• by Vikram Gajjala

Enterprise Business Model Design

Every business owner must know how business models work if their firms are to be successful. You can view a business model as the underlying system that explains how a business operates. Some of the most vital elements of an enterprise business model design to know are:
 

• Being aware of who is your customer
• Knowing fully what the customer values
• Knowing how to deliver value to your customers at the most suitable prices
   

Clay Christensen explains a business model is a framework that comprises a profit formula, value proposition to your customer, key processes, and critical resources. However, what is certain is that strategy is one of the most defining driving forces behind a well-crafted business model. This is why senior executives play an active role in designing business models for the firms they run. They are part and parcel of crucial processes such as business model innovation and the subsequent modifications of these business models.

What Drives Global Firms to Engage in Business Model Innovations? 

The entrepreneurship world is characterized by the constant emergence of various business models. One factor behind this is the need to tap into the expanding markets in developing countries. Though economic growth does not grow at high-speed rates like developed countries, developing countries have been slowly experiencing a noticeable upturn in economic fortunes. This means that the spending power of people living in developing countries has been on a slow but steady rise. Research conducted by World Data Lab estimates that the middle-class will comprise approximately 5.3 billion people by 2030. This means that many people are increasingly going to be potential buyers and spenders as they get to the middle-class category.
 

In a nutshell, the number of people perceived to fall under the "middle-class" category has increased. Therefore, businesses have seen the need to alter their existing business models or create new ones that will target this market. For example, Walmart has invested heavily in renovating its already existing stores in China and opening up many new stores due to China's growing middle-class population.

What Does the Creation of a Business Model Entail?

A company is usually required to make three types of "choices" when creating a business model. These include:
 

1. Policy Choices

Policy choices refer to the course of actions that define all of a firms' activities and operations. For example, regarding travelling, a company may have set up a policy that all its employees are required to only fly in economy class.

2. Asset Choices

Asset choices refer to the decisions that a firm makes in regards to the allocation of resources for different activities. For example, deciding on how much capital to set aside for new manufacturing facilities is a crucial asset choice.

3. Governance Choices

Governance choices simply refer to a company's decisions concerning how its activities or operations should be conducted. An excellent example of a governance choice is a firm deciding whether buying machinery to set up new processing facilities is the better alternative to leasing.

Business Models Give Firms a Competitive Advantage.

Many global companies have, over time, recognized the value that good business models offer. However, these firms have not effectively mastered the art of leveraging these business models to compete with their competitors. They are usually guilty of coming up with "myopic" business models that are only concerned with their efficiency, profits, etc. They consistently fail to tailor their business models in light of their existing competitors' rivals and the business models they use.
 

When a firm appraises its business model in a "stand-alone" manner without factoring in its competitors, they make a poor assessment of their strengths and weaknesses. This is one of the primary reasons why so many of the business models created today flop quickly!

The most innovative companies in the market devise business models that strengthen them while simultaneously weakening their competitors. This is the underlying mantra by which disruptive business models operate!


The Disruptive Business Model

Essentially, the disruptive business model "disrupts" the market by addressing customers' demands that are not being met effectively. Disruptive business models capitalize on the failure of leading manufacturers, retailers and others, to offer solutions to their customers. These perceived "leading" brands come short in delivering to their target market because of ignorance or plain incompetence.
 

Firms with disruptive business models carve out a new niche for themselves within the already existing market. Alternatively, they can create new markets to operate in altogether. They can achieve this by optimizing an already existing product or service. Airbnb is one of the best illustrations of a company that successfully leveraged the disruptive business model to great effect! Airbnb has given the global hospitality industry a lot of stiff competition. The company was created when it saw that many unused properties were lying idle. It capitalized on the opportunity by creating a platform where global travellers could easily connect with local hosts and get decent accommodation at reasonable prices.
 

For a disruptive business model to succeed, every business needs to remember that:

• Your product, service, or idea should offer a more leisurely experience to your customer. This means it should be easier to use or understand than what our rival offers.
• Your product or service should preferably be more affordable than existing options.
• It is crucial that the model should eliminate intermediaries to allow your customers to access you easily.
• Your business should accommodate emerging consumer behaviour.

Final Take Away

A good business model is essential to every company's growth and long-term survival. The framework will enable your firm to operate profitable or flop. The best business models like well-crafted business models, give you a competitive edge over the competition. You can choose to optimize already existing products and services or come up with newer versions that are more affordable and of a higher quality. The choice is entirely yours. For every business wishing to thrive, it is advisable to create a business model that addresses customers' pain points that are not being taken care of.