Business Models and Operations
What you must understand
A business model explains how a firm creates, delivers and captures value. Candidates should know the building blocks: value proposition, customer segments, channels, revenue streams, cost structure and key resources. Compare models such as retail, subscription, franchise, e-commerce and manufacturing, and explain why a model suits a particular market.
Operations concerns how inputs become outputs. Understand production processes (job, batch, mass, lean), quality management (quality control versus quality assurance), inventory management (just-in-time versus buffer stock), supply chain design and capacity utilisation. Efficiency (cost per unit) differs from effectiveness (achieving objectives). Technology and automation change both.
Traps in questions
- Confusing efficiency with effectiveness.
- Treating just-in-time as always superior; it reduces holding costs but raises supply disruption risk.
- Describing a business model as a product or a marketing tactic.
- Overlooking that operations decisions affect cost, quality, flexibility and dependability simultaneously.
Worked example
A café considers a subscription coffee offer. Rule of thumb: test the model against value proposition (convenience), revenue stream (recurring income), cost structure (predictable demand but margin pressure) and risk (over-redemption). Conclude with a trade-off, not a one-sided verdict.
Rule of thumb
For operations questions, identify the trade-off (cost versus quality, speed versus flexibility) and justify a choice using the firm's objectives.