Business model was considered the greatest buzzwords of the internet boom. With the rise of dotcom bubble, most of the company heavily invested for web-based business model but this fantasy could not sustain long. However, business model got momentum during dot com era, only since 2000, it was used widely by firms of different nature (Magretta, 2002).
Business model is often compared with art because many people feel they recognize when they see art but cannot quite define it exactly and in the same way, people explain business model based on how they are using it or what previous knowledge they have about it (Ovans, 2015).
Business model is often mistaken as a synonymous to business strategy. Firms strategic choice of the company can be analyzed, tested, validated and interpreted using business model but it is not in itself a business strategy. Strategy is related to the choice made by the company and business model is detailed plan which enables company to rethink, revisit and modify their original choices (Shafer, Smith, & Linder, 2005).
Four Elements of Business Model
Business model is the representation of the entire business which consists of four interlocking elements, customer value proposition, profit formula, key process and key resources that are taken together to create and deliver value (Johnson, Christensen, & Kagermann, 2008).
Customer value proposition: Company is looking forward to providing value to the customers. Merit offer services to the students that meets students’ specific needs. They give close observation on competitors. Customer value proposition has three important factors: target customers, need fulfillment and offerings. It means target customers are made offering using company’s resources aiming customer satisfaction.
Profit formula: Merit needs to create value for them while providing value to its customers. Revenue model, cost structure, margin model and resource velocity are the four components of the profit formula. Company emphasize all or any of the components to extract profit in their business(figure 2).
Key resources and Key processes: To have profitable delivery of value to customer, Merit give emphasis for the proper interaction of its key resources and key process. Key resources include people, product, technology, brand, information, alliances and partnership etc. Key process means preparation work such as human resource training and development, souring, marketing, IT.
Business model affinity diagram
Shafer, Smith along with their student studied on the previous definitions of business model and made the diagram which clearly highlights how the company success in their business. Business model affinity diagram describes four components of a business model. They are strategic choices, create value, capture value and value networks (figure 2).
Strategic Choice: Business can either translate one set of strategic choices into a single business model or draw a conclusion about the best business model for them after considering a range of business model which represents a set of strategic choices of the company.
Creating Value and Capturing Value: For sustainable business, company must create value, capture value and continuously generate profit to sustain their business activities. Value creation and value capture occurs among the value network.
Value Network: Fourth component of the business model affinity diagram is value networks. Value network is composed of suppliers, customer, information, product and service. Company needs to create, manage and maintain unique relations with different parties in the value networks (Shafer, Smith, & Linder, 2005, Pg.201,202,207).
Company can design their own business model. One of the mostly used business model is business model CANVAS, which is widely used at present by the companies to design their business model. It has nine basic building blocks and helps to understand the business logic of how company intends to make money. The nine basic building blocks in the Business Model Canvas represents the four main areas of business: Customers, offer, infrastructure and financial viability (Barnes, Blake, & Pinder, 2009).
References
Barnes, C., Blake, H., & Pinder, D. (2009). Creating and Delivering Your Value Proposition: Managing Customer Experience. Great Britain and United States: Kogan Page Limited.
Magretta, J. (2002, https://hbr.org/2002/05/why-business-models-matter). Why Business Models Matter? Harvard Business Review.
Ovans, A. (2015, January 23). Business Model: What is a Business Model? Retrieved from Harvard Business Review: https://hbr.org/2015/01/what-is-a-business-model
Shafer, S. M., Smith, J. H., & Linder, J. C. (2005). The power of business models. Business Horizons (2005) 48, 199 — 207, 202-204.
Johnson, G., Scholes, K., & Whittington, R. (2005). Exploring Corporate Strategy. England: Prentice Hall Financial Times. Johnson, M. W., Christensen, C. M., & Kagermann, H. (2008). Reinventing your Business Model. Harvard Business Review, 51-59
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She is a content writer, Master student in Migration Studies and graduate Master in International Business.
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