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Description: An innovation that does not deliver benefits is a futile deal. It must be put in such use that it gives some value and benefit. To get proper value from an innovative idea, an organization needs a suitable business model to compliment it. A business model helps to transform the innovation into economic value. For small business, making a new business model might prove to be troublesome. Thus, they adopt some popular business model and then make necessary alterations to make it suitable for their business. Business model is perhaps amongst the most vital components of the business. In some instances the innovation does not rely on the product or service but it relies on the business model itself. Henry Chesbrough and Richard S. Rosenbloom have presented a basic framework for business model in their paper, The Role of the Business Model in Capturing Value from Innovation. In this paper they have described the elements of a business model.
A business model is founded on a myriad business subjects. The majority of these subjects are entrepreneurship, economics, strategy, finance, operations and marketing. The business model is an important factor in earning profits from an innovation. Remember that an ordinary innovation with an exceptionally good business model may be a bigger success as compared to a great innovation with a decrepit business plan. The writers of the paper analyzed the data from both the business records and academic journals and keyed out some common themes. They have listed the six elements of a business model that are given below: 1. Value Proposition: It is the description of the consumer problem, the product that caters to the problem, and the value of the product perceived by the consumer. 2. Market Segmentation: It includes the target audience, by acknowledging that different segments have different needs. At times the true potential of an innovation is seen when the market segment is changed.
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3. Value Chain Structure: It includes the firm’s activities and position in the value chain and the actions it will take on to capture the value generated in the value chain. 4. Revenue generation & Margins: The elements included here are; cost structure, target profit margins and the ways of revenue generation (subscription, leasing, sales, etc). 5. Position in Value Network: It evaluates the competitors, substitutes and other potential factors that can contribute in delivering greater value to the consumer. 6. Competitive Strategy: In this strategy the company devises ways to create a sustainable strategy for competitive advantage. For instance niche, cost or differentiation strategy.
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