The article 'Here be Dragons' in the Economist notes that Business travellers in today's emerging markets ... constantly come across what to Western eyes look like exotic corporate species and new, unfamiliar kinds of business which raise profound questions about the evolution of companies and business models.
What I've found is that people are confused about what a business model is. Briefly, it is the 'what and how' of a business: in graphical terms it is a simplified representation of its business logic. It describes what a company offers its customers, how it reaches them and relates to them, through which resources, activities and partners it achieves this and finally, how it earns money". In a sense a business model is what someone seeking investor support to set up a company would describe in the business plan.
The 'what' of the organisation requires conscious choices and decisions to be around questions like "What are the main activities we operate to run our business model? On which key resources do they rely? To which value propositions, channels or relationships do they contribute?"
The 'how' of model includes both 'hard' things like IT systems or explicit policies, and 'soft' things like leadership style or speed of decision making. Again organisational members make choices and decisions around these. For example around soft questions like "How responsive will we be to customer feedback? Are we going to 'tell' the customer or are we going to make choices and decision by involving the customer? Will we treat all customers equally?' and hard questions like 'What IT system is the best customer relationship management system for our purposes', 'What packaging shall we offer our product in? What price point should we offer at?"
Although two companies, for example two banks, may be in the same industry, compete in similar markets and appear to have similar cultures, they are almost certain to have different business models and it is this business model differences, impacting the culture among other factors, that in part accounts for them having different success levels.
The Economist article discusses a number of very successful new models:
Diversified conglomerates: Tata companies, for example, operate in seven business sectors: communications and information technology, engineering, materials, services, energy, consumer products and chemicals.
Hybrid state-owned enterprises: The Chinese Academy of Sciences, a state-run institution that conducts national research projects owns a 36 percent stake in Legend (Lenovo's parent company) meaning it is the company's largest investor.
"Pull models' 'designed to help companies mobilize resources when the need arises. In this model 'fixed armies become loose networks that are forever reconfiguring themselves in response to a rapidly shifting landscape'.
Frugal innovation models involving 'rethinking entire production processes' in one of three ways:
- Scaling out: 'means involving a wider range of people in the process of production and distribution. Nutriset's production of food for malnourished children by franchises in Africa is discussed in connection with this model.
- Mass producing sophisticated services: Examples given in the Economist are those of Dr Devi Shetty's Narayana Hrudayalaya Hospital in Bangalore http://www.narayanahospitals.com/ and the Aravind eye-hospital chain which 'takes the assembly-line principle literally: four operating tables are laid side by side and two doctors operate on adjacent tables. When the first operation is done, the second patient is already in place.'
- Using existing technology in imaginative new ways as TCS is doing in connecting mobile phones to TV sets (for internet access).
What will be interesting to see is whether established western organizations will be able to redesign themselves to compete effectively, and whether traditional functional areas e.g. HR, IT, Finance, will have to follow suit and radically change the ways they operate in their support of the new models.