Business Models

Description of Business Models. Explanation.

Definition Business Models. Description.

Business Models are systems by which businesses can sustain themselves and can achieve their corporate purpose, mission and strategy. It is a description at a strategic levelof the way an organization creates, delivers, and captures economic, social, or other forms of value.

According to Johnson, Christensen and Kagermann (Reinventing your Business Model, HBR Dec 2008, P50-59), a business model consists out of 4 interrelated elements:

Customer Value Proposition. The way to create value for customers, to solve a problem for them.
Profit Formula. How the company creates value for itself while creating value for its customers.
Key Resources. The most important assets to achieve 1 and 2 and their interaction.
Key Processes. The most important routines and tasks to achieve 1 and 2. For example product design and development, purchasing, manufacturing, marketing, IT. But also rules and metrics, such as margin requirements, credit terms and lead times.

Typically a business model takes the form of a company or a Strategic Business Unit.

Examples of business models. Types

Advertising, Affiliate, Auction, Bait and Switch, Bricks and Clicks, Brokerage, Community, Customer Loyalty, Disintermediation, Dutch Auction, Franchising, Industrialization of services, Infomediary, Marketplace, Microfinance, Monopoly, Multi Channel Marketing, Network Effects, Pyramid scheme, various Retail Types, Reverse Auction, Subscription, Utility, etc.

Usage of Business Models. Applications

Describe and classify an entrepreneurial business
Explore possibilities for future development in a mature business
Because the name of a business model is associated with an entire way of doing business, it can be used to refer to a complex organizational setup in a simple way.
As recipes for creative managers

Generic Business Model Template

In their handbook Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, Alexander Osterwalder and Yves Pigneur describe the Business Model Canvas, a generic business model template (picture), which can be used by "visionaries, game changers, and challengers striving to defy outmoded business models and design tomorrow's enterprises" to describe virtually any business model.

This 'Business Model Canvas' has 9 building blocks:

Customer Segments
Value Propositions
Channels (communication, distribution and sales)
Customer Relationships
Revenue Streams (the results from the value propositions to the customer segments)
Key Resources (the assets required to offer and deliver the products / services)
Key Activities
Key Partnerships (Strategic Alliances, Outsourcing)
Cost Structure

Business Models Forum (3)

Operating Model versus Business Model
"How exactly does an operating model differ from a business model? What are the commonalities and differences? What are their key elements?"

Business Models in Developing Countries
"In many developing countries, particularly in Africa, there are lots of idle resources. In these parts of the world, business can be lucrative if it is modeled based on resources that are locally available.
Knowledge about what can be made out of these resources using simple technology can be a good basis to start."

Business Model Innovation
"Hi, it would be great if we could start discussions on business model innovation and changes. The past decade has just scratched the surface of innovative business models. For management consultants, we require tools and methods that would help identify opportunties for business model innovation and also help to measure that. Currently there are very limited thought processes around this idea.
If you know of tools or methods to identify & measure business model innovation, please react. Thanks..."

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