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Introduction - a focus on business models
The distinction between a firm's business model and its strategy is an important but often misunderstood one. As [12] Magretta (2002) points out, the business model is the "system, how the pieces of a business fit together" , while a firm's strategy is the choices made about how to deploy that model in the marketplace. Using the example of Wal-Mart the author points out that while geographical positioning of its supermarkets in regional USA was key to that company's strategy, equally important were the innovations that Wal-Mart made to the underlying retail business model.
[12] Magretta (2002) goes on to suggest, using the example of American Express and the invention of the traveller's cheque in the nineteenth century, that: "a successful business model represents a better way than the existing alternatives. It may offer more value to a discrete group of customers. Or it may completely replace the old way of doing things and become the standard for the next generation of entrepreneurs to beat". In particular:
[...] all new business models are variations on the generic value chain underlying all businesses. Broadly speaking, this chain has two parts. Part one includes all the activities associated with making something: designing it, purchasing raw materials, manufacturing and so on. Part two includes all the activities associated with selling something: finding and reaching customers, transacting a sale, distributing the product or delivering the service. A new business model's plot may turn on designing a new product for an unmet need ... Or it may turn on a process innovation, a better way of making or selling or distributing an already proven product or service.
It suggested that it is this day-to-day tactical management of the firm's business model that is just as critical to the firm's long-term success as its market strategy.
Business model issues have not always, however, been accorded this degree of attention and have traditionally been seen as the domain of "operations management". There has been a perception, fairly or not, that operations management has been associated with a narrowly focused emphasis on supply chain efficiency, and in particular efficiency through cost control and savings. There has been a tendency to focus on the scientific management of...