Explaining 'what Business Model is' to upcoming businessmen

Shanjoy Mairembam *

In simple words, 'a Business Model' refers to the pictorial representation of how the entire business of the firm works via diagrams and flow charts. The business model itself is not exactly the business of the firm but rather it provides the crucial 'bigger picture' on how the business of the firm should function at every instant in every employee's mind.

In short, it provides clarity on the vision/strategy, the operations, financial flow, value chain flow, etc of the organisation in the market in a simplified way.

How critical is to understand the 'Business Model' of your firm?
If an organisation is unable to draw and explain its business model, something is not right with that firm. The firm may be profitable today but it will run into serious trouble in times such as the current global financial crisis or any unexpected external market turbulence. Uneven market dynamics and changes in the ways of doing business is a never ending phenomenon in the business world.

Not only the management of the firm but also every employee of the firm needs to realize what the company does, how the company makes money, which direction the company is going forward, and so on; yet all such info in a crisp and simplified block diagram presentation. Making frequent changes to the already tested business model which has been found working well till date is not a logical approach for any firm for future growth.

Yet, the company management has to be ready when and how to make the adaptation to the business model if the company has to perform better in the coming decade amidst the competitive market scenario.

What to consider while making 'Business Model Generation'?
To create neither an over-simplified nor a complex business model is the suggested norm. Yet, the business model should depict most critical aspects of the business operations in the firm, such as finance, manpower, resources, route to the market, etc.

One of the suggested ideas (and book) on 'Business Model Generation' worth reading is 'Business Model Generation – By Alexander Osterwalder' which is recently being launched into the European market around October 2009. Further links about the book/ideas can be availed from here & here.

The 9 Building Blocks of a Business Model (from the book):

An example of how this reference model has been used is provided via the link here.

Which next step to be considered after designing the 'Business Model' of your firm?
Once the business model has been created, the next step is to transform the model into a business plan having detail info about how the business is going to be operated. The business plan will enable the management to focus every aspect of business operations with clarity and purpose.