Business model
Encyclopedia
A business model describes the rationale
of how an organization
creates, delivers, and captures value (economic, social, or other forms of value). The process of business model construction is part of business strategy.
In theory and practice the term business model is used for a broad range of informal and formal descriptions to represent core aspects of a business
, including purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies. Hence, it gives a complete picture of an organization from a high-level perspective.
Whenever a business is established, it either explicitly or implicitly employs a particular business model that describes the architecture of the value creation, delivery, and capture mechanisms employed by the business enterprise. The essence of a business model is that it defines the manner by which the business enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit: it thus reflects management’s hypothesis about what customers want, how they want it, and how an enterprise can organize to best meet those needs, get paid for doing so, and make a profit.
Business models are used to describe and classify businesses (especially in an entrepreneurial setting), but they are also used by managers inside companies to explore possibilities for future development. Also, well known business models operate as recipes for creative managers. Business models are also referred to in some instances within the context of accounting for purposes of public reporting.
, a software developer that gives away its document reader free of charge but charges several hundred dollars for its document writer.
In the 1950s, new business models came from McDonald's
Restaurants and Toyota. In the 1960s, the innovators were Wal-Mart
and Hypermarkets. The 1970s saw new business models from FedEx
and Toys R Us; the 1980s from Blockbuster
, Home Depot, Intel, and Dell Computer; the 1990s from Southwest Airlines
, Netflix
, eBay
, Amazon.com
, and Starbucks
.
Today, the type of business models might depend on how technology is used. For example, entrepreneurs on the internet have also created entirely new models that depend entirely on existing or emergent technology. Using technology, businesses can reach a large number of customers with minimal costs.
More recently academics around the world have moved towards simplification of a business model. The term often used out of context has led to it becoming often confused as a concept. Osterwalder(2010) expanded his Phd into a commercial product by simplifying the business modeling into a 9 step process, which can be easily displayed using sticky notes.
Osterwalder's work propose a single reference model, called Business Model Canvas
based on the similarities of a wide range of business model conceptualizations. It is nowadays one of the most used frameworks for describing the elements of business models.
With this business model design template, an enterprise can easily describe their business model. Aspects of the template are Infrastructure, Offering, Customers, Finances, etc.
Such a holistic approach would help clarify both intent and sources of synergy and disconnect between business model, strategy, scorecards, information, innovation, processes and IT systems. This includes architectural alignment as well as business transformation and value and performance views. Such dialogues allow Executives to use the business model with their business alignment.
, such as collective intelligence, network effects, user generated content, and the possibility of self-improving systems. He suggested that the service industry such as the airline, traffic, transportation, hotel, restaurant, Information and Communications Technology and Online gaming industries will be able to benefit in adopting business models that take into account the characteristics of Web 2.0. He also emphasized that Business Model 2.0 has to take into account not just the technology effect of Web 2.0 but also the networking effect. He gave the example of the success story of Amazon in making huge profits each year by developing a full blown open platform that supports a large and thriving community of companies that re-use Amazon’s On Demand commerce services.
et al. at MIT found that some business models, as defined by them, indeed performed better than others in a dataset consisting of the largest U.S. firms, in the period 1998 through 2002, while they did not prove whether the existence of a business model mattered.
The concept of a business model has been incorporated into certain accounting standards. For example, the International Accounting Standards Board
(IASB) utilizes an "entity's business model for managing the financial assets" as a criterion for determining whether such assets should be measured at amortized cost
or at fair value
in its financial instruments accounting standard, IFRS 9. At least two members of the U.S. based Financial Accounting Standards Board
(FASB) have expressed the position that the business model of an entity should be used as a criterion for the classification of financial liabilities.
The concept of business model has also been introduced into the accounting of deferred taxes under International Financial Reporting Standards
with 2010 amendments to IAS 12 addressing deferred taxes related to investment property.
Both IASB and FASB have proposed using the concept of business model in the context of reporting a lessor's lease
income and lease expense within their joint project on accounting for leases. The concept has also been proposed as an approach for determining the measurement and classification when accounting for insurance contract
s. As a result of the increasing prominence the concept of business model has received in the context of financial reporting, the European Financial Reporting Advisory Group (EFRAG), which advises the European Union
on endorsement of financial reporting standards, commenced a project on the "Role of the Business Model in Financial Reporting" in 2011.
Following examples provide an overview for various business model types that have been in discussion since the invent of term business model:
Other examples of business models are:
.
It is important to understand that business modeling commonly refers to business process design
at the operational level, whereas business models and business model design
refer to defining the business logic of a company at the strategic level.
The brand
is a consequence of and has a symbiotic relationship with the business model since the business model determines the brand promise and the brand equity becomes a feature of the model. Managing this is a task of integrated marketing.
The standard terminology and examples of business models do not apply to most nonprofit organization
s, since their sources of income are generally not the same as the beneficiaries. The term funding model is generally used instead.
Explanation
An explanation is a set of statements constructed to describe a set of facts which clarifies the causes, context, and consequencesof those facts....
of how an organization
Organization
An organization is a social group which distributes tasks for a collective goal. The word itself is derived from the Greek word organon, itself derived from the better-known word ergon - as we know `organ` - and it means a compartment for a particular job.There are a variety of legal types of...
creates, delivers, and captures value (economic, social, or other forms of value). The process of business model construction is part of business strategy.
In theory and practice the term business model is used for a broad range of informal and formal descriptions to represent core aspects of a business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
, including purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies. Hence, it gives a complete picture of an organization from a high-level perspective.
Whenever a business is established, it either explicitly or implicitly employs a particular business model that describes the architecture of the value creation, delivery, and capture mechanisms employed by the business enterprise. The essence of a business model is that it defines the manner by which the business enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit: it thus reflects management’s hypothesis about what customers want, how they want it, and how an enterprise can organize to best meet those needs, get paid for doing so, and make a profit.
Business models are used to describe and classify businesses (especially in an entrepreneurial setting), but they are also used by managers inside companies to explore possibilities for future development. Also, well known business models operate as recipes for creative managers. Business models are also referred to in some instances within the context of accounting for purposes of public reporting.
History
Over the years, business models have become much more sophisticated. The bait and hook business model (also referred to as the "razor and blades business model" or the "tied products business model") was introduced in the early 20th century. This involves offering a basic product at a very low cost, often at a loss (the "bait"), then charging compensatory recurring amounts for refills or associated products or services (the "hook"). Examples include: razor (bait) and blades (hook); cell phones (bait) and air time (hook); computer printers (bait) and ink cartridge refills (hook); and cameras (bait) and prints (hook). An interesting variant of this model is AdobeAdobe
Adobe is a natural building material made from sand, clay, water, and some kind of fibrous or organic material , which the builders shape into bricks using frames and dry in the sun. Adobe buildings are similar to cob and mudbrick buildings. Adobe structures are extremely durable, and account for...
, a software developer that gives away its document reader free of charge but charges several hundred dollars for its document writer.
In the 1950s, new business models came from McDonald's
McDonald's
McDonald's Corporation is the world's largest chain of hamburger fast food restaurants, serving around 64 million customers daily in 119 countries. Headquartered in the United States, the company began in 1940 as a barbecue restaurant operated by the eponymous Richard and Maurice McDonald; in 1948...
Restaurants and Toyota. In the 1960s, the innovators were Wal-Mart
Wal-Mart
Wal-Mart Stores, Inc. , branded as Walmart since 2008 and Wal-Mart before then, is an American public multinational corporation that runs chains of large discount department stores and warehouse stores. The company is the world's 18th largest public corporation, according to the Forbes Global 2000...
and Hypermarkets. The 1970s saw new business models from FedEx
FedEx
FedEx Corporation , originally known as FDX Corporation, is a logistics services company, based in the United States with headquarters in Memphis, Tennessee...
and Toys R Us; the 1980s from Blockbuster
Blockbuster (movie rental store)
Blockbuster LLC is an American-based provider of home video and video game rental services, originally through video rental shops , later adding DVD-by-mail, streaming video on demand, and kiosks. At its peak in 2009, Blockbuster had up to 60,000 employees. There are around 1700 Blockbuster...
, Home Depot, Intel, and Dell Computer; the 1990s from Southwest Airlines
Southwest Airlines
Southwest Airlines Co. is an American low-cost airline based in Dallas, Texas. Southwest is the largest airline in the United States, based upon domestic passengers carried,...
, Netflix
Netflix
Netflix, Inc., is an American provider of on-demand internet streaming media in the United States, Canada, and Latin America and flat rate DVD-by-mail in the United States. The company was established in 1997 and is headquartered in Los Gatos, California...
, eBay
EBay
eBay Inc. is an American internet consumer-to-consumer corporation that manages eBay.com, an online auction and shopping website in which people and businesses buy and sell a broad variety of goods and services worldwide...
, Amazon.com
Amazon.com
Amazon.com, Inc. is a multinational electronic commerce company headquartered in Seattle, Washington, United States. It is the world's largest online retailer. Amazon has separate websites for the following countries: United States, Canada, United Kingdom, Germany, France, Italy, Spain, Japan, and...
, and Starbucks
Starbucks
Starbucks Corporation is an international coffee and coffeehouse chain based in Seattle, Washington. Starbucks is the largest coffeehouse company in the world, with 17,009 stores in 55 countries, including over 11,000 in the United States, over 1,000 in Canada, over 700 in the United Kingdom, and...
.
Today, the type of business models might depend on how technology is used. For example, entrepreneurs on the internet have also created entirely new models that depend entirely on existing or emergent technology. Using technology, businesses can reach a large number of customers with minimal costs.
More recently academics around the world have moved towards simplification of a business model. The term often used out of context has led to it becoming often confused as a concept. Osterwalder(2010) expanded his Phd into a commercial product by simplifying the business modeling into a 9 step process, which can be easily displayed using sticky notes.
Business model frameworks
There are various ways to define and conceptualize business models. In the following some of these conceptualizations are introduced.Business model canvas
Osterwalder's work propose a single reference model, called Business Model Canvas
Business Model Canvas
The Business Model Canvas is a strategic management template for developing new or documenting existing business models. It is a visual chart with elements describing a firm's value proposition, infrastructure, customers, and finances...
based on the similarities of a wide range of business model conceptualizations. It is nowadays one of the most used frameworks for describing the elements of business models.
With this business model design template, an enterprise can easily describe their business model. Aspects of the template are Infrastructure, Offering, Customers, Finances, etc.
Other approaches
- Business reference modelBusiness reference modelBusiness reference model is a reference model, concentrating on the functional and organizational aspects of the core business of an enterprise, service organization or government agency....
- Business reference model is a reference model, concentrating on the architecturalBusiness architectureA business architecture is a part of an enterprise architecture related to corporate business, and the documents and diagrams that describe that architectural structure of business...
aspects of the core business of an enterprise, service organization or government agency.- Component business modelComponent business modelComponent Business Model is a technique developed by IBM to model and analyze an enterprise. It is a logical representation or map of business components or "building blocks" and can be depicted on a single page...
- Component business model
- Technique developed by IBMIBMInternational Business Machines Corporation or IBM is an American multinational technology and consulting corporation headquartered in Armonk, New York, United States. IBM manufactures and sells computer hardware and software, and it offers infrastructure, hosting and consulting services in areas...
to model and analyze an enterprise. It is a logical representation or map of business components or "building blocks" and can be depicted on a single page. It can be used to analyze the alignment of enterprise strategy with the organization's capabilities and investmentInvestmentInvestment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
s, identify redundant or overlapping business capabilities, etc.
- Industrialization of services business modelIndustrialization of services business modelThe industrialization of services business model is a business model used in strategic management and services marketing that treats service provision as an industrial process, subject to industrial optimization procedures...
- Business model used in strategic management and services marketing that treats service provision as an industrial process, subject to industrial optimization procedures
Business Modelling
Business Modelling is an important tool to both capture, design, innovate and transform the business. However, in order to transform ones organization and align them to ones business model, a business model should not be seen separately, but in connection with:- The main business goals of the organization, e.g. strategic business objectives, critical success factors and key performance indicators, which a holistic business model approach should include.
- The main business Issues/pain points and thereby organizational weakness, which a holistic business model approach should include for they represent the threat to the company’s business model.
- A clear cause and effect linkages between the competencies, desired outcomes and performance measurements e.g. scorecards.
- An emphasis on business model management and thereby a continuous improvement and governance approach to the business model.
- The business maturity level, in order to develop the organization representation of core differentiated and core competitive competencies [linked to strategy], which is a basis for building a business model as they the represent some of the most important sources of uniqueness. These are the things that a company can do uniquely well, and that no-one else can copy quickly enough to affect competition.
- Linkages among competences and competency development.
- The possible value creation and realization of the organization.
- The information flow, and thereby information need for effective and efficient decision making.
Such a holistic approach would help clarify both intent and sources of synergy and disconnect between business model, strategy, scorecards, information, innovation, processes and IT systems. This includes architectural alignment as well as business transformation and value and performance views. Such dialogues allow Executives to use the business model with their business alignment.
Business Model 2.0
Chen (2009) pointed out that the business model in the twenty-first century has to take into account the capabilities of Web 2.0Web 2.0
The term Web 2.0 is associated with web applications that facilitate participatory information sharing, interoperability, user-centered design, and collaboration on the World Wide Web...
, such as collective intelligence, network effects, user generated content, and the possibility of self-improving systems. He suggested that the service industry such as the airline, traffic, transportation, hotel, restaurant, Information and Communications Technology and Online gaming industries will be able to benefit in adopting business models that take into account the characteristics of Web 2.0. He also emphasized that Business Model 2.0 has to take into account not just the technology effect of Web 2.0 but also the networking effect. He gave the example of the success story of Amazon in making huge profits each year by developing a full blown open platform that supports a large and thriving community of companies that re-use Amazon’s On Demand commerce services.
Complementarities of business models between partnering firms
Studying collaborative research and the accessing of external sources of technology, Hummel et al. (2010) found that in deciding on business partners, it is important to make sure that both parties’ business models are complementary. For example, they found that it was important to identify the value drivers of potential partners by analyzing their business models, and that it is beneficial to find partner firms that understand key aspects of our own firm’s business model.Applications
MaloneThomas W. Malone
Thomas W. Malone is the Patrick J. McGovern Professor of Management at the MIT Sloan School of Management. He is also the founder and director of the MIT Center for Collective Intelligence and was one of the two founding co-directors of the MIT Initiative on "Inventing the Organizations of the...
et al. at MIT found that some business models, as defined by them, indeed performed better than others in a dataset consisting of the largest U.S. firms, in the period 1998 through 2002, while they did not prove whether the existence of a business model mattered.
The concept of a business model has been incorporated into certain accounting standards. For example, the International Accounting Standards Board
International Accounting Standards Board
The International Accounting Standards Board is an independent, privately funded accounting standard-setter based in London, England.The IASB was founded on April 1, 2001 as the successor to the International Accounting Standards Committee...
(IASB) utilizes an "entity's business model for managing the financial assets" as a criterion for determining whether such assets should be measured at amortized cost
Amortization (business)
In business, amortization refers to spreading payments over multiple periods. The term is used for two separate processes: amortization of loans and amortization of intangible assets.-Amortization of loans:...
or at fair value
Fair value
Fair value, also called fair price , is a concept used in accounting and economics, defined as a rational and unbiased estimate of the potential market price of a good, service, or asset, taking into account such objective factors as:* acquisition/production/distribution costs, replacement costs,...
in its financial instruments accounting standard, IFRS 9. At least two members of the U.S. based Financial Accounting Standards Board
Financial Accounting Standards Board
The Financial Accounting Standards Board is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles within the United States in the public's interest...
(FASB) have expressed the position that the business model of an entity should be used as a criterion for the classification of financial liabilities.
The concept of business model has also been introduced into the accounting of deferred taxes under International Financial Reporting Standards
International Financial Reporting Standards
International Financial Reporting Standards are principles-based standards, interpretations and the framework adopted by the International Accounting Standards Board ....
with 2010 amendments to IAS 12 addressing deferred taxes related to investment property.
Both IASB and FASB have proposed using the concept of business model in the context of reporting a lessor's lease
Lease
A lease is a contractual arrangement calling for the lessee to pay the lessor for use of an asset. A rental agreement is a lease in which the asset is tangible property...
income and lease expense within their joint project on accounting for leases. The concept has also been proposed as an approach for determining the measurement and classification when accounting for insurance contract
Insurance contract
In insurance, the insurance policy is a contract between the insurer and the insured, known as the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for payment, known as the premium, the insurer pays for damages to the insured which are caused by...
s. As a result of the increasing prominence the concept of business model has received in the context of financial reporting, the European Financial Reporting Advisory Group (EFRAG), which advises the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
on endorsement of financial reporting standards, commenced a project on the "Role of the Business Model in Financial Reporting" in 2011.
Examples of Business models
In the early history of business models it was very typical to define business model types such as bricks-and-mortar or e-broker. However, these types usually describe only one aspect of the business (most often revenue model). Therefore, more recent literature on business models concentrates on describing business model as a whole instead of one most visible aspect.Following examples provide an overview for various business model types that have been in discussion since the invent of term business model:
- Bricks and clicks business modelBricks and clicksBricks and clicks is a business model by which a company integrates both offline and online presences, sometimes with the third extra flips...
- Business model by which a company integrates both offline (bricks) and online (clicks) presences. One example of the bricks-and-clicks model is when a chain of stores allows the user to order products online, but lets them pick up their order at a local store.
- Collective business modelsCollective business systemA collective business system or collective business model is a business organization or association typically composed of relatively large numbers of businesses, tradespersons or professionals in the same or related fields of endeavor, which pools resources, shares information or provides other...
- Collective business models
- Business organization or association typically composed of relatively large numbers of businessBusinessA business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
es, tradespersons or professionalProfessionalA professional is a person who is paid to undertake a specialised set of tasks and to complete them for a fee. The traditional professions were doctors, lawyers, clergymen, and commissioned military officers. Today, the term is applied to estate agents, surveyors , environmental scientists,...
s in the same or related fields of endeavor, which pools resources, shares information or provides other benefits for their members.- Cutting out the middlemanDisintermediationIn economics, disintermediation is the removal of intermediaries in a supply chain: "cutting out the middleman". Instead of going through traditional distribution channels, which had some type of intermediate , companies may now deal with every customer directly, for example via the Internet...
model
- Cutting out the middleman
- The removal of intermediariesIntermediaryAn intermediary is a third party that offers intermediation services between two trading parties. The intermediary acts as a conduit for goods or services offered by a supplier to a consumer...
in a supply chainSupply chainA supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to...
: "cutting out the middleman". Instead of going through traditional distribution channels, which had some type of intermediate (such as a distributorDistribution (business)Product distribution is one of the four elements of the marketing mix. An organization or set of organizations involved in the process of making a product or service available for use or consumption by a consumer or business user.The other three parts of the marketing mix are product, pricing,...
, wholesaler, broker, or agentAgency (law)The law of agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-contractual set of relationships when a person, called the agent, is authorized to act on behalf of another to create a legal relationship with a third party...
), companies may now deal with every customer directly, for example via the Internet.- Direct sales modelDirect sellingDirect selling is the marketing and selling of products directly to consumers away from a fixed retail location. Peddling is the oldest form of direct selling. Modern direct selling includes sales made through the party plan, one-on-one demonstrations, and other personal contact arrangements as...
- Direct sales model
- Direct selling is marketing and selling products to consumers directly, away from a fixed retail location. Sales are typically made through party planParty planThe party plan is a method of marketing products by hosting what is presented as a social event at which products will be offered for sale. It is a form of direct selling...
, one to one demonstrations, and other personal contact arrangements. A text book definition is: "The direct personal presentation, demonstration, and sale of products and services to consumers, usually in their homes or at their jobs."- Distribution business modelsDistribution (business)Product distribution is one of the four elements of the marketing mix. An organization or set of organizations involved in the process of making a product or service available for use or consumption by a consumer or business user.The other three parts of the marketing mix are product, pricing,...
, various - Fee in, free outFee in, free outFee in, free out is a business model which works by charging the first client a fee for a service, while offering that service free of charge to subsequent clients. The model is appropriate in business environments where there is a one-time cost to develop a product or service but little or no...
- Distribution business models
- Business model which works by charging the first client a fee for a service, while offering that service free of charge to subsequent clients.
- FranchiseFranchisingFranchising is the practice of using another firm's successful business model. The word 'franchise' is of anglo-French derivation - from franc- meaning free, and is used both as a noun and as a verb....
- Franchise
- Franchising is the practice of using another firm's successful business model. For the franchisor, the franchise is an alternative to building 'chain stores' to distribute goods and avoid investment and liability over a chain. The franchisor's success is the success of the franchisees. The franchisee is said to have a greater incentive than a direct employee because he or she has a direct stake in the business.
- Freemium business modelFreemiumFreemium is a business model that works by offering a product or service free of charge while charging a premium for advanced features, functionality, or related products and services...
- Freemium business model
- Business model that works by offering basic Web services, or a basic downloadable digital product, for free, while charging a premium for advanced or special features.
Other examples of business models are:
- Auction business model
- All-in-one business model
- Chemical LeasingChemical leasingIn the chemical industry, chemical leasing is a business model in which the chemical company supplies a substance for a specific service, but retains ownership of the chemical. It is intended to shift the focus from increasing sales volume of chemicals towards a value added approach...
- Low-cost carrier business modelLow-cost carrierA low-cost carrier or low-cost airline is an airline that generally has lower fares and fewer comforts...
- Loyalty business modelLoyalty business modelThe 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 and other stakeholders in the expectation that corporate objectives will be met or surpassed...
s - Monopolistic business modelMonopolyA monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
- Multi-level marketing business modelMulti-level marketingMulti-level marketing is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a downline of distributors and a hierarchy of multiple levels of compensation...
- Network effects business modelNetwork effectIn economics and business, a network effect is the effect that one user of a good or service has on the value of that product to other people. When network effect is present, the value of a product or service is dependent on the number of others using it.The classic example is the telephone...
- Online auction business modelOnline auction business modelThe online auction business model is one in which participants bid for products and services over the Internet. The functionality of buying and selling in an auction format is made possible through auction software which regulates the various processes involved.Several types of online auctions are...
- Online content business model
- Premium business modelPremium business modelThe premium business model is the concept of offering high end products and services appealing to discriminating consumers. Brand image is an important factor in the premium business model, as quality is often a subjective matter...
- Professional open-source modelProfessional open-sourceProfessional open-source is an open source software business model where an open source software vendor generates revenue from paid professional services, maintenance and support provided along with the software...
- Pyramid scheme business modelPyramid schemeA pyramid scheme is a non-sustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public...
- Razor and blades business modelFreebie marketingFreebie marketing, also known as the razor and blades business model, is a business model wherein one item is sold at a low price in order to increase sales of a complementary good, such as supplies or software...
- Servitization of products business modelService economyService economy can refer to one or both of two recent economic developments. One is the increased importance of the service sector in industrialized economies. Services account for a higher percentage of US GDP than 20 years ago...
- Subscription business modelSubscription business modelThe subscription business model is a business model where a customer must pay a subscription price to have access to the product/service. The model was pioneered by magazines and newspapers, but is now used by many businesses and websites....
Related concepts
The process of business model design is part of business strategy. The implementation of a company's business model into organisational structures (e.g. organigrams, workflows, human resources) and systems (e.g. information technology architecture, production lines) is part of a company's business operationsBusiness operations
Business operations are those ongoing recurring activities involved in the running of a business for the purpose of producing value for the stakeholders...
.
It is important to understand that business modeling commonly refers to business process design
Business process
A business process or business method is a collection of related, structured activities or tasks that produce a specific service or product for a particular customer or customers...
at the operational level, whereas business models and business model design
Business model design
Business model design refers to the activity of designing a company's business model. It is part of the business development and business strategy process and involves design methods.Business model design includes the modeling and description of a company's:...
refer to defining the business logic of a company at the strategic level.
The brand
Brand
The American Marketing Association defines a brand as a "Name, term, design, symbol, or any other feature that identifies one seller's good or service as distinct from those of other sellers."...
is a consequence of and has a symbiotic relationship with the business model since the business model determines the brand promise and the brand equity becomes a feature of the model. Managing this is a task of integrated marketing.
The standard terminology and examples of business models do not apply to most nonprofit organization
Nonprofit organization
Nonprofit organization is neither a legal nor technical definition but generally refers to an organization that uses surplus revenues to achieve its goals, rather than distributing them as profit or dividends...
s, since their sources of income are generally not the same as the beneficiaries. The term funding model is generally used instead.
See also
- Business model designBusiness model designBusiness model design refers to the activity of designing a company's business model. It is part of the business development and business strategy process and involves design methods.Business model design includes the modeling and description of a company's:...
- Business planBusiness planA business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals....
- Business process modelingBusiness process modelingBusiness Process Modeling in systems engineering is the activity of representing processes of an enterprise, so that the current process may be analyzed and improved. BPM is typically performed by business analysts and managers who are seeking to improve process efficiency and quality...
- Business reference modelBusiness reference modelBusiness reference model is a reference model, concentrating on the functional and organizational aspects of the core business of an enterprise, service organization or government agency....
- Business ruleBusiness ruleA Business rule is a statement that defines or constrains some aspect of the business and always resolves to either true or false. Business rules are intended to assert business structure or to control or influence the behavior of the business. Business rules describe the operations, definitions...
- Competitive advantage
- Core competencyCore competencyA core competency is a concept in management theory originally advocated by CK Prahalad, and Gary Hamel, two business book writers. In their view a core competency is a specific factor that a business sees as being central to the way it, or its employees, works...
- Growth platformsGrowth PlatformsGrowth platforms are specific named initiatives selected by a business organization to fuel their revenue and earnings growth.Growth platforms may be strategic or tactical. Strategic growth platforms are longer term initiatives where the initiative and results span multiple years -- usually from 3...
- Market forms
- MarketingMarketingMarketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
- Marketing planMarketing planA marketing plan may be part of an overall business plan.Solid marketing strategy is the foundation of a well-written marketing plan. While a marketing plan contains a list of actions, a marketing plan without a sound strategic foundation is of little use....
- Strategic managementStrategic managementStrategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments...
- Strategic planningStrategic planningStrategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. In order to determine the direction of the organization, it is necessary to understand its current position and the possible avenues...
- Strategy dynamicsStrategy dynamicsThe word ‘dynamics’ appears frequently in discussions and writing about strategy, and is used in two distinct, though equally important senses.The dynamics of strategy and performance concerns the ‘content’ of strategy – initiatives, choices, policies and decisions adopted in an attempt to improve...
- Value migrationValue migrationIn marketing, value migration is the shifting of value-creating forces. Value migrates from outmoded business models to business designs that are better able to satisfy customers' priorities....
- The Design of BusinessThe Design of BusinessThe Design of Business: Why Design Thinking is the Next Competitive Advantage is a book published in November 2009 by Roger Martin, a professor at the University of Toronto's Rotman School of Management...
Further reading
- 'The Business Model: Theoretical Roots, Recent Developments, and Future Research', C. Zott, R. Amit, & L.Massa., WP-862, IESE, June, 2010 - revised September 2010 [http://www.iese.edu/research/pdfs/DI-0862-E.pdf]
- "Special Issue on Business Models" Long Range Planning, vol 43 April 2010, that includes 19 pieces by leading scholars on the nature of business models
- The Role of the Business Model in capturing value from Innovation: Evidence from XEROX Corporation’s Technology Spinoff Companies., H. Chesbrough and R. S. Rosenbloom , Boston, Massachusetts, Harvard Business School, 2002.
- Leading the revolution., G. Hamel, Boston, Harvard Business School Press, 2000.
- Changing Business Models: Surveying the Landscape, J. Linder and S. Cantrell, Accenture Institute for Strategic Change, 2000.
- Developing Business Models for eBusiness., O. Peterovic and C. Kittl et al., International Conference on Electronic Commerce 2001, 2001.
- Place to space: Migrating to eBusiness Models., P. Weill and M. R. Vitale, Boston,Harvard Business School Press, 2001.
- Value-based Requirements Engineering - Exploring Innovative e-Commerce Ideas, J. Gordijn, Amsterdam, Vrije Universiteit, 2002.
- Internet Business Models and Strategies, A. Afuah and C. Tucci, Boston, McGraw Hill, 2003.
- Focus Theme Articles: Business Models for Content Delivery: An Empirical Analysis of the Newspaper and Magazine Industry, Marc Fetscherin and Gerhard Knolmayer, International Journal on Media Management, Volume 6, Issue 1 & 2 September 2004 , pages 4 – 11, September 2004.
- Business Model Generation, A. Osterwalder, Yves Pigneur, Alan Smith, and 470 practitioners from 45 countries, self published, 2009
- Sustaining Digital Resources: An on-the-ground view of projects today, Ithaka, November 2009. Overview of the models being deployed and analysis on the affects of income generation and cost management.