Business Models

In todays society it is important to define an organizations type of usiness based on the types of customers it wishes to serve, the particular needs of the customers, and the means or technology by which the organization will satisfy these customers needs. Once your business is defined, the next step is to have a business mission which complements its business definition. The business mission statement should define what an organization Is, why It exist, and its reason for existing. It should define who the primary customers are, what products and services your company provides and should reflect management’s vision of what It seeks to o.

A good mlsslon statement can provide many benefits Including: Clarifying managements long term vision and direction of the organization, providing guidance in identifying pursuing, and evaluating market and product opportunities, and motivating and challenging employees to do the things valued by their management and customers. Once the business mission statement has been crafted business goals need to be set in place in order to convert the business mission into tangible actions and results that are to be achieved within a specific time frame. Production,

Financial, and Marketing goals are the three main types of goals that need to be set to run a successful business. Once your company is defined and goals have been set in place your organization is now ready to start implementing certain business models to Improve your business strategy. The Four Business Models that will enhance your organizations strategy are: The SWOT Analysis, Product Life Cycle, Break-Even Analysis, and Porters Five Forces of Competltlon Model. SWOT ANALYSIS MODEL SWOT is an acronym for an organizations Strengths and Weaknesses and external

Opportunities and Threats. SWOT Analysis is a very useful business model used for understanding your organization’s Strength and Weaknesses, and for indentifying both Opportunities that may be open to your organization and any threats that you may face. Using SWOT analysis can help your organization develop a niche in your market. To conduct a SWOT analysis of your organization Is fairly simple. All you have to do Is Identify your companys strengths and weaknesses as they are viewed both Internally and by your customers and people In your market.

Next Identify what opportunltles re available in your market based on both your strength and weaknesses and also competitors are doing, change in technology, financial issues, etc. SWOT analysis helps your organization focus on your strength, minimize threats, and takes advantages of possible opportunities in your market. It also gives a view of what your competitors are doing which can provide useful insight on how to position your organization in the market. Product Life Cycle Concept The next business model that can improve your organization strategy is called the Product Life Cycle Concept.

This concept is used to map the lifespan of a product. The product life cycles is typically divided into four stages: 1. Introduction, 2. Growth, 3. Maturity-saturation, 4. Decline. There is no time frame on how long a Product Life Cycle will last as it varies from product to product. The introduction stage is probably the most important stage in this concept as this is the stage in which the product is initially promoted. Public awareness in very important to the success of a product.

The most important key to this stage is to get your product known and worry about aking money later. If you are able to get past the introduction stage the next stage that follows is the Growth stage which is the stage where large amount of money is spent on advertising. In this stage convincing your customer that your product is better than your competitors product is very important. Good advertising strategy should result in increase in sales and once your sales increase your share of the market will stabilize.

The third stage is the Maturity stage in which sales tend to grow at a very fast rate and then gradually stabilize themselves. Once again the key to this tage is convincing your customers that your product is better than the competitors. The final stage is the decline stage which is the stage in which your product begins to fall. It’s very important to know where you are in the product life cycle at all time. A good advertising strategy and adjusting to change can increase your products life cycle in the market.

Break-Even Analysis The next model that is important to improving your organization strategy is called the Break-Even Analysis. This model can help you determine when your business will be able to cover all its expenses and begin to make a profit. Breakeven analysis is one of the simplest application of contribution analysis. Break-even analysis identifies the unit or dollar sales volume at which an organization neither makes a profit nor incurs a loss. Break-even analysis is a valuable tool for evaluating an organizations profit goals and assessing the riskiness of actions.

Break-even analysis requires three pieces of information: 1 . an estimate of the unit variable costs, 2. an estimate of the total dollar fixed costs to produce and market the product or service unit, 3. the selling price for each product or service unit. To alculate your breakeven point, you will need to identify your fixed and variable cost. Fixed cost are expenses that do not vary with sales volumes, such as salaries and rent. These expenses are often referred to as overhead cost and must be paid regardless of sales.

Variable costs on the other hand are dependent of sales volume and include purchasing inventory, shipping, and manufacturing a product. To determine your breakeven point use the equation below: Unit Break Even Volume= Total Dollar Fixed Cost/ Unit Selling Price- Unit Variable Cost. The last model that can be implemented in your organization to improve your usiness strategy is called Porter’s Five Forces of Competition. Even thought this is a very simple model it serves as a powerful tool for understanding where power lies in a business situation.

This model can help your organization understand both the strength of your current competitive Porters Five forces Analysis assumes that there are five important forces that determine competitive power in a business situation. These forces include: Supplier Power: Here it is very important to evaluate how easy it is for suppliers to drive up prices. Uniqueness of product or service plays an mportant role here Buyer Power: Here it is important to evaluate how easy it is for buyers to drive prices down.

This is driven by the number of buyers, the cost of them switching from your product or service to a competitor’s product. Competitive Rivalry: How many competitors do you have and how capable are they. If no one else can do what your organization can do then you can have a tremendous strength. Threat of Substitution: Can your customers find a different way of doing what you do? Threats of New Entry: The ease with which new competitors can enter the market if they see that you are making good profits.