Understanding Business Models

Why Business Models Matter?

The business model concept has often been perplexed and misinterpreted leading to the numerous failures along with disbeliefs that it can work in most of the cases (Wirtz et al. 2016). It is often been seen as a preparation for each business in starting to produce massive profits and develop its positions within the market, even though it is stated to be crucial in knowing the ways in choosing and applying the same in every unique case. Therefore, the key aim of this paper is in evaluating the article by Joan Magretta “Why Business Models Matter” providing a deep insight on the models of the business and the ways they are being applied for improving the performance of business.

The author has stated the dissimilarity between models of the business along with the strategy. The former one would be explaining the identity of the customers and the ways of making money through providing proper importance to the customers. A business model of sound nature has the ability in complementing a strategy in enabling the organization in thinking scrupulously about the factors of business aligning of the employees behind the mission of the company and beating of the toughest of rivals.

A good model of business generally begins with an in-depth insight into the motivation of the humans that generally ends within rich stream of profit factor. The model of business generally tells the story in logical manner describing the customers, their real value. The article of Joan Magretta is of few years back, after which there has been lot of other researches along with new discoveries.

Magretta has compared the models of business to a story that describes the way a company works. All the good stories, of itinerary, are the key characters, plots and motives taking into account the customers and the partners, the value assurance to the customer and the ways the value of the customers is being generated.

According to Magretta, one of the most significant models of business ever has been a traveler. It has also been a good instance of an innovation in business model, where the main protagonists have been a traveler. The excellent model has been, in accumulation to the authentic value of customer, it has been lucrative.

As a traveler, good model of business are in the habit of creating fresh demands and not just transferring the flows of cash between the players of existing nature or dividing the market in new way. On the other hand, Magretta is of the opinion that the overall business models are eventually only the value chain disparity. In the new model of business, the chain of value is thus only faintly dissimilar in terms of the ways value is being generated and the ways it would be delivered to the customers. Innovation within the models of business does not always require a product or service that is new, but has the ability in relating to a fresh way of administering a process for action.

The Importance of Customer Value in Business Models

Although models of business does not frequently be the actual system of activity, however, every models of business boasts of a clear, methodical nature where it takes in the elements of the model and the relationship existing between them (Baden-Fuller and Mangematin 2013). The model of business should never be confused with the strategy, but at times can be complementary. This is for the fact that the model of business does not take in any sort of positioning the factor of competition, but this is completely a strategy to be dealt with. The model of business also does not cover up the areas like the strategic choices and options.

The author squabbles to the key idea of the model of business in creating a story that would be determining its activity for the future. A business model of successful nature needs to be clarified on who the customers are and what are the key values of the customers. However, as per Bereznoi (2015), the key considerations that any model of business has is to realize the ways of money making in the selected field of business along with finding out in meeting the demand of the customers both by the products facet and the cost related to it.

Implementing a new model of business is being aimed towards surrogating the existing practice with the fresh options that makes it more opportune along with valuable at the same time for the customers. A business model of progressive nature has the ability in completely reinstating the older ways of operating and establishing of the new standards within the industry (Arend 2013). It is usually being based on the old practices, however, the idea needs it to perfect the same and suggest on the fresh advancements of tackling the distinctive situations. In some of the cases, a new model generally finds a solution to the needs of the consumers that are still to be met or an innovation can be recommended within the process itself enabling the organizations in selling off an extant product in a fresh way (Boons et al. 2013). Business people search for different ways in creating the additional value to the customers along with their business through the pertaining of the new models of business.

The company’s interest in producing and improving on the models of business is been explained by the capability of predicting the business’s deeds, environment along with the customers (Boonsand Lüdeke-Freund (2013). The modeling of the business can organize the managers to the response from the external factors determining the company’s enormous success. Calculations of precise nature along with the predictions needs to be made in order for assuring the effectiveness of the business model created.

Innovation and Business Models

Profit is stated to be one of the significant measures of the effectiveness of the model of business as it has been demonstrating is the model toils with the same. If the outcomes that were being anticipated on the stage of the improving on the model are not being attained, the managers or the owners of the business needs to be prepared in reassessing of the model, implementing some of the changes in making the same work. Thus, as per Ovans (2015,) the modeling of business is stated to be a development that consists in suggesting of the hypothesis, testing of the same, and revising if there is a need for it.

An important role for the centre of the company is in being the architect of the business, creating and developing the moving parts. As per Wirtz  et al. (2016), putting it another way, it is in the setting of the ecosystem in which the business elements would be acting and performing. People call it the model of business. The models of the business help in reconciling certain internal tensions of competing of the factor of synergy, effectiveness and reduction of cost. However within that internal drive sometimes the journey of the customer can get lost, the service becomes disjointed and the integrity of the model of the business starts falling down.

Businesses require ample glue in holding them together but not to that extent where they cannot move. It requires testing of the maximum amount of dissension that can be managed and still holding together rather than making the individuals stable.

Testing a model of business is one of the critical steps that is being used in assuring the effectiveness. Thus, it can be stated that there exists two methods for testing a model; the n umbers test and the narrative test. The number test is being based on the checking if the calculations and the numbers strive while the main focus of narrative test is in identifying the story, which was being based on the model of the business, making much sense.

Magretta explains the fact that the modeling of business should not only deem the estimation in logical manner, but also take into consideration certain other elements like the behavior of the customers, their preferences, alternative and the loyalty of the brand (Sekaran and Bougie 2016). A great assistance of the modeling of the business is the capability in estimating the situation overall and making a prediction for the future through evaluating of each single component within the system.

Differentiating Business Models and Strategies

The author offers an example of the successful planning of the business by the founders of eBay. The businesses that maxim the probability of selling online have greatly been promoted and augmented their profits through participation at the eBay (Zott and Amit 2013).  It was always an idea of innovative nature during that point of time that thrived for couple of reasons.  A cost of decreased nature associating the sellers along with the buyers, high activity scale and an appropriate construction of organization were the key factors contributing to the success factor of the ground-breaking model of business (Kindström and Kowalkowski 2014).

A model of business along with the strategy are sometimes been used as interchangeable idioms, and they should never be confused. Both of them need to be used within the organizational environment, though they symbolize various stages of the planning of the business. Hence, modeling of the business is being associated in evaluating the systems elements and making certain that everything would be working in effective manner. However, the next step or stage within the planning of the business needs monitoring and tackling the rivals which is one of the main aims of the strategy (Coombes and Nicholson 2013). Thus, the key difference between a model of the business and that of strategy is generally being described by the issues they contract with the participation level.

The model of business generally differs from strategy; models of business are being described as a system, how the system pieces would be fitting in together; however they would not be any factor in competition. Dealing with all these is the strategy’s job (Carayannis, Sindakis and Walter 2015). The strategy of competitive nature takes into account the ways a particular organization would be doing better than their counterparts. Furthermore, if the company does not boast of any sort of good corporate strategy, the company is bound to fail even though the model of the business is stated to be booming.

A strategy that is being applied by the organization generally focuses on the finding of ways for the organization in performing in better way than their competitors. Differentiating of a company from its competitors and providing of unique products or services is stated to be the paramount strategy in attaining of the performance of outstanding nature. Using of this method takes in producing of fresh ideas that is mainly been based on the needs of the customers that were not obvious on prior occasions. Furthermore, it needs to be introduced within the market before any of the other company does the same thing.

Implementing New Business Models

An example of Wal-Mart can clarify the dissimilarity between the strategy and a model of a business. The author explains the fact that the success of it was not for the implementation of the model of business. As a matter of fact, the Wal-Mart’s founder rented the key concept from some of the existing discounting stores that previously exerted in the way of providing low amount of prices through offering of the less personal service. However, the scheme was being personalized and modified slightly by the owner of Wal-Mart through applying of the unique strategies of business (Casadesus?Masanell and Zhu 2013). Thus the Wal-Mart’s success is generally based on the strategy of its business and not the model which was similar to the one that was been applied by the other stores.

Wal-Mart’s strategy’s uniqueness was being represented through the ideas of the owner in operating within various market scenarios, serving a varied range of customers. The owner decided on focusing on the small towns of rural nature that were previously been ignored by the other retailers. Moreover, the town’s size that was being chosen by Wal-Mart facilitated it in becoming a monopolist scattering its chain across the country (Beattie and Smith 2013). Thus the submission of the strategy of distinctive nature within a business model of existing nature has been the key to the success of Wal-Mart.

Furthermore, as per Bocken et al. (2014), Wal-Mart’s strategy had some of the other exceptional aspects like the factor of merchandizing and pricing. Wal-Mart did reduce its costs through the implementation of the factor of innovation for keeping the promise of transporting the national brands at low amount of prices for the customers. Such an approach has helped the retail chain in standing out of the other retailers who were focusing at the promotion over conventional pricing and selling off of quality items. 

Thus, it can be concluded that the model of business is one of the powerful tools that boasts of an outstanding practical value for the organizations. Having knowledge of the mechanisms in creating and relating of the model of business determines the success of the venture in future. Implementing a model of business is one of the dynamic procedures that need regular investigation of its effectiveness and being prepared in reassessing and adjusting it as per the market’s reaction (Veit et al. 2014).

Adding to that is the fact that the author explains on the ways the business model is dissimilar from a strategy and that these conditions should never be confused. However, the modeling of business needs to be supported by a thriving strategy that would recognize the important directions in following the order in attaining the results expected for assuring the high performance of an organization.

References:

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