The Concept of the Business Model

Different industries and segments within these industries have their own pace of change in the life cycles of their products, production processes and structural makeup. To explain this phenomenon, Professor Charles Fine coined the term industry clock speed. Industry clock speed refers to the speed of changes endogenous to an industry (for example technological, competitive, and organizational) which the incumbent firms in the industry initiate. Fast clock speed industries experience higher rates of new product and process introductions, shorter product and process life cycles, and great degrees of product and process obsolescence than slow clock speed industries. Rapid changes in consumer and technological advances have necessitated that retailers look at the method of conducting business and re-look at the basic business models in place.

As the term business model suggests it deals with both business i.e. the activity of buying and selling goods and services or a particular company that does this, or the work that is done to earn money; and model, which is a representation of something as a physical object which is usually smaller than the real object.

In general, the purpose of creating a model is to help understand describe or predict how things work in the real world, by exploring a simplified representation of a particular entity or phenomenon. Thus, in the case of a business model, the model (i.e. representation) helps understand describe and predict the activity of buying and selling goods and services and earning money of a particular company. It is a simplified description of how a company does business without giving the complex details of its strategy, processes, units, rules, hierarchies, workflows and systems. A synthesis of literatures shows that there are mainly nine building blocks to help us describe business models, which are listed:

1) The target customer segments addressed by the retailer,
2) The value proposition of what is offered to the market;
3) The communication and distribution channels to reach customers and offer the value proposition;
4) The relationships established with customers
5) The configuration of activities performed /required to implement the business model;
6) The core competencies needed to make the business model possible;
7) The revenue streams generated by the business model constituting the revenue model;
8) The cost structure resulting for the business model;
9) The partners and their motivations of coming together to make a business model happen.

A business model is thus, a conceptual tool that contains a set of elements and their relationships and allows expressing company’s logic of earning money. It is a description of the value a company offers to one or several segments of customers and the architecture of the firm and its network of partners for creating, marketing and delivering this value and relationship capital, in order to generate profitable and sustainable revenue streams.

Any organization is not singularly responsible for the success or failure of its business plans. It is influenced by an external environment which influences the forces that shape strategy. If an organization is able to understand these forces, it will be able to respond to the changes and survive the future. Companies that thoroughly understand their business model and know how the building blocks relate to each other will be able to constantly rethink and redesign these blocks. This is the very essence of creating a long term business strategy.

A strategy in the commercial parlance would mean the plan or the method by which an organization wishes to achieve its objectives. Thus, a retail strategy can be defined as a clear and definite plan that the retailer outlines to tap the market and build a long term relationship with the consumers’. A retail strategy is a fundamental to the existence of the retail organization. It helps define the organization, its purpose and how the retailer will face various challenges in the environment and marketplace. The retailer then determines tactics. Tactic is the military sense determine how the retailer will actually fight. Each aspect of the retail business such as merchandising sales operations service and finance will draw their individual operational strategies to support the main business strategy. The strategy document or the retailer thus act as the guide for new processes, systems and information are handled in the organization.