Why Business Models Matter in Business?

Business model is a concept used in explaining various aspects of the business ranging from its value proposition to the innovation process that a particular business entity wants to adapt in its business activity. A a business model comprises two elements. These are a specific business system and a profit model. The aim of framing a business model is to conceptualize a picture on how a business operates in its operating environment. In addition to this, a business model also provides the opportunity of using the available resources best as per the ability of the firm. The aim of the firm is to maximize the utilization of the resources available to them. The two components of the business model are inclined towards describing the maximum utilization of the resources and deliver the products to the consumers in a profitable manner. The business system is concerned with the system of work that the organization undertakes to deliver its products, while the profit model describes how an organization shall utilize its resources to bring out maximum profit from its business activities. On the other hand, a business model system is rather designed on three parameters. These are activity content, activity system structure and activity system governance. The business model aims at selecting a particular activity and then aimed at designing a particular structure of the business models. For example, a change in business model approach has been evident by IBM. It has been found that the company shifted its business activity from dealing with hardware and became a software provider as well. In order to develop this business model, IBM has been found to improve their infrastructure. Consulting with various services, the Company has been able to mark improve their business activities by major changes in their business model.

Business Models Importance

There are various means of analyzing the profit margin generated by a particular firm. One of the methods of analyzing the business effectiveness is by checking it using the gross profit metric. It is the method where the gross profit earned by the company is calculated by subtracting the cost of goods sold and the actual revenue earned by the company. In this respect the intension of a company always remain to maximize the profit of the company and thus, the business system is designed likewise. Other important objectives that are fulfilled by designing an effective business model are to create better opportunities for the stakeholders involved with the organization. Business model also focuses on innovation and technologies. If many people are involved in the organizational activities, the scope and opportunity for better innovation increases. It has to be understood in the recent business market scenario, competition has been found to increase deliberately. Therefore, in order to combat against this increasing competition, involving in better innovative approaches is indeed an important criterion to be involved at the time of designing the business model.

Business model can be regarded as the system which is inter-related with a number of interdependent activities taking place within the organization. The business model has potential role to play in the major decision making that the entrepreneurs make to enhance their business activities. Thus, it can be said that a business model significantly help to establish value for the business. However, it has been evident that the business model varies from one organization to other and the frameworks for all the business models are not same. Business model framework provides flexibility to the managers of the organization as well. It is due to the flexibility of the business framework, many organizations are found to come up with changes in their business models based on the market situation.

An example of a successful business model can be given here. The success of Google can be easily be given to the business model that they have designed for their firm. Google provides service to its users without charging a single amount of money. The idea of providing the users with the contents is to attract them. With more contents available to the users, the chance of gaining their attention increases. However, the idea behind the development of the business model is to sell the space to the marketers and advertisers. Today, Google is the most liked search engine. The business model of Google has also considered the cost effective of the firm. For instance, the organization has its own in-house server system that has helped the organization to provide the service within a minimum expenditure. However, it should also be mentioned that the business model of Google is built on both innovation and technology. Similar approaches have been made by other companies as well. No matter if it is a manufacturing company or a software development company, innovation and technological advancement is included in the business model of these firms. The complete action of the business activities depends on how the business model is framed by the company.

Another important concept of business model has been evident among the Japanese firms. The Japanese style of leadership is based on knowledge integration and innovation. Many business models are based on these two concepts. For instance, the new knowledge creation and the vertical value chain model are the two common business models used in the Japanese companies. The vertical value chain model is most effective model and often helps in the creation of a win-win situation. A company has to continuously access the situation of the business model used in carrying out their activities. Whatever approach is taken, it should be valuable and effective to the particular organization. The success of the Japanese companies can be easily given to the innovative framework that they use in their business system. The business models that the Japanese companies use are much different from those used in the Western countries. For example, the telecommunication company DoCoMo has been found to use the Vertical integration model in their business. This has significantly helped them to be effective enough to create their own path of integration. This can be regarded as the basic reason behind the success of these business models.

Business models depend on the organizational activities and the market where the organization operates. The business models are designed to engage the stakeholders and increase the profit of the business. However, the role of technology and innovation in framing the business model of an organization cannot be neglected. The advancement in the field of technology has created various options for the business to come up with better approaches and design their business model that is best suitable for the particular business. The business model also enables an organization to fight against the competitors present in the business environment. It has to be understood that the corporate activities of a firm depends on the boundaries of market where it operates. Innovation can be regarded as the major driving force behind the success of a business model.

By the end of the discussion, it can be said that business models depend on various factors. It has been found that the foundation of the business model depends largely on the area where the particular business operates. For instance the business model of Western countries varies from that of the business model of Japan or other such countries. The business model might also requires to set up new infrastructure for the firm as well but the same is made affordable by the company depending on the profitability that it earns while operating the particular business environment. An organization has to keep competitive measures to keep its dominance in the market where it operates.

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