilizing the products it offers. Furthermore, the company can use value proportions to relate to the consumer segment to which the company wants to market. The fact that each value proposition is tailor-made to suit a specific customer segment is proof that the company will be able to cater to the needs of the particular consumer segment. The company can use certain value proposition factors such as price, innovation as well as design to set itself apart from the competition. Besides, brand recognition can also be used to set the organization apart from the competition.
Therefore, it is essential for an organization to understand the specific needs as well as wants of the consumer that they intend to reach out and market. Furthermore, the combination of value proportion and client relationship will help the firm to maintain its current customer segment. Additionally, the mix will also help the company to gain an insight into how value proportion can best be tailored to ensure that the needs of the customer are met in a particular segment. Thus, value proportion is an essential building block that helps to facilitate the success of the business module.
How "Brainstorming New Business Models" influence Successful Businesses by answering the "What If" questions
Majority of the successful organizations are aware of the vitality of continuous evaluation of their business models. Furthermore, the need to explore potential opportunities that may occur in the future is ingrained within the company. Constant assessment, as well as explorations, help the organization to modify their business models and fine-tune their goals to ensure that the company generally meets its purpose. However, businesses sometimes are unable to think outside the box to design and develop innovative business and thus, they opt to concentrate on their status quo or the usual business.
Brainstorming new business models can be achieved by first brainstorming new ideas. New ideas can help to make adjustments by providing new and improved methods that the company can include in their business models. However, to identify the original concept, the "what if" question can be used to provide an incentive to the ideas (Osterwalder and Pigneur, 2010). These questions can be used as the starting point where the responses generated can be incorporated into the business module. The "what if" questions can be created based on the business model's building blocks. This will further facilitate the generation of a stronger plan that can be implemented.
The "what if" questions can help the company to become more proactive to problems that may occur in the organization. These problems can also occur during the implementation stage of the business model, and instead of the employees being reactive to them, the employees can be more reactive and eager to provide alternative solutions using the "what if" questions. However, the "what if" questions can also be challenging to implement due to the different opinions that may be generated by the employees. For this reason, Osterwalder and Pigneur (2010) provide a canvas that can be used to create new ideas among the group. Also, the team leader can use post-it-notes to indicate the ideas that are being created. From here, it will be easier to identify the best alternative that can be incorporated into the business model.
Bouwman, H., Vos, H. D., & Haaker, T. (2008). Mobile service innovations and business models. Springer Berlin Heidelberg. http://dx.doi.org/10.1007/978-3-540-79238-3_12
Casadesus-Masanell, R., & Ricart, J. E. (2010). From strategy to business models and onto tactics. Long Range Planning, 43(2-3), 195-215. Retrieved from http://dx.doi.org/10.1016/j.lrp.2010.01.004
Doganova, L., & Eyquem-Renault, M. (2009). What do business models do? Research Policy, 38(10), 1559-1570. doi:10.1016/j.respol.2009.08.002
Osterwalder, A. & Pigneur, Y. (2010). Business model generation. Hoboken, NJ: John Wiley & Sons.
Sabir, M. S., Hameed, R. M., Rehman, K., & Rehman, I. (2012). Theoretical foundation of business model and their building blocks. Journal of Management Research, 4(4), 160-179. Retrieved from http://www.macrothink.org/journal/index.php/jmr/article/view/2083
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