Article Review: Why Business Models Matter

In the business world, strategy is probably the most often used and the most often confused term. The article ‘Why Business Models Matter’ clarifies and elaborates on crucial element of any organization. The Author, who also wrote, ‘What Management is’ asserts that the business model and strategy is the basis of any organization whether it be profit or non-profit. Magretta shows the outlines of business model and strategy. To make a big success in business, the first step is making a business model, when making a new business model, managers must think about all possible outcomes. She goes on further in the article to give examples successful organizations and their use of strategies to compete within the industry.

Defining the Business Model

Margretta starts out by asking the fundamental question presented by Peter Drucker: Who is the customer and what do they value? Anybody who has taken an elementary business course must have heard of this question before. It is very surprising to know that many firms fail to create value because they were unable to answer and act upon the answers to these two simple and straight-forward questions.

As defined in ‘What Management is,’ a business model is a set of assumptions about how an organization will perform by creating value for all the players on whom it depends. Given in the Dell example, a business model is a result of selecting the best model from a pool of many

alternatives. Traditionally, Dell has driven its profits through the innovative strategy of selling directly to customers. They only started building the product after they were ordered. After the customer placed orders, the factories (owned by the company) would assemble the parts and would be shipped directly from there. This enabled Dell to reduce unnecessary inventory and improved Dell’s cash flow. This unique business model differed significantly from the majority of players in the PC manufacturing industry. It offered value to a different set