Confusion confounds, more so when it comes to business model. Even senior executives of large companies are confused about the intent and purpose of a business model. They use business model interchangeably, for example, with strategy. Quite a number of professionals in the IT industry thinks that business model and business process model are one and the same. This is further aggravated by those who use software languages such as Universal Modelling Language (UML). Let me give you six areas where confusion arises and give you clues as to how you differentiate business model from these:
1. Business Process Model (BPM): Generally referred to as process model, a BPM deals with representing pictorially the work-flow of an organization at its operational level. A BPM identifies and draws the activities carried out in a business as process flow charts with the help of systems theory, computer logic and communication and information network. In sum, it is an activity chart representing how an operation is carried through. Business model on the other hand, describes the logic of business at policy and strategic level
2. Business Strategy: Business strategy is defined as “a well thought out long term plan incorporating chosen methods, moves or a series of maneuverers chalked out by business to achieve goals and objectives”. Strategy is a statement indicating ways and means of achieving the goals and objectives of a business. It does something more. Strategy gives direction and sense of purpose towards achieving these goals and objectives. Indeed business model is connected to strategy; it alludes to strategy in implicit manner and reflects on it; sometimes elaborates and in certain circumstances evaluates strategy. For example management makes a strategic choice and this is extended and explained in business model along with the consequences of making such a choice. Ramon Casadesus-Masanell & Joan E Ricart asserts that a business model comprises choices and consequences and go on to explain these in their article on “ How to Design a Winning Business Model” (HBR Jan-Feb 2011). In other words business model practices what the strategy preaches
3. Business Plan: You are aware that, the business plan deals with forecasting operating and financial results over a period. Necessarily, a business plan Includes, among other things, time, activities, expected results, resources required and finally a budget. As a comprehensive document setting forth activities in operations, marketing, finance and administration a business plan serves as an agenda for business action and as an evaluation tool of its performance. Results achieved are compared with the budgeted figures to measure the success or otherwise of a firm. In contrast, business model sets up the framework of how a business creates, delivers and captures value and leave the details to the management to fill in
4. Revenue Model: Recently, I was speaking to a CEO of manufacturing company on the subject of business model. He immediately jumped at explaining his revenue model. On politely reminded, he admitted that he felt business model is just a revenue model. Predictably, a revenue model projects a firm’s income and profit potential at a particular operational level. Simply put, it is monetizing the products and services a business offers detailing what income is earned, what profit is made and what earnings are retained and what return or dividends are paid out to investors and shareholders. Business model is much more than this. It talks about how the cost structure runs and how revenue stream flows after having employed modes, channels and activities in value creation, value delivery and value capture
5. Value Chain: Introduced by Professor Michael E Porter, value- chain is an analytical tool useful in identifying and evaluating specific activities through which a firm creates value. Professor Porter divided the activities into two types: primary activities cover in-bound logistics, operation, out-bound logistics, marketing & sales and finally sales support; activities including firm infra-structure, human resource management, technology development and procurement are listed under support activities. Limited by scope, value chain analysis is bettered by business model portraying the entire gamut of activities a business must undertake to realize its value proposition
6. Business Concept: Every business starts with a business concept that acts as an interface between a chosen market and the designed value proposition to cater to that market. Though business concept has potential to influence and perhaps over-awns every business activity undertaken by an enterprise in creating value for customers, suppliers and other stakeholders, it rests in the realm of ideation only. Its translation into concrete results happens only when an organization designs and rolls-over a business model. With that an organization can watch its business grow, not to mention the rise in popularity of the business concept that was behind its success.
Muthu Ashraff
Business Adviser
Mobile : +94 777 265677
E-mail : cosmicgems@gmail.com
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Blog : http://cosmicgemslanka.com/blog/
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