Business Models

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Description of Business Models. Explanation.


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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 level of the way an organization creates, delivers, and captures economic, social, or other forms of value. They apply to commercial, not-for-profit and government organisations.

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

  1. Customer Value Proposition. The way to create value for customers, to solve a problem for them.

  2. Profit Formula. How the company creates value for itself while creating value for its customers.

  3. Key Resources. The most important assets to achieve 1 and 2 and their interaction.

  4. 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, Freemium, etc.

Usage of Business Models. Applications

  • Describe and classify an entrepreneurial business
  • Explore possibilities for future development in a mature business
  • Determine where to make strategic investments and pathways for change
  • As part of a lean start up development methodology
  • Identify risks, compare sensitivities
  • 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

Business Model CanvasGeneric 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:

  1. Customer Segments
  2. Value Propositions
  3. Channels (communication, distribution and sales)
  4. Customer Relationships
  5. Revenue Streams (the results from the value propositions to the customer segments)
  6. Key Resources (the assets required to offer and deliver the products / services)
  7. Key Activities
  8. Key Partnerships (Strategic Alliances, Outsourcing)
  9. Cost Structure

Value proposition Canvas

Alexander has added to this work with a sub-canvas which is used to ensure alignment between the customers “jobs to be done” and the organization's value propositions. He originally referred to this as the Customer Value Canvas. The Value Proposition Canvas is used to test the known and anticipated customer needs against the organization's offerings by looking at how the organization creates “gains” and eliminates “pains” for the customer.


Business Models Forum
  Business Model Examples for Online Shops
Hello :) I'm an accountancy student. We have this requirement where we'd have to insert a business model for the case study we are working on. My case study is all about an online shop (business) of a student. What business model can you recommend th...
  Mastercard and Business Model Innovation
Strategyzer are reporting that Mastercard has rolled out business modeling across their organisation with a 1000 people all speaking the same innovation and strategy language.
Sounds like a great way of getting common language collaboration acro...
  Barriers to Business Model Innovation
Due to fast technological developments and innovations, firms need to be able to quickly adapt to changes in the competitive environment. This is the reason why Business Model Innovation (BMI) has gained importance. BMI refers to the discovery of new...
  Innovation and the Need for Business Model Reinvention
In cases of major product/technical/process innovation, it is often necessary for organizations to also adapt or reinvent their business model. Why is the reinvention of a business model in case of innovation often necessary?
  1. MAXIMIZI...
  Business Model Canvas in Multi-sided Markets
The business model canvas is useful also in multi sided markets, that is one where there are more than a single customer. Such as real estate or travel.
In this case you build your model for each "side" and if needed also employ the value propos...
  Key Elements of a Business Model
In my view, a business model has six key elements:
1. Growth strategies
2. Value proposition
3. Market segments
4. Value chain structure
5. Revenue model
6. Competitive strategy
Any builds / reactions?...
  Definition of a Business Model is Ambiguous
In studying or analyzing something, a clear-cut definition of the concept or term is required.
As far as 'Business Model' is concerned, it is one term with many meanings.
I therefore recommend to use 'business paradigm' as a new terminology...
  Business Models Used in Schools
The Business Model Canvas can certainly help entrepreneurs to come out with a clear vision on how their business plan will work. But I think it's applicable mostly in the corporate world. Not so much in school settings.
But there are elements th...
  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 o...
  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 ident...

Business Models Special Interest Group

Special Interest Group


Best Practices - Business Models Premium

Expert Tips - Business Models Premium

Innovating by Reconsidering Value Delivery

When innovating their business model, companies need to reconsider their value proposition from all perspectives. One of the perspectives is how compa...
Usage (application): Fundamental Innovation

Resources - Business Models Premium

From Product And Process Innovation to Business Model Innovation

This presentation elaborates on the concept of business models, specifically focusing on innovating business models. The presentation includes the fol...
Usage (application): Business Model Innovation, Performance Management

Innovation and Business Models

This presentation is about Business Models and Innovation, emphasizing Innovation in Business Models. The presentation includes the following sections...
Usage (application): Business Models, Business Model Innovation

Reinventing your Business Model

A presentation that clearly explains the concept of changing business models according to Kagermann, Johnson and Christensen, following their article ...
Usage (application): Business Model Change, Strategic Innovation

Creating Inclusive Business Models

Presentation that provides an introduction into inclusive business models, especially focusing on (agri) businesses in Africa. The presentation inclu...
Usage (application): Business Models, Corporate Sustainability, International Development, Investing in Africa


Business Models


Business Models


Business Models


Business Models

Compare with: Value Chain  |  Strategic Alliance  |  Industry Attractiveness  |  Strategic Vision  |  Virtual Business

Special Interest Group Leader
Derek Lark


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