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Business Model

In the most basic sense, a business model is the method of doing business by which a company can sustain itself i.e. generate revenue. The business model spells-out how a company makes money by specifying where it is positioned in the value chain.

To extract value from an innovation, a start-up or any firm for that matter needs an appropriate business model. Business models convert new technology to economic value.
For some start-ups, familiar business models cannot be applied, so a new model must be devised. Not only is the business model important, in some cases the innovation rests not in the product or service but in the business model itself.

Given the complexities of products, markets, and the environment in which the firm operates, very few individuals, if any, fully understand the organization’s tasks in their entirety. The technical experts know their domain and the business experts know theirs. The business model serves to connect these two domains.

A business model draws on a multitude of business subjects, including economics, entrepreneurship, finance, marketing, operations, and strategy. The business model itself is an important determinant of the profits to be made from an innovation. A mediocre innovation with a great business model may be more profitable than a great innovation with a mediocre business model.

The business model has the following components:
1. Value proposition – a description of the customer problem, the product that addresses the problem, and the value of the product from the customer’s perspective.
2. Market segment – the group of customers to target, recognizing that different market segments have different needs. Sometimes the potential of an innovation is unlocked only when a different market segment is targeted.
3. Value chain structure – the firm’s position and activities in the value chain and how the firm will capture part of the value that it creates in the chain.
4. Revenue generation and margins – how revenue is generated (sales, leasing, subscription, support, etc.), the cost structure, and target profit margins.
5. Position in value network – identification of competitors, complementors, and any network effects that can be utilized to deliver more value to the customer.
6. Competitive strategy – how the company will attempt to develop a sustainable competitive advantage, for example, by means of a cost, differentiation, or niche strategy.

How is Business Model different from Strategy?

Business model is different from strategy in the following ways –
1. Creating value vs. capturing value – the business model focus is on value creation. While the business model also addresses how that value will be captured by the firm, strategy goes further by focusing on building a sustainable competitive advantage.
2. Business value vs. shareholder value – the business model is an architecture for converting innovation to economic value for the business. However, the business model does not focus on delivering that business value to the shareholder. For example, financing methods are not considered by the business model but nonetheless impact shareholder value.
3. Assumed knowledge levels – the business model assumes a limited environmental knowledge, whereas strategy depends on a more complex analysis that requires more certainty in the knowledge of the environment.

How has Internet changed the Business models?

Internet has revolutionized a large number of business aspects. The business parameters have changed due to the flexibility Internet offers. Business models are perhaps the most discussed and least understood aspect of the web. There is so much talk about how the web changes traditional business models.

Some models are quite simple. A company produces a good or service and sells it to customers. If all goes well, the revenues from sales exceed the cost of operation and the company realizes a profit. Other models can be more intricately woven. Broadcasting is a good example. Radio, and later television, programming has been broadcast over the airwaves free to anyone with a receiver for much of the past century. The broadcaster is part of a complex network of distributors, content creators, advertisers and their agencies, and listeners or viewers. Who makes money and how much is not always clear at the outset. The bottom line depends on many competing factors.

Internet commerce will give rise to new kinds of business models. But the web is also likely to reinvent tried-and-true models. Auctions are a perfect example. One of the oldest forms of brokering, auctions have been widely used throughout the world to set prices for such items as agricultural commodities, financial instruments, and unique items like fine art and antiquities. The Web has popularized the auction model and broadened its applicability to a wide array of goods and services. The biggest advantage is that web brings together millions of buyers and sellers on a common platform from different parts of the world. These kinds of transactions were not possible earlier. Similarly, Internet has made possible creation of emarketplaces where thousands of vendors and customers meet and transact. Since it is a platform where the middlemen have no role, the prices become highly competitive.

Business models have been defined and categorized in many different ways. Internet business models continue to evolve. New and interesting variations can be expected in the future.

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Organizational Change

What is “Organizational Change?”

Typically, the concept of organizational change is in regard to organization-wide change, as opposed to smaller changes such as hiring a new person, modifying a program, etc. Examples of organization-wide change might include a change in mission, restructuring operations, new technologies, mergers, major collaborations, rightsizing, new programs such as Total Quality Management, re-engineering, etc. Some experts refer to this as organizational transformation. Often this term designates a fundamental and radical reorientation in the way the organization operates.

What provokes “Organizational Change”?

Change should not be done for the sake of change — it’s a strategy to accomplish some overall goal. Usually organizational change is provoked by some major factors like plan to address major new markets/clients, need for dramatic increases in productivity/services, etc. Typically, organizations must undertake organization-wide change to evolve to a different level in their life cycle, e.g., going from a highly reactive, entrepreneurial organization to more stable and planned development. A new chief executive can provoke organization-wide change when his or her new and unique personality pervades the entire organization.

Why is Organization-Wide Change difficult to accomplish?

There is always a strong resistance to change. People are afraid of the unknown. Many people think things are already just fine and don’t understand the need for change. Many doubt there are effective means to accomplish major organizational change. Often there are conflicting goals in the organization, e.g., to increase resources to accomplish the change yet concurrently cut costs to remain viable. Organization-wide change often goes against the very values held dear by members in the organization, that is, the change may go against how members believe things should be done.

What are the basic strategies for Change Management?

Rational-Empirical

People are rational and will follow their self-interest — once it is revealed to them. Change is based on the communication of information and the incentives.

Normative-Re-educative
People are social beings and will adhere to cultural norms and values. Change is based on redefining and reinterpreting existing norms and values, and developing commitments to new ones.

Power-Coercive
People are basically compliant and will generally do what they are told or can be made to do. Change is based on the exercise of authority and the imposition of sanctions.

Environmental-Adaptive
People oppose loss and disruption but they adapt readily to new circumstances. Change is based on building a new organization and gradually transferring people from the old one to the new one.

What are the skills required for Change Management?

Managing the kinds of changes encountered by and instituted within organizations requires an unusually broad and finely-honed set of skills, the major ones being –
• Political Skills.
Organizations are first and foremost social systems. Without people there can be no organization. Organizations are hotly and intensely political. And, as one wag pointed out, the lower the stakes, the more intense the politics. Change agents dare not join in this game but they had better understand it.

• Analytical Skills
Two particular sets of skills are very important here: workflow operations or systems analysis, and financial analysis. Change agents must learn to take apart and reassemble operations and systems in novel ways, and then determine the financial and political impact of what they have done.

• People Skills
People are the sine qua non of organization. Moreover, they are characterized by different shapes, colors, intelligence and ability levels, gender, religious beliefs, attitudes toward life and work, personalities, and priorities — and these are just a few of the dimensions along which people vary. The skills most needed in this area are communication or interpersonal skills. Part of the job of a change agent is to reconcile and resolve the conflict between and among disparate (and sometimes desperate) points of view.

• System Skills.
System is an arrangement of resources and routines intended to produce specified results. To organize is to arrange. A system reflects organization and, by the same token, an organization is a system.

Computers and the larger, information-processing systems are generally known as “hard” systems while compensation systems, appraisal systems, promotion systems, and reward and incentive systems are often referred to as “soft systems”. One needs to master both these systems.

Business Skills.
Simply put, it is important to understand how a business works. This entails an understanding of finance — where it comes from, where it goes, how to get it, and how to keep it. It also calls for knowledge of markets and marketing, products and product development, customers, sales, selling, buying, hiring, firing and just about anything else you might think of.

What are the factors that need to be considered while selecting a Change Strategy?

Generally speaking, there is no single change strategy. You can adopt a general or what is called a “grand strategy” but, for any given initiative, you are best served by some mix of strategies.

Some of the important factors that should be considered while selecting a change strategy are as follows –
1. Degree of Resistance. Strong resistance argues for a coupling of power-coercive and environmental-adaptive strategies. Weak resistance or concurrence argues for a combination of rational-empirical and normative-re-educative strategies.
2. Target Population. Large populations argue for a mix of all four strategies, something for everyone so to speak.
3. The Stakes. High stakes argue for a mix of all four strategies. When the stakes are high, nothing can be left to chance.
4. The Time Frame. Short time frames argue for a power-coercive strategy. Longer time frames argue for a mix of rational-empirical, normative-re-educative, and environmental-adaptive strategies.
5. Dependency. This is a classic double-edged sword. If the organization is dependent on its people, management’s ability to command or demand is limited. Conversely, if people are dependent upon the organization, their ability to oppose or resist is limited. Mutual dependency almost always signals a requirement for some level of negotiation.

How is the organization-wide change best carried out?

Successful change must involve top management, including the board and chief executive. Usually there’s a champion who initially instigates the change by being visionary, persuasive and consistent. A change agent role is usually responsible to translate the vision to a realistic plan and carry out the plan. Change is usually best carried out as a team-wide effort. Communications about the change should be frequent and with all organization members. To sustain change, the structures of the organization itself should be modified, including strategic plans, policies and procedures. This change in the structures of the organization typically involves an unfreezing, change and re-freezing process.

The best approach to address resistances is through increased and sustained communications and education. For example, the leader should meet with all managers and staff to explain reasons for the change, how it generally will be carried out and where others can go for additional information. A plan should be developed and communicated. Plans do change. That’s fine, but communicate that the plan has changed and why. Forums should be held for organization members to express their ideas for the plan. They should be able to express their concerns and frustrations as well.

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Enterprise Resource Planning

What is ERP?

ERP is an Enterprise resource planning software that attempts to integrate all departments and functions across a company onto a single computer system that can serve all the different departments’ particular needs.

Each department typically has its own computer system optimized for the particular function that it performs. ERP combines them all together into a single, integrated software program that runs off a single database so that the various departments can more easily share information and effectively communicate with each other. This integrated approach can have a tremendous payback if the implementation is done properly.

Take a customer order, for example. Typically, when a customer places an order, that order moves from one department to another with details often keyed and rekeyed into different departments’ computer systems along the way. This causes delays and lost orders. Moreover, no one in the company truly knows what the status of the order is at any given point because there is no way for the finance department, for example, to get into the warehouse’s computer system to see whether the item has been shipped. This results in slower response to the customer’s queries, thereby leading to lower customer satisfaction levels.

ERP vanquishes the old standalone computer systems in finance, HR, manufacturing and the warehouse, and replaces them with a single unified software program divided into software modules that roughly approximate the old standalone systems. Finance, manufacturing and the warehouse all still get their own software, except that now the software is linked together so that someone in finance can look into the warehouse software to see if an order has been shipped. Most vendors’ ERP software is flexible enough that one can install some modules without buying the whole package. Many companies, for example, will just install an ERP finance or HR module and leave the rest of the functions for another day.

How does ERP improve a company’s business performance?

ERP aims at improving the business processes in an organization. It plays a major role in changing the way a company takes a customer order and processes it into an invoice and revenue – often known as the order fulfillment process. That is why ERP is often referred to as back-office software. It doesn’t handle the up-front selling process, although most ERP vendors have recently developed CRM software to do this; rather, ERP takes a customer order and provides a software road map for automating the different steps along the path to fulfilling it. When a customer service representative enters a customer order into an ERP system, he has all the information necessary to complete the order like the customer’s credit rating and order history from the finance module, the company’s inventory levels from the warehouse module and the shipping dock’s trucking schedule from the logistics module etc..

People in these different departments all see the same information and can update it. When one department finishes with the order it is automatically routed via the ERP system to the next department. To find out where the order is at any point, you need only log in to the ERP system and track it down. The order process moves smoothly through the organization, and customers get their orders faster and with fewer errors than before. ERP can apply that same magic to the other major business processes, such as employee benefits or financial reporting.

What are the major reasons for the companies to implement ERP?

Following are the five major reasons why companies undertake ERP –
1. To integrate financial information
2. To integrate customer order information
3. To standardize and speed up manufacturing processes
4. To reduce inventory
5. To standardize HR information

How long does an ERP project take?

The ERP implementation not only requires software installation but also a major revamp of the business processes and systems within the organization. To do ERP right, the way one does business will need to change and the way people do their jobs will need to change too. And that kind of change doesn’t come without pain.
ERP implementation varies from company to company and also depends upon the scope of work. The real transformational ERP efforts usually run between one and three years, on an average. The important thing is not to focus on how long it will take but rather to understand why one needs it and how one will use it to improve one’s business.

What are the hidden costs of ERP?

Although different companies will find different land mines in the budgeting process, those who have implemented ERP packages agree that certain costs are more commonly overlooked or underestimated than others. The experience shows that the budget overrun will be more in the following areas –
1. Training
2. Integration and testing
3. Customization
4. Data conversion
5. Data analysis
6. Consultants ad infinitum
7. Replacing your best and brightest resources
8. Implementation teams can never stop
9. Waiting for ROI
10. Post-ERP depression

Why do ERP projects fail so often?

People don’t like to change, and ERP asks them to change how they do their jobs. The software is less important than the changes the companies make in the way they do business. If one uses ERP to improve the way the people take orders, manufacture goods, ship them and bill for them, one will see value from the software. If one simply installs the software without changing the way people do their jobs, one may not see any value at all.

At its simplest level, ERP is a set of best practices for performing different functions in a company, including finance, manufacturing and the warehouse. To get the most from the software, one has to get people within the company to adopt the work methods outlined in the software. If the people in the different departments that will use ERP don’t agree that the work methods embedded in the software are better than the ones they currently use, they will resist using the software or will want IT to change the software to match the ways they currently do things. This is where ERP projects break down. Political fights break out over how—or even whether—the software will be installed. IT gets bogged down in long, expensive customization efforts to modify the ERP software to fit with powerful business barons’ wishes. Customization makes the software more unstable and harder to maintain when it finally goes live.

Getting people in the company to use the software to improve the way the job is done is a bigger challenge. If a company is resistant to change, then the ERP project is more likely to fail.

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Marketing of Services

In line with the global trends where services form a major chunk of the economies, India, too has witnessed a phenomenal growth in the services sector in the last few years. Till very recently, most of the large services organizations in the country had been operating in a monopolistic environment. With the privatization of a large number of services, the behemoths are encountering the streaks of competition and are waking up to the new market order

The customers are experiencing the joys of transformation of the services sector with important segments like Banking and financial services, Travel and Transport, Health, Entertainment, Telecom and IT services dramatically enhancing the customer value. We have seen the emergence of Convenience Banking, Tele-medicine and web based health care, aggressively priced high profile telecom services and attractive financing schemes which have changed our lives. The Indian marketing whiz kids are grappling with the new market dynamics that services have brought forth and this sector, due to its sheer growth rates, has assumed tremendous importance in the last few years. Though a number of steps have been initiated in this direction, yet there is a lot, which is left to be desired.

Human element is the single most important factor in the services business because of the continuous customer interface. With the explosion of the services companies, the concept of customer care has taken roots in our country but there is still a lot of ground to be covered. There is an urgent need to bring about a customer orientation across the entire spectrum of functions. The companies have to build an effective human resource strategy capable of driving the entire organization towards a common customer oriented corporate vision and only devising catchy slogans and forming customers care cells may not be the right answer. During a recent informal chat, a senior banker working for one of the country’s top banks admitted that his bank had implemented strong centralized systems which had, in fact made banking more tedious for the customers. Interestingly, this bank claims to be the industry leader but what remains to be seen is whether they are the leaders in just systems or the real thing i.e. customer satisfaction. The services companies need to work on strategies revolving around the customers and should set impeccable standards of customer relationship management.

A sudden spurt in the services sector has led to an inadequate availability of trained manpower. Most of the high profile banks have employed young smart looking executives who generally have shallow knowledge and are always seen turning to each other for help which often makes the customers jittery. Most of the services are packaged in the form of a dish, which is extremely well garnished but with a flat taste. The organizations, therefore, need to focus a lot on training to ensure the delivery of high quality of service.

Most of the services also comprise a product, which is an integral part of the service, and it is, therefore, imperative for the companies to focus on the product as much as on the service. A large number of services companies go an extra mile to improve the service quality but often relegate the product to the background. This results in the sub optimal customer value, which ultimately leads to the customer churn. A case in point is that of telecom companies where the service delivery is actually through a device and a small compromise on this front can result in customers shying away from the service provider despite his putting up the best network technologically.

Unlike most of the consumer product categories, where there is no track of the customers buying a particular brand or a product, a mega opportunity for the service companies is the availability of the database of the customers. This acts as an enabler for them to hold on to their valued customer bases and the instant access to these also facilitates the planning and the execution of the brand loyalty programmes. In order to cater to the specific segments of the market, the services companies should do a comprehensive customer profiling on the basis of which a range of such programmes can be planned

Another area where services companies can leverage their expertise is to offer customized solutions to meet the requirements of the varied customer segments. This shall go a long way in building up of a large base of loyal and happy customers. Another edge, which the services companies have, is in the form of the immediate customer feed back. The companies, therefore, need to be more responsive to initiate corrective measures and this factor alone can make them highly successful in their areas of business.

To gain both mind share and the market share, the services companies should devise a coherent strategy, which revolves around the service quality, service content, product offering and the customer relationship management