Definition of Business Model

The plan implemented by a company to generate revenue and make a profit from operations. The model includes the components and functions of the business, as well as the revenues it generates and the expenses it incurs.

PIE DIAGRAM:

the term business model is used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, target customers, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies.

The literature has provided very diverse interpretations and definitions of a business model. A systematic review and analysis of manager responses to a survey defines business models as the design of organizational structures to enact a commercial opportunity

Business strategy may not be a science, but using the right method with the right materials in the right place at the right time can create explosive results. Weve gathered some examples of the most successful business models that have gone on to make lasting impacts on industry, consumers and the world at large. Whats particularly fascinating is how each of the following companies rode to success largely on the strength of their business models. Sure, McDonalds has a great-tasting burger, but it was the business model that catapulted the company (and ultimately the fast-food industry) to widespread popularity and renown.

However, the business model dates back to the earliest days of business; it merely describes the way in which a company makes money. A business model can be simple or very complex. A restaurants business model is to make money by cooking and serving food to hungry customers. A websites business model might not be so clear, as there are many ways in which these types of companies can generate revenue. For example, some make money (or try to) by providing a free service and then selling advertising to other companies, while others might sell a product or service directly to online customers

The Cocktail Napkin One-Liner The first way that business model is used mistakenly is when people associate it with a convenient one-liner about what a company does. The proverbial business idea scribbled on a cocktail napkin, for example, falls squarely into this camp. Although this gross simplification is too shallow, it does, perhaps inadvertently, echo one of the crucial attributes of a proper business model: It represents a big picture of the business.

The Financial Model in Disguise Ironically, the second way that people misapply the term is almost exactly the opposite of the cocktail napkin mistake: Rather than oversimplify to the point of jingoism, they dive in at a level of complexity that precludes a big-picture view. This happens when a business model is equated with a financial model. Before we can build even the most basic financial model, we have to first make some important assumptions (which industry to compete in, who the customers are, etc.) that preclude the unbiased, big picture that is integral

to our purposes. When I use the term business model, I mean something different from both the cocktail napkin one-liner and the financial model in disguise. In my view, a business model is a big picture that captures a snapshot of the enterprise and communicates direction and goals to all stakeholders.

A BUSINESS MODEL IS A BUSINESS BLUEPRINT In fact, Im going to define business model as the business blueprint or business architecture. This will allow me to break it down into its components in a way that makes it an operational definition. Of course the term blueprint or architecture can mean different things to different people as well, so let me narrow it down. Architecture isnt Just Technology. Some people assume that architecture describes only systems or technology assets. By ignoring business architecture altogether, this misconception encourages companies to develop a road map that perhaps focuses on technology innovationbut with no direct connection to business and process.

Architecture isnt Just Processes. Others make the mistake of interpreting business architecture to mean just the business processes that the company performs. This ignores the big-picture view of the business, and makes it difficult for decision-makers to determine not just what processes exist, but also why these processes are executed the way that they are.

KEY ELEMENTS OF A BUSINESS BLUEPRINT Perhaps the best way to visualize what a business blueprint is and how it adds value to the firm would be to show the types of information it might include. Typically, it classifies elements into four broad areas: The overall Identity of the enterprise This might include such elements as brands, the corporate mission, and the reputation of the organization in the marketplace, the target market, and general differentiators for the enterprise. It might also include elements that describe the organizations unique culture, such as values, office rules, and behavioural expectations. The strategy for the enterprise Elements in this category could describe how the organization translates its mission and values into concrete action. An important component of this role might be the ability to coordinate between multiple business units, each of which presumably needs to play a unique role to help meet common, strategic goals. Strategy might include elements like goals, a timeframe for achieving those goals, the resources that are required, and custom performance indicators.

The internal assets that help the enterprise to achieve its strategic goals This could include all of the resources that the organization might muster to pursue its strategy. These might be products and services; organizational assets, including the reporting structure, geographic distribution, roles/responsibilities, and individual resources; financial resources; intellectual property; distribution channels; and physical assets like real estate, operational and information technology, and so on.

The external environment in which the enterprise competes This would include customers, suppliers, partners, and competitors. In addition, it could include demographics for the market and industry; potential entrants; information about compliance; emerging technologies; the external availability of technology resources, and general trends that influence the companys position in its market.

Each of these elements has subjective and objectiveor, textual and numericattributes (metrics, priority, and feasibility, for example) that help give the business blueprint the depth of description and interaction that distinguish it from a simple diagram or drawing.

Each organizations culture will inevitably produce a unique approach, none of which is necessarily better or worse than any other. One of the first things we notice about successful organization is that they have a mission, an identity, a personality, a story to tell about what they are and what they are trying to achieve. This, not one of those abstract mission statements framed and hung here and there in the halls. Rather, this is a clear understanding and articulation of the reason the organization exists.

Most mature enterprises have used a variety of internal and external resources to document bits and pieces of the way they operate over timeorganization charts, business plans, statements of policies and procedures, and the like. Many of these documents are of little value. They do not use commonly agreed-upon standards and terminology, and are only partially complete. Therefore, they cannot be logically connected to formulate a cohesive picture.

This is obviously not a matter for a two-day meeting or a weeklong offsite. Nor is it the province of some ad hoc committee. It is a matter for everyone, and because the world doesnt sit still it is a continuous activity.

EXECUTION STRATEGY

Executing strategy is an action-oriented, make-thing happen task that tests a managers ability to direct organization change, achieve continuous improvement in operations and business processes, create and nurture a strategy-supportive culture, and consistently meet or beat performance target.

COMPONENTS OF A STRATEGIC EXECUTION:

. The eight principal managerial components of the strategy execution process are: 1. Building an organization with the competencies, capabilities, and resource strengths to execute strategy successfully. 2. Marshalling sufficient money and people behind the drive for strategy execution. 3. Instituting policies and procedures that facilitate rather than impede strategy execution. 4. Adopting best practices and pushing for continuous improvement in how value chain activities are performed. 5. Installing information and operating systems that enable company personnel to carry out their strategic roles proficiently.

6. Tying rewards directly to the achievement of strategic and financial targets and to good strategy execution. 7. Instilling a corporate culture that promotes good strategy execution. 8. Exercising strong leadership to drive execution forward, keep improving on the details of execution, and achieve operating excellence as

There are also three facets of building an organization capable of proficient strategy execution: 1. Staff the organization strong management team, recruit & retain the right staff members with the needed experience, technical skills & intellect 2. Building core competencies & competitive capabilities. develop proficiencies in performing strategycritical value chain activities & updating them to match changing market conditions & customer expectations 3. Structuring the organization & work effort organizing value chain activities & business processes & deciding how much decision-making authority to push down to lower managers & staff

The final section to consider is the role of budgets and resource allocation in successfully implementing and executing strategy. Each firm has choices fund or not to fund. Managers need to ensure that the organization has enough funds to pursue the strategy & that staff have enough time to participate. Another consideration around budgets is ensuring that a companys budget is closely linked to the needs of a good strategy execution. This ensures that that staff are rewarded for the right reasons gaining results & managing the strategy implementation. Otherwise if you dont align the strategy to the rewards then the manager, staff member or team has no incentive to implement the strategy & undergo change. You can also benchmark the profitability of the implementation to ensure that margin is not eroded just to hit the outcomes for the strategy.

Its unique management system is based on a nexus of distinctive management principles: Love, Community, Autonomy, Egalitarianism, Transparency, Mission. The organization type is small empowered work groups who are granted a degree of autonomy decision making, such as the selection of the peer/applicant, also for all key operating decisions including pricing, ordering, staffing, and in-store promotion. The transparency exists due to the trust (no-secrets management philosophy) inside the organization, enable every staff can have access to the detail financial data which helps them to make decisions on issues liek ordering and pricing, also to encourage them to perform better by comparing their salary/incentive among the other teams.

Strategy execution as a step-by-step process. Both of the models outlined above are important and anyone serious about the practice of strategy execution should be familiar with them, but they suffer from what might be called the Goldilocks Problem. The process view doesnt contain enough detail to help managers construct the three processes within an organization (i.e., too cold). Conversely, the systems view contains so many sub steps that it can be overwhelming to managers (i.e., too hot). So, how can we find a solution that is just right"? While there is no easy answer, the best of both approaches can be synthesized into 10 steps outlined below. These steps provide both high level direction as well as the detail necessary to capture the lions share of strategy execution success. Step 1: Visualize the strategy. One of the most pressing challenges in all of strategy is simply understanding what a strategy is. An effective way to improve this understanding is to visualize the strategy via an illustration that shows both the important elements of the strategy and how each relates to one another. Frameworks such as the Strategy Map by Kaplan and Norton, the Activity Map by Michael Porter, or the Success Map by Andy Neely help in this regard. Step 2: Measure the strategy. Key elements of the visualized strategy should be assigned an easily understood performance measure. The full set of strategic performance measures can be organized into a dashboard, a

Balanced Scorecard, or some other framework so the reader can determine that progress is being made toward completion of the strategy. Step 3: Report progress. In the same way that a budget is reviewed monthly to ensure financial commitments are being kept, the strategy should be reviewed regularly, but with more of an eye toward determining if the strategy is producing results, versus controlling performance. Step 4: Make decisions. Strategy execution is much like sailing a boat toward a planned destination. A defined course and a full complement of navigational charts will never eliminate the need to remain vigilant, to assess the environment, and to make corrections as conditions change. As part of the regular reporting process leaders must make on-going strategic decisions to keep the strategy current and on course. Step 5: Identify strategy projects. Organizations may have scores, if not hundreds, of projects on-going at any point, but they rarely have a firm grasp on the type and range of these projects. The first step in improving project-oriented strategy execution is to capture and organize all projectsstrategy projects in particularthat are underway in throughout an organization. Step 6: Align strategy projects. Once projects are captured they must then be aligned to the strategies or goals for the organization. This step entails comparing each project, either proposed or on-going, to the strategic goals to determine if alignment exists. Only those projects that directly impact the strategy should be resourced and continued. Step 7: Manage projects. Organizations must develop a capability in project management if they are to execute strategy effectively. In some settings, projects receive very little management. In others, projects persist well beyond their scheduled completion. The full complement of projects in any organization should be coordinated and controlled by a central project office or officer with the responsibility for monitoring both progress and performance. Step 8: Communicate strategy. It is difficult to execute strategy when the strategy itself isnt well understood, or performance relative to it is not communicated. Leaders must communicate their visualized strategy to the workforce in a way that will help them understand not only what needs to be done, but why. Step 9: Align individual roles. Employees want to know they are making a meaningful contribution to their organizations success. Its up to senior leaders to ensure that employees at all levels can articulate and evaluate their personal roles toward achievement of specific strategic goals. This is perhaps one of the most critical aspects of the execution process. Step 10: Reward performance. In strategy execution, as in any other area of management, what gets measured gets done. Taking this one step further, what get measured and rewarded gets done faster. After explaining the strategy and aligning the workforce to it, senior managers institute the incentives that drive behaviours consistent with the strategy.

Strategy execution is difficult in practice for many reasons, but a key impediment to success is that many leaders dont know what strategy execution is or how they should approach it. Homegrown approaches may be incomplete if they fail to incorporate many of the basic activities highlighted above.

TOOLS FOR STRATEGIC PLANNING

Strategic planning involves considering potential internal and external impacts on the organization and then mapping out an approach to deal with these impacts. From a marketing standpoint, strategists consider customer needs, competitive factors and organizational advantages. There are a number of tools they can use as they develop and implement ways to ensure that the strategies and tactics developed are appropriate and plans can be effectively put into action.

1.SWOT Analysis

The SWOT analysis is a tool used in strategic planning to identify and, ultimately, prioritize the organization's strengths, weaknesses, opportunities and threats. In fact, SWOT is an acronym that stands for these elements. The process involves a brainstorming session where participants create a list for each of these areas based on previously gathered data and information. Once the lists are created, a ranking process is used to prioritize the items so that the top items in each category can be used to provide a basis for the development of objectives, strategies and tactics. 2.Porter's Five Forces Model

Michael Porter developed his Five Forces Model and introduced it to the world in 1980 in his first book, "Competitive Strategy." The model provides a basis for companies engaged in strategic planning to consider the critical forces that are impacting it. These forces include existing competition between suppliers, the threat of new entrants to the market, the bargaining power of buyers, the power of suppliers and the threat of competitive products or services. 3.Mind Maps

Mind maps are visual tools used in strategic planning to show how various items relate to each other. A mind map is a diagram that presents words, ideas or images linked to an initial central theme or idea. Mind maps are a form of brainstorming and were popularized by psychologist Tony Buzan in 1976, according to the University of Surrey. The process starts with an initial question or problem that is written in the centre of a large piece of paper or on a whiteboard. Additional ideas or concepts are then tied to and branched out from the central idea. 4.Balanced Scorecard

The Balanced Scorecard is a method used to monitor the implementation and effectiveness of strategic plans. According to the Balanced Scorecard Institute, Robert S. Kaplan and David P. Norton, who wrote about it in their book The Balanced Scorecard in 1996, have popularized it. It is a way for organizations to track progress on strategic planning goals across various categories that are balanced against each other to ensure appropriate focus across all areas.

McKinsey 7-S

The McKinsey 7-S is useful for ensuring that you consider all aspects of the organisation when identifying its strengths and weaknesses. The 7 Ses stands for: Structure, Systems, Style, Staff, Skills, Strategy and Shared Values.

PEST The PEST framework is useful for ensuring that you consider a broad range of possible sources of opportunities and threats. The letters represent the Political, Economic, Social (or Socio-economic) and Technological opportunities and threats in the firm's environment.

Porter's 5 Forces Porter's 5 Forces model is another framework for identifying threats and opportunities within the firm's environment. It considers the bargaining position of suppliers and customers (including distributors), the threat of new entrants and substitutes, as well as competitive factors within the industry itself.

Pareto Analysis A Pareto Analysis is based on the maxim that 20 per cent of the products, services, customers or distribution deliver 80% of the profits. A Pareto chart is a useful visualisation for showing this. Accuracy however depends on the reliability of your cost allocation system.

The Voice of the Customer (VOC) No matter how good your other data is, at some point you have to engage directly with your customers (and other stakeholders). You can use traditional structured methods, such as focus groups, more modern methods, such as social media, or even simply just go and chat to people.

The Strategy Canvas Popularised in the book "Blue Ocean Strategy", the Strategy Canvas is used to understand how a firm differentiates itself from its competitors

TIPS TO CEOS

Informally builds relationships with board members: The CEO proactively works to
communicate and build relationships with the chairman and directors via regular, informal interactions outside of board meetings. The CEO uses these interactions not only to share information and gather input but also to develop strong professional chemistry with each member of the board.

Communicates openly, proactively and transparently: The CEO maintains a strict no

surprises policy with the board. The CEO is fully and effortlessly transparent on the implications and risks of strategic decisions.

Proactively seeks board input outside of board meetings: Outside of board meetings, with
the knowledge of the chairman, the CEO actively and informally seeks board members informal input, feedback and guidance on strategy. When the CEO presents strategies for approval, he/she is able to predict (and acknowledge) likely areas of disagreement with individual board members.

Provides exposure to the executive team: The CEO facilitates informal introductions between
members of the board and members of the management team. To facilitate succession planning, the CEO frequently brings members of the management team to board meetings, where managers play a substantive role. The CEO encourages board members to advise key managers on issues tied to their specific areas of expertise.

Fully commits to the idea of an independent board: The CEO is fully committed to the
concept of an independent chairman and board. The CEO accepts the boards role in choosing his/her successor and actively supports succession management. The CEO partners with the chairman to strengthen the board. The CEO works to avoid the development of board factions.

Balances strong points of view with openmindedness and flexibility: The CEO
communicates clear, compelling points of view but also demonstrates uninhibited willingness to fully

consider and apply the boards views. The CEO encourages the board to challenge his/her assumptions. The CEO effectively challenges the assumptions of board members.

Recognizes the power of complementary skills on the board: The CEO recognizes the value
of a board populated by individuals with skills and perspectives that are distinct from (and complementary to) his/her own. The CEO feels strengthened by board members who maintain skills/expertise that are superior to his/her own. The CEO doesnt play politics with the board.