What is a Business Model?

Develop your understanding of the Business Model as a concept and how a theoretical understanding of Business Models can be used to explain value creation, value appropriation and/or the Innovation process at firms in real-life.

In today’s time, competition amongst businesses is at an all time high. Technology, innovation, better customer service have made organizations thriving for perfection in every field they touch. This is where the concept of business model comes in. It basically means how a company operates and functions in order to generate enough revenue and profits. The term “business model” has no fixed definition. In the late 1980’s when more and more people started becoming acquainted to personal computers and felt that they could easily configure business revenues, prices, incomes and profits. “A business model is a clear, concise way of picturing how a business operates (Hill, 2013)”. A business model does not necessarily need to be defined or written down when an organization is started. As with any business, growth and change in technology bring about a lot of changes in the way a business organization functions. Thus, the business model keeps on changing and evolving with time.

By definition, the word “archetype” means a typical example of something. Therefore, an e-business archetype would mean a type or category of business defined by certain characteristics that are unique. “There are three primary personalities that describe the fundamental interests and activities of every business (Cabage, 2013)”, namely trade, product and service. These can further be categorized into three sub-sets namely subscription, marketplace and brokerage.

An activity in a business model can be defined as work done by the people in the organization to run the business. “An activity system is thus a set of interdependent organizational activities centered on a focal firm, including those conducted by the focal firm, its partners, vendors or customers, etc. (Zott & Amit, 2010)”. This activity system enables a business organization to create a better product or service, meet the demands of the consumer in a much better way and increasing profits.

A business model can also act as cost-revenue architecture. Any business organization, even before coming into the business, strategizes on how they are going to be generating revenue while at the same time cutting back on manufacturing costs and yet providing quality product to the customer.

Static and dynamic problems occur in any business organization. While static problems are simple and related to a single task, dynamic problems can be multifold and a bit more complicated as well as time consuming. Business models can be built in such a manner that they can guide and provide solutions to both static as well as dynamic problems. While static problems are simpler, less complicated and do not impact other activities within a business organization, dynamic problems are multi-fold. A dynamic problem can be described as a problem upon a problem upon a problem. In terms of computer technology, the terms tic” and “dynamic” are applicable to a number of things. These include, websites, webpage and programming languages amongst others.

E-Business Archetype

Change is inevitable, be it business or any other aspect of one’s life. “In fact, many business gurus argue that businesses now face increased levels of dynamic change (Hutchins, 2012)”. With modern technologies spreading like wildfire, businesses need to upgrade themselves and how they work frequently. Due to advancement in technology, more and more businesses are seeing a change in their work processes, the technology and equipment utilized by them as well as the skill set of their workers. Gone are the days when businesses used to store all their information and documents in files and folders, fill out forms manually and could do away without using technology. In today’s world every single business, be it a small scale factory or a multi-national company, every business organization has upgraded itself and equipped its workplace with machines and computers. In a world where information is so easily accessible and cut-throat competition at every level, a business cannot survive without upgrading itself in terms of technology usage.

In modern times, more and more companies are resorting to big data for increased efficiency in their workplace. “Big data is changing the competitive landscape (Morgan, 2015)”. Big data can be defined as extremely large amounts of data collected by companies and business organizations which is then analyzed to discover customer behaviors, patterns and trends. These trends are then utilized by the company to provide better quality products to the customers, therefore, generating more revenue and profits. “Big data is big business (O’Neill, 2016)”.

We all know about the well known and famous coffeehouse “Starbucks” that has gained immense popularity in the past few years. It was founded by Jerry Baldwin, Zev Siegl and Gordon Bowker in Seattle, Washington back in 1971. From then, the company has come a long way. In today’s date, Starbucks has become one of the most famous coffee house chain and has a global presence. “Starbucks’ story is endlessly fascinating (Henricks, 2007)”. Starbucks utilizes big data analytics to determine locations for opening new stores. “Starbucks acquires data from Atlas that is a mapping and BI platform developed by Esri. Esri (i.e Environmental Systems Research Institute) is a geographic information system (GIS) software company (Bamb, 2016)”. Using this software Starbucks can access statistics related to customer demographics, patterns of traffic in a region and population density amongst other information. This helps Starbucks in determining which locations would be best for opening new stores. All of this has been possible due to the advent of advanced technology. It is evident and needless to say that a few decades ago, such strategies would have been non-existent and therefore, the business model of a coffee house would have been very basic as compared to that of Starbucks in the present times.

Activity System in Business Model

The business model of any company is never a “one-time” or a fixed model. It is ever changing. Business models need to be upgraded or changed with passing times. A company successfully running its business in the present day cannot have the exact same business model it had years ago. Times change, so does technology; so should business models. In the year 1971, when Jerry, Zev and Gordon opened the first outlet of Starbucks, they did it out of their love for coffee and wanted to share the same with others. They probably did not even have a business model at the time. Their main focus was to sell coffee to people. Today, decades after the first outlet came into being, Starbucks has become one of the most popular success stories ever. Obviously, the company must have gone through enormous changes from time to time, to make sure they update themselves, their employees as well as their business model to not only stay in the market but to be one of the leading brands out there.

One of the very unique things about Starbucks’ business model, which also provides it an edge over many other similar companies, is how they treat their employees. The business model of Starbucks requires its employees to be treated as partners instead of just workers. His gives immense advantage to the company as the employees are given as much attention as its customers. This is a very important step that most businesses miss out on. Employees are able to give just as must feedback as the customers. Most businesses do not feel the need to ask their employees about the drawbacks in their existing system and only focus on the customers. This also happens to be something very crucial to the functioning and flourishing of any organization and one that only the workers know about and can analyze and convey to their superiors.

Apart from this, Starbucks has also been able to record and analyze people’s beverage drinking behaviors. From only serving coffee back in the 1970’s to adding more and more items onto their menu, Starbucks has been changing itself to meet the demands of its customers. Starbucks also analyzed and noted that about 43 percent people who love drinking tea, skipped sugar altogether while at home. In response to this Starbucks came up with newer additions to their menu and launched unsweetened beverages. They also noticed that around 25 percent people do not like to add milk to their coffees at home. So they came up with unsweetened as well as sweetened black coffees with or without milk to cater to the needs of one and all. Slowly and steadily, Starbucks has become the customers’ favorite only because the company recorded and analyzed large amounts of data related to its customers drinking habits and beverage preferences and made changes to itself in order to be able to deliver to those needs. The one thing customers love about Starbucks is that there is something for everyone. Apart from that, customers also have the option of being able to customize their own drinks and beverages just as they do it in their own homes. This has helped them in bringing changes to their business model to better meet the demands of their customers. “So, from a single storefront in Seattle to a global coffee phenomenon, the data-driven business strategy is the soul of this coffee company (Bamb, 2016)”.

To sum it all up, it can be said that business models are what provide a direction to a company. This helps the company in performing its basic tasks such as manufacturing products, determining costs of production as well as generating revenue and profits. In addition to this business models need to be upgraded with time as change is the only constant. A business model is the backbone of any organization and therefore, it needs to be strong strategic and dynamic

References

Bamb, N. (2016, october 4). Starbucks, roasting data and brewing analytics! Retrieved august 19, 2017, from LinkedIn: https://www.linkedin.com/pulse/starbucks-roasting-data-brewing-analytics-nigrah-bamb

Cabage, N. (2013, july 30). Business Model Archetypes. Retrieved august 19, 2017, from Mind the Product: https://www.mindtheproduct.com/2013/07/business-model-archetypes/

Hill, B. (2013). The Concept of a Business Model. Retrieved august 19, 2017, from Chron: https://smallbusiness.chron.com/concept-business-model-3866.html

Hutchins, G. (2012, june 2012). Change is Inevitable. Retrieved august 19, 2017, from The Nature Of Business: In fact, many business gurus argue that businesses now face increased levels of dynamic change

Morgan, L. (2015, may 5). Big Data: 6 Real-Life Business Cases. Retrieved august 19, 2017, from Information Week: https://www.informationweek.com/software/enterprise-applications/big-data-6-real-life-business-cases/d/d-id/1320590

O’Neill, E. (2016, september 23). 10 companies that are using big data. Retrieved august 19, 2017, from ICAS: https://www.icas.com/ca-today-news/10-companies-using-big-data

Zott, C., & Amit, R. (2010). Business Model Design: An. Long Range Planning , 216-226.