Creation of business models is a relatively new practice that occurred with the appearance personal computers. Business modeling changed the whole perspective on the projecting and forecasting of various businesses. Before business models started to be formed the process of business planning was quite different.
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It basically included an intuitive project and expected outcomes which did not always match the reality of the business operation. As money making is a very changeable process, its development depends on multiple factors, it is affected by various influences, most of which can be predicted. This is why business modeling is highly popular these days.
A properly created and thought through model of a business includes a variety of aspects that can be changed and the result of each change can be calculated and studied (Magretta, 89). This allows the business managers to be prepared for the situations and impacts of various kinds and always have a plan of actions to avoid negative results or unpredictable consequences.
Besides business models provide managers with indicators of efficiency and success of a business, because it includes projects about approximate incomes at every stage of business development. Every part of the business model can be examined and its behaviour under different circumstances can be predicted and planned. This way by means of testing, trying and revising business models can be perfected and altered allowing very important flexibility that is necessary in the rapidly developing business world.
To work properly a business model has to be based on a reliable business story. In other words it has to be well-built and take into consideration the mutual agreement of all the participating sides. If at least one of the participants of a business disagrees to play the role they were given, the model will not succeed.
Besides, the model’s financial aspect also has to pass a test and be calculated properly and without groundless assumptions. The markets of the contemporary business world are filled with competitors manufacturing the same kinds of products or providing similar services. In order to gain or keep their customers such businesses lower their prices and offer various discounts, but this practice cannot go on for too long because sooner or later the company will reach the absolute bottom of the possible price range.
Innovative goods can be easily copied by the competitors so the market quickly turns into a copycat competition where everyone is selling identical products (Why business model innovation is critically important today, par. 4). This is why every business model should be supported by a successful business strategy, which needs to be designed to make the brand or company stand out from the rest of the competitors.
Even though creating a proper business is crucial for any company, this does not guarantee the success of a business. High popularity in the market, brand promotion, good revenues and reputation occur due to the harmonious work of several different components and business model is just one of them. It is important to combine a professionally shaped business model with successful and interesting strategy that is not easy to copy for the competitors.
It is also important to know what the term “business model” stands for, because today this concept is misused and misunderstood a lot. Effective business model is the root of every business’ success, yet the model cannot be the only basis for the business, it has to be combined with strong management and efficient work of employees.
Magretta, Joan. “Why Business Models Matter”. Harvard Business Review May. 2002: 86-92. Print.
Why business model innovation is critically important today. Innovation Solutions. 2013.