Business Model Approaches and Its Used In Understanding International Business - Assignment Example

Business model approaches and its used in understanding international business Table of Contents Introduction 3 Business model approaches 4 Elements of business model design 5 Utility of business model approaches 7 The ways in which the firm will generate value 7 The value receivers 8 Company’s internal source of advantage 8 The firm’s way of positioning itself at the marketplace 8 The ways of making money 9 The entrepreneur’s scope, time and size ambitions 9 Conclusion 9 Reference List 10 Introduction The developments that have been made in the global economy have brought about a profound change in the customary equilibrium between suppliers and customers. The evolution in the techniques of communication as well as information technology and the establishment of regime for flexible international trade implies that customers in the contemporary business environment have variety of choices; variegated needs of customers can find more expression and the alternatives to supply are more translucent. Having said this, it can be deduced the transformation that international business has gone through as a result of globalization. Companies have increasingly conducted international business over the last decades and have resorted to the application of several business models. Therefore these business models have helped several research scholars researching in this field to analyse the ways in which international businesses are conducted (Teece, 2010). As a proposition of various business models, it is imperative for companies to be more customer-centric; particularly because of the fact that technology has evolved to a great extent allowing the lower cost provision of customer solution as well as increased access to information. These developments that have been made in this field require companies to reassess the value propositions that endeavour to present their customer with. These evaluations are largely based on the business models that have been stated by various academic scholars who have significant contributions in developing this models and making sure that these models cater to business analysis (Shafer, Smith and Linder, 2005). Modern business model approaches have explained the new business environment and by doing that has amplified the requirement for companies to not only consider the ways in which customer needs can be addressed but also the means to capture value from new products and services offerings. Without a robustly developed business model, innovators will not be successful in either delivering or capturing the value from their innovations. This fact is specifically true for technology companies where the formation of revenue streams is more often than not perplexing due to the customer expectation that few basic services will be free (Teece, 2010). Business model approaches Business model approaches articulates the logic as well as provides crucial information and other evidences that exhibits the ways in which internal businesses generate and deliver value to their customers. In addition to that, the models also delineate the architecture for creating revenue streams, costs as well as profits that are associated with the business that is endeavouring to deliver the value. The different factors that should be determined in a business model design have been depicted in the figure given below: Fig 1: Different models of a business model (Source: Teece, 2010) The issues that are associated to a good business model approach are somehow interconnected and they lie at the nucleus of the basic question asked by business strategists throughout the world which are: how does one establish a position of sustainable competitive advantage and generate super normal profit? In other words a business model defines the approaches adopted by organizations that are aimed towards generating and delivering value to the customer and then convert the payments into profits. In order to realize profit from innovation, business pioneers need to excel not only at the segment of product innovation but also at the business model design. Companies have to be at their toe in terms of understanding business design options as well as the need of customers and technological trajectories (Peng, 2001). Developing an appropriate business model and applying the same is insufficient to guarantee business advantage precisely because imitation is quite common and fairly easy. That is why a differentiated business model which is hard to imamate and equally efficient is the one that is more likely to yield profits. Business model innovation can itself serve as a tack towards attaining competitive advantage however for that the model has to be satisfactorily differentiated so that it becomes hard for any other new entrants and incumbents to imitate. Elements of business model design The elements which are included within a company’s business model embodies nothing less that the financial and the overall organizational architecture. It enables business analysts to assess the effectiveness of strategies implemented within the company in terms of its potential to generate value for the organizations. These elements take into account each and every aspects of a company’s infrastructure; whether it is finance, human resource or marketing, and enables analysts to formulate an appropriate strategy that is in complete alignment with the organizational objectives. The figure given above is a true portrayal of the fundamental factors that are considered while seeing through the process of product/service design through to delivery. As can be seen, of the crucial elements to be included within a company’s list of strategy is the technological knowhow required to design a particular product or service. The possession of this knowhow is a key determinant of the success that a company will enjoy once tat product/service is designed and is up in the market for sale. In this technologically developed society, considering this element is pivotal within a business model as it is one of those criteria that need to be fulfilled in order to design an appropriate business model (Magretta, 2002). There is no doubt regarding the fact that business models are company specific. However certain elements are inherently common in case of majority of the companies precisely because of the fact that the fundamental business objective of companies are to meet the need of the end customers and generate value for the shareholders. The analysis of these generic companies are as important as analysing the financial performance of a company particular due to the fact that these elements within the model helps analysts to identify the area of strengths and weaknesses that prevail within the company. Having done that, companies are able to take the necessary action plans required to attain competitive advantage. Besides the technological knowhow another factor that needs to be considered within business model is the needs of customers. By taking into account this factor a company places itself in a position to quantify the benefits that their products/services can offer to the customers. In that way they are able to modify their products/services according to the specifications desired by the customers. Given the fact that, generating and delivering value to customers is the preliminary objective of a company, the consideration of the customers’ specifications and applying the same while designing products/services is pivotal (Magretta, 2002). In order to deliver value to the customers it is imperative for companies to identify their target base so that products/services can be designed appropriately. The assessment of the target clientele also enables companies to formulate the marketing and promotional strategies accordingly. Company managers ensure that this factor is included within the business model precisely because each and every attributes of a product needs to be set according to the customers’ requirements. Moreover, identification of the target customer base also enables managers to set the price of the product. The pricing strategy has to be implemented properly as this factor is a key determinant of a company’s margin of profit. It is imperative for companies to assess the revenue streams that are available to them. This is again a fundamental determinant of profit margin. The assessment of the revenue streams needs to be done appropriately as it provides managers with a holistic idea of the effectiveness with which they can pay off the cost of goods that are sold. Moreover, confirmation of the revenue stream also enables managers to forecast the profit that they could make in a year and therefore also plan for the further investment that are required in order to maximise the value for the shareholders. Identification of revenue stream is very crucial as a company’s restructuring strategy is largely dependent on that. The more the revenue streams the greater the gross profit which in turn enables the company to meet its operating expenses effectively (McVey, 2009). The facts that have been mentioned in this section justify the inclusion of this element within the business model. Having conducted the assessment of all the above mentioned factors within the business model, the next factor to be considered is the mechanism that is to be adopted to design the required products/services. Therefore it is critical for company managers to make sure that they design the mechanism in such way that they generate value inherently. Hence, attaining efficiency becomes one of the primary criteria while designing the mechanisms. In addition, the designing of mechanism is important precisely because it plays a crucial role in enabling companies to meet the needs and requirements of the customers. An efficient mechanism also provides companies with the opportunity to gain maximum throughout which is pivotal when it comes to profit realization for the shareholders. Therefore, all the elements that have been mentioned above have their own importance and are accordingly included within a company’s business model. Not only does this business model enable companies to analyse the implemented strategies and the conducted operations but is also enables them to analyse and forecast the future performance. The business model serves a robust groundwork enabling analysts to identify the areas of improvements and thereafter make judgments regarding the appropriate action plan that could be taken. Utility of business model approaches For a company to be able to perform effectively and efficiently it is imperative for the managers to design and apply a near perfect business model. This is precisely because these models have the capability to address the issues that needs to be answered in order to for the company to achieve the desired objective. Therefore, as far as international business operations are concerned, a business model enables strategists and analysts to cater to the following issues: The ways in which the firm will generate value This issue is concerned regarding the value offering of the company. The decisions that are made over here specifically address the nature of the service/product mix, the role of the company in service/production delivery and how the offering is made available to the consumer base. There are no business models without a clearly defined value proposition. This is precisely because the creation of value provides a validation for the business entity. Therefore the inclusion of this factor is highly imperative and is accordingly supported Chesbrough and Rosenbaum (2002) and Afuah and Tucci (2001). The value receivers This is one of the most crucial components that serve as the basis of the business model. This factor focuses on the nature and scope of the market in which the company operates and subsequently competes. To whom with the company sales its products and services and the value chain in which it will operate are the primary factors that needs to be incorporated and accordingly analyzed within the business model. Customer types and their geographic dispersion are other components that could be analysed with the help of a business model. The analysis of the aforementioned factor is very important as the customers’ interaction requirement has a significant impact on the ways in which the company is configured as well as the requirements of resources. These facts have strongly been supported by Markides (1999). Company’s internal source of advantage The company’s core competency lies at the nucleus of its business model. It is used to capture an internal skill set or capability which makes a company look better than rest of the lot (Hamel, 2001). For example, Federal Express is known to deliver a benefit of on-time delivery that is based on its competency at logistics management and the whole organization is configured around this aptitude. Improvement and enhancement of this capability solidify the company’s role in external value chain and thereafter becomes the point of emphasis for the internal value chain (Applegate, 2001). The firm’s way of positioning itself at the marketplace This is another factor that is considered within the value chain precisely because a company’s core internal competencies provide a foundation for the company to position itself in the market (Amit and Zott, 2001). The model must demarcate how the company intends to achieve competitive advantage. The model enables managers to identify the salient points of divergence that can be maintained. The ways of making money A central element of a company’s business model is its economic model (Linder and Cantrell, 2000). The economic model enables companies to device consistent logics that are aimed towards earning profits. Given the fact that a company’s fundamental objective is to maximize its value that is why this element is a mainstay at a company’s business model. The entrepreneur’s scope, time and size ambitions Entrepreneurs establish various forms of ventures that range from rapid growth companies to lifestyle firms. The dissimilarity in the form of ventures has significant implications for the company’s competitive strategy, resource management, company architecture, economic performance and development of internal competencies. As such an all integrated business model enables analysts to capture the entrepreneur’s scope, time and size ambitions or what might be defined as the company’s first investment model (Morrisa, Schindehutte and Allen, 2005). Conclusion Every business either implicitly or explicitly applies a particular business model. This model describes the architecture or design of the value creation, delivery and captures mechanism that is employed. The essence of a business model is that it enables researchers as well as analysts to understand the business operations and strategy implemented by international businesses. One key conclusion that stem from this analysis is that, to attain competitive advantage, a business model must be something more than just a robust logic matrix that states the way of conducting business. Reference List Afuah, A. and Tucci, C. L., 2000. Internet business models and strategies: Text and cases. New York: McGraw-Hill Higher Education. Amit, R. and Zott, C., 2001. Value creation in e‐business. Strategic management journal, 22(6‐7), pp. 493-520. Applegate, L. M., 2001. Emerging e-business models. Harvard Business Review, 79(1), pp. 79-87. Chesbrough, H. and Rosenbloom, R. S., 2002. The role of the business model in capturing value from innovation: evidence from Xerox Corporations technology spin‐off companies. Industrial and corporate change, 11(3), pp. 529-555. Hamel, G., 2002. Leading the revolution: How to thrive in turbulent times by making innovation a way of life. Boston: Harvard Business School Press. Linder, J. C. and Cantrell, S., 2000. Changing business models. Chicago: Institute for Strategic Change, Accenture. Magretta, J., Why Business Models Matter. [online] Available at: [Accessed 5 August 2014]. Markides, C. C., 1999. A dynamic view of strategy. Sloan Management Review, 40(3), pp. 55-63. McVey, T. B., business model matrix. [pdf] Thomas B. McVey, Williams Mullen. Available at: [Accessed 5 August 2014]. Morris, M., Schindehutte, M. and Allen, J., 2005. The entrepreneurs business model: toward a unified perspective. Journal of business research, 58(6), pp. 726-735. Peng, M. W., 2001. The resource-based view and international business. Journal of Management, 27(6), pp. 803-829. Shafer, S. M., Smith, H. J. and Linder, J. C., 2005. The power of business models. Business horizons, 48(3), pp. 199-207. Teece, D. J., 2010. Business models, business strategy and innovation. Long range planning, 43(2), pp. 172-194. Read More