Relationship between Business Models, Theories and Techniques

Introduction Theories and model has been a part of organisations for centuries, whether it s a profit oriented organisation or not; theories, models and techniques are used for day to day decision making and problem solving. The objective of this essay is to critically assess the relationship between Business models (representation, an explanation or a simplified description), theories (system of ideas based on general principles) and techniques (means to facilitate an activity) and the practical benefit and application of such models. The study is based on three Business elements; marketing, motivation and business environment. Marketing Product life cycle theory Every firm and organization has a range or portfolio of products, and each of these products may be at different stage in its life cycle (Baker, 1996).
A business will stand to earn crucial advantage over it competitors, if it can determine when to launch a new product or update an existing one. For instance, it will be a very cynical error for a firm to allow its existing models (cars or computer) in the market when its competitor are introducing attractive or revamped one. This theory likened the life of a product to that of Humans. Like human

beings, products also have their own life-cycle. From birth to death human beings pass through various stages e.g. birth, growth, maturity, decline and death. A similar life-cycle is seen in the case of products. The product life cycle goes through multiple phases, involves many professional disciplines, and requires many skills, tools and processes. Product life cycle (PLC) has to do with the life of a product in the market with respect to business costs, market share and sales measures. An awareness of the product life cycle will inform managers to
use the best business model and strategies in managing those products. It is recognition of this

cycles that the Boston consulting group develop a procedure for analyzing individual and collective performance of products in a portfolio. It is known as the Boston Matrix .

The Boston Matrix The Boston Matrix methodology is based on the product life cycle theory. This matrix can be used to determine a firm s product position in the market in terms of market share and

sales are high relative to the market and promotional cost are likely to be growth. (www.valuebasemanagement. and low-growth product that will generate a lot of cash. as a result of high consumer awareness . It can also be used to determine what priorities should be given in the product portfolio of a business unit. the product is a cash cow. .net) Cash cow: if a product has a high share in a low-growth (possibly a declining) market. The firm needs to get the profit they can get from that product in order to invest on other products in the portfolio. As Peter. He also noted that. To ensure a long term value creation. (2002) noted. an organisation needs to have a portfolio of products that contains both high-growth product that needs cash input. Below is the representation of the Boston Matrix. this type of product create a high positive cash flow and is profitable .

It is going to be difficult to make any profit. differentiating the product as well as to reinforce its brand image. (2002) noted that No techniques can guarantee business success this depends on the accuracy of the analysis by marketing managers and the skills they possess in employing the appropriate marketing strategies . It is mostly a new product launched into the market.Star: products that are having a considerable high share in a high-growth market. Problem child: product that has a low share in a high-growth market is term as problem child . That way. Market growth is not the only indicator for attractiveness of a market. These Products should be regarded as star products. It is worth doing something to get a better share. Investing on these products will generate more income for the firm. they may need to replaced shortly. Even though high market share is a sign of growth. (2002 pg. Because this is a high-growth (fast changing) market. or firm could decide to withdraw from this market sector altogether and position itself into faster growing sector . There is the need for the firm to maintain the market position of this product. This becomes a problem that needs to be solved. Peter. In contrast to this. it seems plausible to argue that the Boston matrix has its own limitation. The finance for this product could come from the cash cow. Because market presence is weak. and helps them analyze which segments of the business are in a good position. rather than increasing profit they absorb money. this is going to need a heavy promotion cost to help become established. sometimes Dog can attract even more cash as cash cow. and where best to allocate resources. and which ones aren t. it is going to take large investment and hard work to get noticed. Dog: These are products a firm should not keep because they have a low share in a lowgrowth market. Techniques Peter.173) rightly noted. Criticism The Boston matrix provide useful ways of looking at the opportunities open to a firm. One of such techniques is the Marketing mix. it not all the success factor. they can decide on the best investment strategy for the business in the future. . promotion should be high.

higher value relationship with y Place: this is the distribution methods and the location of the organization. Promotion: this is the process of creating awareness of a product to its targeted market or audience. promotion and place). it can be argued that the model is biased toward consumer markets and physical goods and works less well with industrial products and services where interaction and relationships are more important. It is important that the marketing mix or the four P s be reviewed regularly to take into account changes in customer needs. y y y Product: comprises of the tangible and intangible benefit of a product. Price: determining the appropriate pricing structure and strategy for a product.provenmodels. However on closer inspection. 1960). Neil Borden redefined the position of the marketing manager by introducing "marketing mix" as an integrated set of marketing "tactics" to realise organisational objectives and create a closer. Motivation . (Jerome. positioning and targeted market. Criticism It is often argued that the marketing mix simplicity allows for fast adaption. The marketing mix is also known as the four (4) P s (product. and at the same time its scope is wide enough to help coordinate intelligent decision for product introduction. price.Marketing mix: In the early 1950s. Basically it is making the product available to the customers (http://www.

high turnover and a conflict-driven relationship between management and staff were caused by improper production and organisation methods. the American engineer. He paved the way for the development of Ford's T-Ford assembly line in the 1920s.System theory of management The system approach attempt to bring to reconciliation the two earlier approaches to management. where Fredrick Taylor increased production to over 350 percent at the same time reducing workers by about 75 percent. 2002 pg. and production had to be discovered. 1911). At the turn of the 20th century. by portraying organisation as socio-technical system interacting with their environment . Frederick Winslow Taylor. compensation. The "one best way" to execute such basic managerial functions as selection. Worthington et al. promotion. Scientific Management could greatly increase productivity. (Taylor. the human approaches emphasised the psychological and social aspects and the consideration of human needs people without organisation (Laurie. people and technology. an essential tool in job design efforts. training. proposed scientific methodologies to improve the productivity of shop floors at large plants. Scientific Management was internally oriented where optimising current resources was more important than effectively allocating . Herbert Simon in 1950 criticised Taylor believes that there was a best way to do anything . (2009) also noted that system approaches to organisation and management have help to integrate previous work on structures. Taylor's methodology was the first to use statistical control to analyse work and provided a basis for time motion studies. applied and checked on a continuous basis (Taylor. these are the classical and human relations. Basically one profound example is the Bethlehem Iron company.68). He argued that labour problems such as low productivity. physical work through pre-described activities and close supervision. Criticism When properly applied to large production systems. 1911) In contrast to the above view points. The classical approach emphasised the technical requirements of the organisation and its needs organisation without people . The aim of Scientific Management was to increase efficiency from specialised.

desires.resources over time. Taylor argued that firms must always increase their size to maximize advantages from division of labour and specialization of tasks. He neglected the issue of organisational restructuring required by changes in customer needs. He assumed that all humans have an inner core based on the sum of an individual's feelings. Motivation is required to undertake action.adam-mcfarland. Maslow Hierarchy of needs Psychologist Abraham Maslow studied human motivation from the 1940s until his death in 1970. The win-win situation between workers and managers as Taylor envisioned did not materialise. Most trade unions saw the method as dehumanising workers and undermining the value of craftsmanship. His Hierarchy of Needs explains motivation and behaviour as the result of different fundamental needs that drive individuals. and wants. emotions. . He classified this sum into five groups calling it the Hierarchy of Needs: (www.

Value chain analysis: Value chain analysis helps identify an organisation s core competence and distinguishing those activities that drives competitive advantage (Porter. Techniques Job rotation: Job rotation involves the movement of employees through a range of jobs in order to increase interest and motivation. It can be argued that doing the same type of job or task over time may result to losing interest in doing that task. jobs must continually offer challenges and opportunities for fulfilment otherwise regression will occur . suppliers. Internal environments and Micro external environment: The internal environment constitutes variables and forces within the control of the organisation. and its culture. Peter. Self actualisation is never permanently achieving. The Micro external environments on the other hand comprises of activities of marketing intermediaries. In order to keep employees away from complacency and boredom. customers. Maslow regarded culture as one of the influencing factors that can cause a change in the Hierarchy's order. The two environments to business are the internal and external environments. These variables are. 1958). the organisation mission statement. conditions. entities. these environments directly and indirectly affects the way those businesses function. its philosophy. Other variables include. and competitors. Michael Porter published the Value Chain Analysis in 1985 as a response to criticism that his Five Forces framework lacked an implementation methodology that bridged the gap between . (2002) noted that. events. Business environments Every Business operates within an environment. companies. but the model does not take into account cultural differences. leadership style. and factors within an organization which influence its activities and choices. organisation uses the Job rotation techniques to stimulate the minds of their staffs through diversity of challenge. particularly the behaviour of the employees.Criticism It has been argued that not everyone has the same needs as it is assumed by the hierarchy.

3. packaging and assembly. The core concept for this model is Value. Firm infrastructure: this includes activities like. training and promotion of staffs from different levels. activities from. At each stage of the value chain there exists an opportunity to contribute positively to the firm s competitive strategy by performing some activity or process in a way that is better than the competitors.internal capabilities of an organisation and opportunities available in a competitive environment. This framework (value chain analysis) focused on industry attractiveness as a determinant of the profit potential of all companies within that particular industry. advertisement. Porter's strength was shown in his ability to condense this activity based cost analysis into a generic template consisting of five primary activities and four support activities. That can be explained either by the company's participation in a successful strategic group or by its specific competitive advantages. 3. 1. 4. investor s relations. significant differences in performance exist between companies operating within the same industry. inventory control. order processing. Human resources management: recruitment. transportation and distribution. 2. product and process development. testing and maintenance. The nine activity groups are: 1. Inbound logistics: these includes. planning. Service: these include. 1985). transportation. However. selling. Outbound logistics: outbound logistics are issues involving product distribution chain. . installations spare parts management and servicing. Operations: An operational activity includes. promotions. 4. 5. 2. warehousing. material handling and warehousing. Technology development: research and development. legal. and so providing some uniqueness or advantage (Porter. The other four supporting activities are. Marketing and sales: activities like. pricing and channel management. machine operating. Procurement: supplier contract negotiations and purchasing raw materials. and finance and general management.

To argue is insufficient but it is necessary to consider the following.Michael E. Porter. y The Value Chain model was intended as a quantitative analysis. However on closer inspection it is worth considering that the Value chain analysis has its own short falls. to think about relationships between activities and to link the value chain to the understanding of an organisation's competitive position in the industry. Porter tried to overcome the limitations of portfolio planning in multidivisional organisations. (1985) Criticism y Porter emphasised the importance of grouping and regrouping functions into activities to produce. This excludes other assumptions such as customer bonding in Alexander Hax's delta model (Hax believes . An organisation's strengths and weaknesses can only be identified in relation to the profiles of its direct competitors. y The Value Chain is used to analyse a firm's position in relation to its direct competitors with the assumption that rivalry drives profitability. y The value chain made clear that an organisation is multifaceted and that its underlying activities need to be analysed to understand its overall competitive position. It can also be used as a quick scan to describe the strengths and weaknesses of an organisation in qualitative terms. market. deliver and support products. y With the Value Chain Analysis.

changes in political institutions and the direction of political processes. As much as organizations can have a little control on the Micro-external environments. it defines or creates the structure of the market place within which organisations operate. Conducting a strategic analysis entails scanning through the macro-economic environment to detect and understand long term trends. and the overall regulatory climate. economic issues. Customer value chains need to be analysed to determine where value is created. socio cultural influences. A feature or product provides the firm with a differentiating competitive advantage only if customers are willing to pay for it. demographic trends. they have no control in any way on the elements that make up the Macro-external environments. External environment (Macro) PESTLE analysis is a useful tool for understanding the industry situation as a whole. Macro environment which encompasses the broad environmental system within which organisations conduct its business. technological trends and natural factors. y The Value Chain Analysis should be accompanied with a customer segmentation analysis to mix the internal and external view. Political Relates to the pressures and opportunities brought by changes of the government and public attitudes toward the industry. y The quantitative analysis is time consuming since it often requires recalibrating the accounting system to allocate costs to individual activities. but environmental factors can affect the profitability of an industry or an organisation. The elements that make up the Macro environment consist of political and legal issues. How changes in government policy might affect the business. 1.a firm owes itself to its customers and they are the ultimate repository of all the firm activities). and is often used in conjunction with a SWOT analysis to assess the situation of an individual business. Economic . An organisation on its own cannot affect environmental factors. 2. legal issues.

These variables impact differently on different industries. desire goal or objectives must be first stated. the nation's economic policies and performance. 3. weaknesses. ethical beliefs. etc. interest and inflation rates. currents products improve and the cost of production gets reduced by process innovation. Technological This Refers to changes in technology that can affect the firm's competitive position. demographics. etc. Techniques Swot analysis: This is a planning method use to evaluate the strength. 5. exchange rates. For instance changes in employment laws on working hours. It involves specifying objectives of a business at the same time identifying the internal and external elements that will affect the business both positive and negative in the race to attain its stated objectives. In order for a swot analysis to be useful. opportunities and treat to a business. education levels. Ethical This are issues regarding what are morally right or wrong for a business to do? For instance should an organisation trade with countries which have a poor record on human rights? Or should it do business with countries or organisations that uses child labour? 6. level of differentiation in lifestyle. Social This Refers to cultural attitudes. The swot analysis is a . while neutralizing its treat and avoiding its weakness. new strategic groups emerge. Industries merge. the best strategies accomplish an organisation mission by exploiting an organisation opportunity and strength. 4. Legal This refers to the way in which legislation in society affects the business. Observing social factors helps organisations maintain their reputation among stakeholders. In Swot analysis. shared values.This Refers to economic factors and structures and such variables like the stock exchange.

Macmillan business. Prentice Hall Peter Stimpson. Prentice Hall Frederick Winslow Taylor. marketing. University Press. (2009) The Business Environment . Cambridge Roger I. R. Baker. and Pickton. Masterson. Porter. and Britton C. (1911): The principles of scientific management. (1996). 6th ed. (1985): competitive advantage. Mullins. (2002): Business studies. (2002): strategic and competitive analysis. Prentice Hall Michael E. Fleisher and Babette E.technique that can be use to summarise an organisation s internal and external environments. (2004) marketing: an introduction . Prentice Hall . References Craig S.6th ed. D. core concept. Bensoussan. Free press Michael J. a Managerial Approach. (2002): Management and organisational behaviour. Palgrave Macmillan Worthington I. Cartwright. creating and sustaining superior performance. McGraw Hill. McGraw Hill Laurie J. (1960): Basic Marketing. an introductory text: sixth ed. Harper & Row Jerome E. (2001): Mastering the business environment. Maidenhead Pankaj Ghemawat. (2001): strategy and business landscape. McCarthy.

Sign up to vote on this title
UsefulNot useful