businessmodel

What Is a Business Model

By J. Aditya, Asst.Professor of WSB

The term “Business model” is defined distinctly by various entities and schools of thought. There are numerous underlying assumptions that have to be validated in order to arrive at a cogent definition. The rising importance of business models so far has been a logical reaction to numerous choices in the market. However, the changes in the business models should be automatic, reflexive and spontaneous.

The conventional view of the business model

One of the conventional views of the business model was based on the notion of making money. This view was partially based on Microsoft’s implementation of its business strategy. For instance, according to Ovans, Microsoft’s business model was to sell its software for incredibly high profits or for a return on investment greater than 2000 %. However, this is a layman’s concept of a business model that lacks a profound understanding of various factors. Peter F.Drucker questioned the underlying assumptions pertaining to environment, objectives and core competencies of the organization. These three factors can be utilized as a reference to identify the customers, competitors and, markets.

Drucker’s perspective of a business model can be used as a foundation to which some phenomenal changes can be made. The business model can reshape existing ones supported by a good story. The story should relate to how the business model created a new incremental demand. For example, through the introduction of traveler’s cheques, American Express had a story based on the way it was able to fulfill unmet demand.

Contemporary view of Business model:

 

The practice of reinventing business models was an option in the 20th century. However, in the 21st century, this practice is a necessity for organizations to survive in the marketplace. Reshaping the structural changes to the existing business models should no longer be the norm. One should go to the drawing board and start right from scratch in order to design a new business model. However, Johnsons & Christensen’s idea of a business model can be taken as a rich source of inspiration to design a new one. According to their idea, a successful business model should be driven by customer value proposition, profit formula, resource utilization, and process implementation.

Futuristic view of Business model:

 In my perspective, a business model should transcend all the elements discussed above. Numerous factors that establish or develop an organization change over a period of time. Products, strategies, markets and technologies are subject to change at an unimaginable pace. However, the capabilities and creative imagination of companies either remain constant or grow exponentially. Therefore, in my conviction, “a business model is an incredible design that identifies and monitors a company’s unique set of capabilities and creativities in order to deliver an exceptional offering that is not even in the figment of anyone’s imagination”. Therefore, a business model is ultimately a design that not only redefines a strategy for a company, but also something that resets a new reality in the minds of people.