A business model is the modus operandi used by companies and business enterprises to generate revenue and earn profits from their operations. These business models may vary from company to company. For example, Uber works on a business model which is different from that of the Amazon’s. But essentially, the business model is the very basis on which the entire business of a company thrives. It forms the basis of how the value-chain activities will flow, what processes will be involved, what kind of manpower will be required, how the resources will be managed, what kind of technologies will be put to use, what will be the logistical solutions and so on. This article will attempt to highlight the significance of business model as the primary basis for organizing of a business.
Basis of Functioning
The functioning of a company or a business enterprise is heavily derived from its business model. If there are deviations or conflicts in the functioning of a company with its the planned business model, the company may encounter difficulties in creating and delivering the intended value to its end customers which in turn can have negative implications on its revenues, profitability and customer base. For example, if an e-commerce retailer whose business model relies on procurement and delivery of goods from third parties to overcome logistical challenges and to cater to a wider market and it does not deploy adequate quality control measures before such goods are dispatched to the customers, it may lead to customer dissatisfaction on the grounds of quality assurance and this eventually will hurt the brand name of the company. And most importantly, it will raise question marks on the business model itself. Thus, it becomes necessary for companies to ensure that the functioning of their business is organized in tune with the planned business model.
It becomes necessary for companies to ensure that the functioning of their business is organized in tune with the planned business model.
Determinant of Value-Chain Activities
All the activities involved in the value-chain process of a company, starting from procurement of raw materials/inputs to creating customer delight through various businesses processes, is primarily a representation of the business model at work. If a particular service forms an essential part of the business model (say adherence to the product return policies of an e-commerce retailer), the same needs to be integrated into the value-chain process. It becomes a parallel necessity for the company to have in place adequate logistical provisions for the collection of the returned goods from the customers and a convenient financial platform for a quick refund of customers’ money. Thus, the elements and flow of the value-chain process of a company are determined by how its business model is intended to work. In other words, the entire value-chain process of a business has to be organized in orientation with the planned business model.
It becomes a parallel necessity for the company to have in place adequate logistical provisions for the collection of the returned goods from the customers and a convenient financial platform for a quick refund of customers’ money
Forming a suitable organizational structure is the preliminary step towards organizing a business. This involves breaking up the business into manageable and working clusters. How this division of work will take place depends on how a company plans to operate and what will be the strategic requirements for such operations. For example, if a company’s operations and markets are located at one place/city, it will opt for functional departmentation. Or if a company has a wide range of products and services and all business activities are confined to one place/city, it may opt for both product/service departmentation and functional departmentation. Similarly, there can be other forms of departmentation or divisions of business according to the priorities and convenience of a company. And these priorities arise from the business model at work.
This involves breaking up the business into manageable and working clusters
Organization design aligns the organization structure with the business strategies. Organization design is working towards establishing the network of flow of work, authority-responsibility relationships and communication and information-sharing within the organizational structure to ensure that business objectives are effectively and efficiently achieved. For example, a company that intends to attract customers through an USP of superior service quality but does not have the necessary organization design that could support coordination between its HR function (recruitment, training and performance management) and CRM function, the company will not be able to deliver the established standards of service quality to its customers. Thus, the organization design of a company is directly affected by its business model and business strategies and it becomes essential for companies to incorporate the requirements of its business model in its organization design.
Organization design is working towards establishing the network of flow of work, authority-responsibility relationships and communication and information-sharing within the organizational structure to ensure that business objectives are effectively and efficiently achieved
It is apparent that how a business will operate and what value-chain process it will follow is primarily defined by its business model. And to ensure that these operations and processes are in tune with the company’s business model, there’s a need to create an organizational structure and organization design that supports these processes and operations. In other words, every business has to be organized based on the model it intends to run on.
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