Do you agree with this statement? Why? Be specific. Feel free to use examples.
A business model defines how a business creates, delivers and captures economic, cultural, social or other forms of value. The business model provides information and direction on how the organization positions itself within the value chain of its industry. In for profit businesses, business model specifies how the company makes money.
When businesses are established they describe in details the architecture of value creation and mechanism they will use to capture that value. This is done through management’s hypothesis on what the customer wants, how they want it, and how the company will best create a structure that meets those needs and make a profit. Essentially the success of the business depends on how well the company meets the needs of its customers and how well it captures the created value through products and services that customers are willing to pay for.
In most cases the value capture is also referred to as product and market fit. First companies need to create a product that its customers want. Then they are tasked with monetizing the created value. In order for a business to succeed, both value creation and value capture should be well structured and make economic sense. No business can sustain in the absence of one of the two. According to Joan Magretta, a good business model answers Peter Drucker’s questions: Who is the customer and what does the customer value. …show more content…
It also answers the underlying economic business question – how do we make money in this business. The answers to these questions are critical for establishing solid foundations. However, business model is not the same as strategy. It is rather a system and don’t factor in competition. According to Michael Porter, dealing with competition and doing it better than rivals is a strategy task. Eventually a good business needs both business model and effective strategy to be successful. Most traditional business models are obvious. Airlines and taxis sell transportation, and stores sell goods. It is the business model that describes the value offered and how that value is monetized. However some business wait to long to modify or abandon their existing business models. Geoff Colvin in his article Your Business Model is Obsolete writes: Innovation is the hottest word in business, but most conversations center around products and services. However, the overpowering challenge companies face is how companies make money. Sooner or later, even if the business model worked well for decades and even if it works well now, the business model needs to change, adapt and grow. It is inevitable that eventually newcomers and innovation will disrupt companies. If we take a look at Fortune 500 companies that existed in 1955 and compare the list to that in 2014, we see that 88% of the companies are gone. Within 59 years, 88% of once Fortune 500 companies are either bankrupt, merged or still exist but fallen from the list due to lower revenues. Therefore, it is clear that in long run only a short fraction of companies enjoy their current market position. Major retailer such as Best Buy and Wal-Mart are rethinking their business models in response to show-rooming i.e. browsing in store and buying online from other online retailers. All telecom companies reassess their business models in response to increased competition, customer’s willingness to pay less and less for voice. The telecommunications companies today are trying to capitalize more and more on the fact that customer’s willingness to pay for data has increased. The whole publishing industry and book selling industry is going through transformation, where Amazon online bookstore is the new norm. While the amount of content we consume today is more that ever before, the way customers access and consume this content has changed. Digital books continue to grow in popularity, forcing many traditional publishing companies to change their business models. However still many organizations fail to adapt or by the time they do,