Tuesday, September 4, 2018

Three Insight about Business Model

Keep in mind, the business model is not static, but a living thing.

The essence of a business model is that it defines the business operational manner and competency by which the business delivers value to customers, entices them to pay for value, and converts those payments to the business profit. A real business model is an analytical model that lists all of the sources of value, cost, and risk, and contains formulas to interconnect them and come out with a detailed business plan. Here are three insight into the business model.

When business models don't work, it's because they fail either the narrative test (the story doesn't make sense) or the numbers test (not having the satisfied ROI): To advocate a new business model, the business leaders need to tell a compelling vision-empowered story, to ensure that the business model makes sense and engages the people to implement it for achieving the business value. The business management also need to clarify many fundamental questions such as: What are your vision and mission? What is your strategic advantage? How well can you leverage the emerging technology trends? Who are the potential customers? What need is met for the customer? What percentage of that market do you expect to capture over what period of time? How large is it today and what are projections for the future? How many suppliers and are they dominant in market share? Why would someone prefer to buy from you? What is the cost of entry? Is this a market that competes on price, quality, innovation, service, or other factors? What is the cost point to be competitive? Are current suppliers able to supply the anticipated future growth? Etc. Validate the business model through the number test -The business Model describes the rationale of how an organization creates, delivers, and captures the multidimensional value (economic, social, cultural, or other forms of value). When experimenting with the new business model, the information or metrics supporting the story need to be reliable, make clear P&L, build an intuitive dashboard to monitor the performance.

A business model's strength as a planning tool is that it focuses attention on how all the elements of the system fit into a working whole": Business models describe, as a system, how the pieces of a business fit together. It usually contains numeric values representing one's assumptions about the market and about costs, etc. When do you use a Business Model? Regularly you use it to review, adapt or redesign the basic building blocks of a business; or use it as a planning tool on how all the elements of the system fit into the whole. The logical scenario is to find the right business model and then create a business plan. The business model is an entire frame of elements that describe the intents and constraints of an organization. Look at the business model as the “what” the business is all about or what it will do for customers. There is such a massive leap from a validated framework to the detail which is required for a working business. Business Modeling is structural and can be both created and changed very quickly. Business Planning is far more detailed and is the backbone of your business objectives. To make planning effective and practical, it is important to get the bigger picture and be clear on what, who, when, and how to achieve business goals based on the financial value and available resources.

A strong business model is difficult to copy; it is differentiated in the marketplace: The starting point for a business model differs based on the objectives and nature of an organization. You need to identify core business competencies and critical capabilities as well as where the future will be for the business entity model design. Starting the business model based on the technologic vision and on the mega-trends is to be able to build the core competencies and the critical capabilities early enough to catch the emerging digital wave. Trends are just a means to an end- Only following trends in your own sector is a sure way to lose! It’s all about foreseeing and applying trends, that’s where you win the competitive edge. The business model designers should methodologically review a list of levers for business model components, and systematically generate the list of potential business model options, and then, narrow choices based on their business core capabilities in order to maximize the multidimensional business value. Therefore, a strong business model is difficult to copy because it is based on the core competency and strength of the specific company, and it takes time to shape the unique business competency. Thus, a strong business model is differentiated in the marketplace. Corporate Entrepreneurship has been recognized as a potentially viable means for implementing the new business model, developing new businesses that create revenue streams, sustaining organizational performance, and renew corporate competitiveness. Thus, innovative leaders are in demand to lead an emerging business because often, many leaders are trapped by conventional thinking, but the new business requires innovation and innovation requires courageous leadership, fresh ideas, and risk-tolerant attitude.

The effects of an increasingly digitalized world are now reaching into every aspect of organizations. The abundance of information and lightweight digital technologies play a crucial role in recharging business models and renovating traditional organization to reach the next stage of the business development cycle. Keep in mind, the business model is not static, but a living thing, to enable organizations renewing themselves, reaching the next level of the business growth cycle, and opening the next chapter of innovation.


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