Business model

From MedBib.com - Medicine & Nature

A business model describes the rationale of how an organization creates, delivers, and captures value^[1] - economic, social, or other forms of value. The process of business model design is part of business strategy.

In theory and practise 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.

1 History
2 Examples
3 Business model design template
4 Applications
5 Related concepts
6 See also
7 References
8 Further reading

History

A brief history of the development of business models might run as follows. The most known and most basic business model is the shopkeeper model^{[citation needed]}. This involves setting up a store in a location where potential customers are likely to be and displaying a product or service.

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 a software developer that gives away its word processor reader free of charge but charges several hundred dollars for its word processor 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. Poorly thought out business models were a problem with many dot-coms.

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.

Examples

Business model design template

Business model design template: Nine building blocks and their relationships, Osterwalder 2004^[2]

Formal descriptions of the business become the building blocks for its activities. Many different business conceptualizations exist; Osterwalder's work and thesis (2010^[1], 2004^[2]) propose a single reference model based on the similarities of a wide range of business model conceptualizations. With his business model design template, an enterprise can easily describe their business model

Infrastructure
- Key Activities: The activities necessary to execute a company's business model.
- Key Resources: The resources that are necessary to create value for the customer.
- Partner Network: The business alliances which complement other aspects of the business model.
Offering
- Value Proposition: The products and services a business offers. Quoting Osterwalder (2004), a value proposition "is an overall view of .. products and services that together represent value for a specific customer segment. It describes the way a firm differentiates itself from its competitors and is the reason why customers buy from a certain firm and not from another."
Customers

Business Model Canvas: Nine business model building blocks, Osterwalder, Pigneur, & al. 2010^[1]
- Customer Segments: The target audience for a business' products and services.
- Channels: The means by which a company delivers products and services to customers. This includes the company's marketing and distribution strategy.
- Customer Relationship: The links a company establishes between itself and its different customer segments. The process of managing customer relationships is referred to as customer relationship management.
Finances
- Cost Structure: The monetary consequences of the means employed in the business model. A company's DOC.
- Revenue Streams: The way a company makes money through a variety of revenue flows. A company's income.

Applications

Malone et al.^[3] at MIT find 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.

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 operations.

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.

References

^ ^a ^b ^c Business Model Generation, A. Osterwalder, Yves Pigneur, Alan Smith, and 470 practitioners from 45 countries, self published, 2010
^ ^a ^b The Business Model Ontology - A Proposition In A Design Science Approach
^ Do Some Business Models Perform Better than Others?, Malone et al., May 2006