Article Review: Why Business Models Matter Essay Example

company) would assemble the parts and would be shipped directly from there.This enabled Dell to reduce unnecessary inventory and improved Dell’s cash flow. This unique business model differed significantly from the majority of players in the PC manufacturing industry. It offered value to a different set of consumers in a different way. Also, the American Express example shows that, a business model can form new demand. Recognized as one of the most successful business models of the 19th century, American Express created traveler’s checks, proposing to the market an innovation in carrying money.

A business model is not a static entity. It is theory that is continuously being tested in the market. From the Euro Disneyland example, the managers of Disney thought that they can organize its Euro Disney just like the already existing American theme parks. However, this assumption failed, because the life pattern of Europeans and Americans are different. Only after a failure and modification of the original model did Euro Disney see customer satisfaction. This shows that organizations should change its model when they see inconsistencies.

Whether a business model is successful or not depends on the process with the customers. Managers must pay attention to the feedback loop and constant modify and improve the business model to better fit the industry environment, the firms’ specific strengths, and consumers. Although many successful business models seem to have come about by accident, I agree with Magretta that business modeling is a scientific method in which where you start out with in-depth analysis and a hypothesis. This hypothesis is then implemented, tested, and revised if necessary to shape a better model. Defining StrategyIf a business model

explains how a company is operated and how all the detailed components fit together, than ‘strategy’ takes into account the competition. It explains how the firm will outperform its rivals.

A good strategy is one that is unique and others cannot copy or follow. As seen in the Wal-mart example, a clear distinction can be made between a business model and strategy. Wal-mart did not have a different business model. The concept of low price retailing started way ling before Wal-mart even showed up. However, the success of Wal-mart can be contributed to its different strategy.It targeted a different segment of the market and took a different approach to pricing and merchandising while following a similar business model to Kmart.

The game of strategy is about being different and staying different. How is this achieved? Formulating a business model need not be as complicated as predicting the future market and the actions of competitors. However, as Magretta mentions, strategic thinking is necessarily an interactive process. As the game theory argues, every move will evoke a response from your competitor.It is crucial to be able to perceive the future implications of a certain strategy that an organization formulates.

A manager must be able to think in the ‘competitors’ shoes. ’ From the Pepsi Cola bottle design example, we can see that Pepsi foresaw the effects of their strategy and its effect on Coca Cola. By understanding the need of lighter-weight bottles of customers and Coca-Cola’s iconic brand image of the glass bottle, Pepsi was able to create value for itself as well as destroy value for Coca-Cola through this kind of interactive strategic thinking. Applying the

Business Model and Strategy: Effective Intra-communicationAs mentioned in the article, a good business model tells a good story. Effectively communicating an organization’s business model and strategy to all the members (employees) of the organization can enhance the company’s performance. By understanding where each individual stands and how they contribute to the value chain, the organization performance can be enhanced.

I believe that this is why it is important for not just managers to know what is going on in the company, but also for even the lowest level employees to be fully aware of the value that the company wants to create.Back to Basics of Business Management Through this Article and chapters in the book, I was able to better understand the meanings of the business model and strategies and how they work in the organization and external environment through various and in depth examples. It made me realize that I had not yet up to now been able to fully grasp the idea of the differences. However, I frankly do not understand the author’s emphasis on the distinction of the business model and strategy and failing to differentiate them was the cause of failures of many business model.It is not the definition or concept of business terminologies that create value.

Rather, true understanding of where the organization stands and how it works to reach the common goal is what makes an organization successful. It is not the fuzziness in the definition that brought on flawed business models. The concern should be rather the managers of a firm are fully aware of the industry environment and the needs and wants of the target consumers. Although

it is a simple starting point, a successful organization comes from analyzing its consumer base and understanding their needs.It would have been better had the author present more concrete methodology in developing a good business model and strategy rather than focusing too much on the distinction itself.

By books, we understand that formulating a strong business model and effective strategy is crucial. However, this knowledge is very difficult to implement in the real business world. Numerous organizations are struggling to survive or to succeed in their own industry. To survive in industry, a good business model is essential. Therefore, companies put in much effort to develop great business models and strategies.

The basis of these efforts must come from strong management knowledge. I believe that this comes from effective communication now only within the organization, but with the external environment. Managers must realize that a simple step, fully understand the customers, is the key to success. Also, being able to communicate the mission of the organization to all the constituents is a crucial factor in enhancing the performance and efficiency.

Only when all the players are aware of the process and how they contribute to the overall big picture, can they bring out their full potential.