Business Models and Its Applicability for Indian Public Sector Companies

A business model (also called a business design) is the mechanism by which a business intends to generate revenue and profits. It is a summary of how a company plans to serve its customers. It involves both strategy and implementation. It is the totality of:

·        How it defines and differentiates its product offerings

·        How it creates utility for its customers

·        How it acquires and keeps customers

·        How it goes to the market (promotion strategy and distribution strategy)

·        How it defines the tasks to be performed

·        How it configures its resources

·        How it captures profit

Business models converts new technology into economic value. A business model draws on a multitude of business subjects, including economics, entrepreneurship, finance, marketing operations and strategy.

The main components of Business Model are

·        Value proposition

·        Market Segment

·        Value Chain Structure

·        Revenue Generation ad margin

·        Position in value network

·        Competitive strategy

Types of Business Model:

·        The subscription business model

·        The razor and blades business model (bait and hook)

·        The pyramid scheme business model

·        The multi-level marketing business model

·        The network effects business model

·        The monopolistic business model

·        The cutting out the middleman model

·        The auction business model

·        The online auction business model

·        The bricks and clicks business model

·        Loyalty business models

·        Collective business models

·        The industrialization of services business model

·        The servitization of products business model

·        The low-cost carrier business model

·        The online content business model

Applicability of  appropriate Business Model for Indian PSUs

·        Monopolistic Business Model :- It is a nearly a situation in which a single firm is the sole provider of a product or service. Indian PSUs is likely to command such situation for certain capital intensive high end product although Globalized economy can always  throw up challenge.

Pricing Strategy should be to set price where Marginal Cost should be at least equal to Marginal revenue. Reduction of operating cost by virtue of all Management techniques will maximize earning.

It is also often argued that monopolies tend to become less efficient and innovative over time, becoming "complacent giants", because they don't have to be efficient or innovative to compete in the marketplace.  Regulations and creating business focus of the company may have limited instrumentality in arresting such situation.

·        Razor and blades business model  or "tied products model" works by selling a "master" product at a subsidized price, and making the profit on high margin Service/ "consumables" / Spares etc. that are essential to the use of the master product.  Indian PSUs has got the scope to use this business model where it has to compete with International players.

·        The loyalty business model is a business model used in strategic management in which company resources are employed so as to increase the loyalty of customers in the expectation that corporate objectives will be met or surpassed. All encompassing support to the customers are primary requirement for such model. Indian PSUs are better poised in terms of Infra Structure to use such model.

·        Service Quality Model . In it, customer satisfaction is first based on a recent experience of the product or service. This assessment depends on prior expectations of overall quality compared to the actual performance received. If the recent experience exceeds prior expectations, customer satisfaction will likely to be high. Customer satisfaction can also be high even with mediocre performance quality if the customer's expectations are low, or if the performance provides value (that is, it is priced low to reflect the mediocre quality). Likewise, a customer can be dissatisfied with the service encounter and still perceive the overall quality to be good. This occurs when a quality service is priced very high and the transaction provides little value. A an appropriate model for Indian PSUss.

·        Outsourcing  Considerations:- Looking fact that 73% of top global companies outsourced some processes or other, Indian PSUs‘ business strategy should encompass outsourcing philosophy in major scale primarily due to :-

Ø     Concentrate on Focus Areas / Core Competencies.

Ø     Access to World Class Capabilities, rather than possessing them.

Ø     Risks can be shared in terms of Capital Investments, etc

Ø     Reduction in Operating Costs.

Ø     Resources not available internally. Companies outsource because they do not have access to the required resources within the company. Sometimes this is due to expansion or reorganization. It may also be due to changing business requirements.

Ø     Accelerate re-engineering benefits. Outsourcing is often a by-product of another powerful management tool, business process re-engineering. It allows an organization to immediately realize some benefits from this process.

Ø     Cash Infusion. Outsourcing often involves the transfer of assets from the customer to the provider, such as equipment, facilities, leases and licenses.