Business Model Generation

            In a society that’s filled with new businesses popping up everywhere, it’s hard to find which model of running a business works the best. This is precisely why Alexander Osterwalder and Yves Pigneur created a handbook for improving and designing a successful business organization with the help of four hundred and seventy other practitioners. In order to create a well rounded business model, it needs to be about creating value for companies, customers, and society. This model is not new or the only way to run an organization, however, it does work and it helps define what the basics of running a business are. There are a lot of key components to a business model innovation. These include the senior executive (establishes a new business model), the intrapreneur (helps discover the newest technological advancements), the entrepreneur (builds new business models around customers needs), the investor (invests in companies), the consultant (helps clients question their model/envision the best model possible), the designer (discovers the best business model to launch) , and the conscientious entrepreneur (brings positive social and economic changes). There are numerous amounts of jobs and people that are responsible for a business model as well as a certain format to follow that will guide you, called the “Buisness Model Canvas.” This canvas is composed of nine building blocks that I will discuss in further detail below.

Suggested Solutions and Ways of Handling a Business:

1. Customer Segments: This first block deals with the different groups of people and/or organizations that an enterprise wants to serve. There are many different kinds of Customer Segments which include: mass market, niche markets, market segments, diversified customer business, and multi-sided platforms. 
2. Value Propositions: This step describes the products and services that create the value for a customer segment. In order to create customer value, you need to follow some of these key elements: newness, performance, customization, design, brand, and price.
3. Channels: These channels are how a company/business communicates with its customer segments to deliver its value proposition. In a business model, you can have direct and indirect channels as well as owned and partnered channels. 
4. Customer Relationships: This is defined by the types of associations and relationships a company makes with certain customer segments. Some of these relationships can be personal assistance, self-service, automated services, or communities. 
5. Revenue Streams: This fifth block is the amount of money that a business makes from its customer segments. As always, there are many ways to generate this money, such as usage fees, subscription fees, asset sales, or advertising. 
6. Key Resources: This block is defined by the most important assets a business model needs in order for it to be successful. These resources can be categorized as follows: physical, intellectual, human, or financial.   
7. Key Activities: These activities are the most important thing a company does in order for their business model to work, such as production, problem solving, and networks. 
8. Key Partnerships: This block describes the suppliers and partners that a business makes in order for their model to work. Some motivations for creating these partnerships are optimization, reduction of risk, and attainment of certain resources.
9. Cost Structure: This last block is important for understanding all the costs that are acquired when operating the business. These structures are either cost or value driven.

          In this lengthy, but extremely thought out and useful business model, you get the understanding that it truly does work. Think of any business or company that you buy from frequently (Apple, Nike, Coach, etc) and I’m sure you could apply this model to the way that they run their organizations as well.

Strategy and the Internet

            In Michael Porter’s “Strategy and the Internet,” he dives into how the Internet has and hasn’t changed businesses and strategy in the economic world. The Internet should not replace or take over a company’s strategy and services, it should complement it. There is no way a company would still be able to survive if they relied solely on the Internet and got rid of their conventional methods of running their organization. As Porter says, “the companies that succeed will be ones that use the Internet as a complement to traditional ways of competing” (p. 3).  Because the Internet is rapidly growing, companies think that their best way to succeed and make even more profit is to rely on the technology of the Internet. However, although the Internet has enough power to expand distance learning, it did not create the company or industry in the first place (p.5). The Internet changes the way these businesses see profitability and the front end process, but does not take away from traditional means.

            Overall, the Internet’s technology will eventually erode profitability because it is now putting the power in the customer’s hands as opposed to the companies. Customers can now directly deal with all of their needs for buying something online without needing an intermediary (p.10). The Internet, over time, will not replace conventional ways of running and taking part in a business because the Internet complements the company rather than dismantles it. Porter states that, “Internet application and a traditional method benefit each other” (p.17).

Key Issues:

• Since the Internet has a never ending supply of information, it is easy for buyers to do their research. This technology provides customers access to information about certain products they are going to buy or about companies they are going to buy from, therefore strengthening their bargaining power.
• The formation of the Internet will put a lot of pressure on a company’s profitability. Many companies are becoming or already are extremely familiar with how Internet technology works, thus online applications and sites are rapidly growing, making competition for all companies extremely brutal. 
• Just as businesses are becoming accustomed to how the Internet works, so are the customers. Like mentioned above, customers have access to all sorts of information, but that’s not the only thing. The Internet makes switching from company to company extremely easy at a low cost. Buyer’s loyalty to certain companies is declining because of this low cost and efficient way of switching.

Solutions:

• In order for companies to stay on top, they need to gain the advantage. By doing so, they need to achieve and keep “higher levels of operational effectiveness” than that of their competitors (p.11).
• Companies and industries need to operate at a lower cost or command a premium price, or do both. They can accomplish these things by doing the same thing as their competitors, only better, or they could do things differently than their competitors that will ensure delivering the customer a unique value.
• Point blank, the Internet cannot do everything. While using the Internet for business, customers lack the ability to examine and test out the product, they cannot talk directly with company personnel, and there are extra costs when doing business from your computer. In order for companies to stay afloat, they need not rely completely on the technology that the Internet has provided because although it can do a lot, it cannot do everything that traditional methods of running a business can.