During a crisis, people are willing to
try new things, approach business
and life from a different angle, and
make changes. That opens the door
for businesses to gain new customers
and develop new lines. But a firm
will only see the openings if its
leaders are constantly questioning
and examining what it is that the
business provides to clients,
customers, and consumers.
Ironically, for some firms, this
approach may suggest a narrow and
concentrated approach, while for
others it may identify new directions
and lines of business. There is no
single approach that everyone can
follow to ensure success. (Of course,
it is wise for everyone to pay attention
to costs and spending during the
downturn. Indeed, it’s wise to look at
costs and spending in all economic
situations.)
Is there any way to manage the
downturn without downsizing?
Sure and that outcome could occur
for a variety of reasons. Some firms
may decide that it is important not to
downsize. Such companies may
reduce pay, put people to work on
different projects, restrict hiring, and
so on to avoid having to let people go.
This happened during the Great
Depression and will likely happen in
some organizations today. Other firms
may grow because of new
opportunities created by the
environment. Those firms will be
looking to hire. At the same time, all
individuals will not have an equal
opportunity to be hired. Firms will
look for people with specific skills.
That will be one of the hallmarks of
the future for workers. People must develop appropriate skills to create
value for businesses. There will be
less demand for unskilled workers—
even in Least Developed Countries
(LDCs) with low wages—because
technology will allow work to be
completed by fewer workers.
What according to you is a
business model (with elaborate and
differing definitions apart) and what
do you think are the components that
constitute a business model?
A business model is a general
framework that depicts how an
organization creates value and
generates resources. Because a
business model is a general concept,
it may have many components.
Managers and leaders must identify
and optimize the components of the
model relevant to their organization.
And note that this point reflects back
to my view on the need to ask
constantly “what business are we
in?” for the business model changes if
the business changes. For example, if
you are in the security and emergency
preparedness business, your model
will offer more ways to create value if
you decide you are selling “peace of
mind” than if you choose to sell
“security guard services.”
What is the importance of having a
wholesome and holistic
understanding of business models?
If you understand the general
concept, it will allow you to identify
more specific ways to generate
revenue for your organization. Look
at things this way: individuals who
understand a business model are like
explorers who are aware of their
terrain. Many different routes exist to
get from point A to point B for an
explorer, just as many different plans
exist to generate revenue from a
business model. The key is to select
the best route given the circumstances (and to be able to switch routes if a
roadblock appears). Our business
goal is revenue, which is lifeblood—
especially in a recession.
Is there any difference between a
business model and a business plan?
Few mistakenly suggest that for
entrepreneurship courses, it is
business plan and for strategy course
it is business model. Surely the truth
is something else? Can you elaborate
on the differences between a business
model and a business plan?
A business plan is a specific
enumeration of objectives. Ideally, it
is aligned with a business model that
generates revenue. Picking up on my
example above, a business plan is like
a map across the terrain. The map
gets an explorer from one place to
another, though it often represents
one way of reaching the destination.
Since a business model allows for
many paths, it is possible for
competing organizations to have
different business plans for
succeeding under the same business
model.
Entrepreneurship courses often focus
on business plans because students
have not examined systematically the
point and goal of the business they
have conceived.Whether it is a coffee
shop or the commercialization of a
new nanotechnology product,
success is in the details. As part of
the detailed approach, an
entrepreneur needs to look back at the
business model for the kind of
organization that is envisioned. A
detailed and careful plan will fail,
after all, if the underlying business
model does not generate sufficient
revenue.
