Business model business activities.
Any business structure, any company operating on the basis of a specific business model. The term business model is used to describe the unique business ideas of a company (business concept), how the company uses its sustainable competitive advantage to achieve higher efficiency compared to competitors (company strategy), and the ability of the firm to earn a profit now and in the future (income ). Harvard business school gives the following definition of the business model. The business model is a set of defining business solutions, as well as concessions and compromises, involved in the company for profit . The business model reflects the specificity of the business, namely the business of that particular company. Therefore, there is no universal business model that every company could successfully implement. Of course, we can talk about business models typical of a particular industry.
For example, the General scheme in the Internet industry is that the industry (in particular, such Internet giants as Yahoo and Google) provide millions of users with its services free of charge, and zarabatyvayut on advertising. However, if we consider the business of the Internet companies not on such a General level and on more detailed, you can see that the business models of these companies vary greatly so Yahoo sells standard banners, and Google serves ads tied to search terms. This seemingly little thing changes a lot: other methods of attracting advertisers, a different system of care and we have the company and distinguished brand to build the business processes. and the cost structure.
Strategic definitions of business models emphasize the overall direction in terms of positioning of firms in the market. Here, it is important to provide profits for many stakeholders, including suppliers, customers and partners. Focuses on communication and interaction with other organizations, with special emphasis on possibilities of expansion. Defines the key factors and indicators that affect the working efficiency, control over their dynamics.
In this context, the key elements of the business model.
the definition of stakeholders (organizations.
creating value, contributing to the allocation of the company among others.
the development vision.
expansion of contacts and alliances.
The business model can be defined as the set of actions of the company’s choice of customers, developing proposals of products and ensuring their difference from the goods of other firms, making decisions about what types of work will be executed by the company and which will be transferred to contractors to ensure effective use of available expertise and resources, strategy to market, provide benefits and amenities to its clients, profit [2.
Thus, the business model covers the strategic positioning of the company, the basic business concept, the specific supply of goods, the most important internal procedures and mechanisms, a model of income security.
As example is the company Dell is one of the most successful entrepreneurial projects in recent years. The company was founded in 1984 and is currently the sales volumes of the company amount to more than $ 32 billion. per year; according to the magazine fortune publishes a list of the 500 largest U.S. companies, Dell is in the list in the first fifty (Dell, 2002; Marketguide, 2002). The average annual company growth rate and today represent more than 40%, partly due to the fact that the firm adheres to a clear and effective business model.
The company’s products are personal computers, portable computers, workstations, servers, software. The concept of the business firm in the development of products tailored to the needs of customers and their implementation directly to customers at competitive prices.
However, the business model, the company combines elements of strategy, organization of production, and decisions associated with the economic model of the company.
The basic principles of the model – exclusion of intermediary firms, the development of computer systems for customers, high efficiency of work with customers, reasonable profit margins and high inventory turnover, faster implementation of new technologies. highly effective procedures of logistics. production and sale of products.
Any decisions on the current production issues and also on strategic development of the company are made subject to the conservation of all these elements. When a company deviates from the accepted business model, for example, began to sell products through the retail trading firm, she had problems.
Sometimes companies go bankrupt, despite the presence of well-articulated models, sometimes Vice versa: the company is thriving, though the business model she’s got a pretty loose , and then just bad. However, the business model can provide significant benefits to the entrepreneur and other stakeholders (its employees, banks, business partners, consultants, etc.). The business model performs at least five important tasks.
First, the model allows the entrepreneur to formulate a fairly logical and internally consistent concept of the organization of the company and its activities and bring that concept to their employees.
Second, the model represents a scheme to identify the most important variables that can be used in unique combinations, thus, the model can be the basis for innovative approaches and ideas.
Third, the model can serve as a tool for demonstrating the economic attractiveness of the enterprise and, therefore, to attract investors and other sources of funds and resources.
Fourth, the business model directs the current activities of the company, setting criteria to assess the feasibility of certain strategic and tactical solutions that can be considered leadership. The business model is a system of fundamental filters through which a company looks to the outside world[3.
Lastly, the business model allows the company to identify changes and transformations that need to take into account changes in external factors over time.
The value of the business model may depend on the purpose of activities of the entrepreneur. The enterprise may be different purpose, ensuring the survival or maintaining a certain lifestyle of the owner, dynamic development, implementation of speculative transactions, and each goal requires its own business model. This model can be more or less clearly formed and more or less complex structure.
The company, in order to ensure survival or maintain a certain lifestyle of the owner, may not be a formal model, but the owner keeps in mind the essential principles and components of such a model to maximize the sales of products to various market segments and to achieve the most favorable prices.
If a company has great growth potential, it should have elaborated more comprehensive and effective model for identifying areas of growth and development and to attract resources.
For enterprises engaged in speculative transactions, the model has great importance as a means of communicating to investors information about the prospects for growth and possible profits.
The business model is not something fixed and unalterable until the end of the life of the company together with the company, she lives, evolves, adapts to changing conditions in the external environment. Often in terms of astrauskasa competition or, on the contrary, capture a clear leadership, companies are trying to make the transition to more efficient or profitable business models.
The same Yahoo after the Internet bubble of the late 90s tried to introduce a fee for the use of email for this fee, he offered its customers additional megabytes in your Inbox. However, the emergence of free email services from Google are many times the size of the mailbox made the business model of Yahoo is not competitive.
So what is the business model at its core? What does it consist of? To develop a viable model, we need to define what a viable company, what is its essence. For simplicity, we assume that a sustainable company is an organization that sells products and provides services to clients, earning revenue that exceeds its expenses, it is different from other companies selling similar products or services and provide acceptable level of profitability on invested capital. The resources invested company converts to an output, wherein the activity of the company is cost-effective and sustainable.
The main components of the business model are revenue structure and the cost structure of the company. These structures are identified as a result of comprehensive analysis of income and expenses of the company.
Analyzing revenues, the entrepreneur asks questions of the following nature.
Is it a source of income for a product or service, how these products or services.
What sources are most significant sales for some of the sources will grow faster than others.
Which segments of the market will be conquered and how quickly.
To identify the cost structure of the company, the entrepreneur drew attention to the following points.
How does the cost by increasing the volume of the party.
How much it costs to attract a single customer.
How many customers in one day can provide a sales specialist and how the specialist is.
What more profitable to produce the product at its own facilities or to give its production to outsourcing.