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Conceptualising Business Model: Definitions and Frameworks

Added on - 01 Dec 2020

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12thOctober 2020Business Model Innovation – Lecture 1Course Structure:What is a business model-definitions and frameworks? How do we identify businessmodel innovations?How do we assess the profitability of a business model?What are the sources of business model innovation?-Opportunities and threats: internet enabled models-Strengths and weaknesses: capabilities enabled modelsWhat is a business model?-The term business model refers to a company's plan for making aprofit. It identifiesthe products or services the business plans to sell, its identifiedtarget market, andany anticipatedexpenses.5 components of a business model:Capabilities: what are the resources you have and the activities you plan to doThese five segments are interlinked in a business model - the linkages may not besymmetric. Hence, capabilities drive the other four linkages. Still, the systemic nature of thebusiness model is that it has these five interlinked components, which makes an imitation of1 component possible for perhaps replication of the entire model difficult and this protectsit from the competition and also introduces rigidities.So, while in the business plan you enumerate all of this when we think about the businessmodel builder or the business model framework – saying how does our grasp of thesecomponents help us to explain how we run this business, so this is a strategy element.
Business model and business plan:These five components are also can be linked to a more popular version of a business modelcalled the business model canvas which has nine segments, and it breaks it up in more detailbetween the value proposition, the customer segments, revenue streams, and coststructure.But the capabilities element in the business model canvas is broken up more into the keyactivities, key partnerships, build on the customer relationships and the Chinese channelsthat you will use to distribute your product now. (Bringing all these things as one and callingthem capabilities).Capabilities – the core of business modelsCapabilities are seen as the core of business models, and they have their roots in somethingcalled the resource-based theory of the firm which was proposed by Edith Penrose in 1952.So, what the resource-based theory of the firm and Edith Penrose did was she was veryinterested in trying to understand why firms diversify and why and what drives thisdiversification.Based on her studies, she concluded that the firm diversifies to make the best use of itsresources. So, wherever there is slack in the resource’s firms try to overcome that slack byturning it into something more useful and often this leads to the diversification of theirbusiness and future growth.So that is the core idea in the resource-based theory of the firm. It is an extremelyinfluential idea which dominates the strategy literature. Much of the study of why firms dowhat they do is influenced by this idea that the firm exists and is defined by its capabilities,and this allows it to do different things organizationally, and this is why firms are differentfrom each other.
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