Business Model

Definition

A Business Model is the blueprint of how the resources, providers, clients, partners etc of a Business are organized.

A business model can be understood as the detailed architectural blueprint for a set of relationships and processes between external and internal actors. The business model describes the rationale of how an organization creates, delivers, and captures value.

A business entity's system of transforming inputs through its business activities into outputs and outcomes that aims to fulfil the undertaking’s strategic purposes and create value over the short-, medium- and long-term time horizons. The business may have one or more business models.

Components

There are many ways to segment an overal business model into conceptual sub-elements. A popular framework is the Business Model Canvas:

• Customer Segment. Customer Segments are the different groups of people or organizations an enterprise aims to reach and serve
• Value Proposition. Value Propositions are the intrinsic properties of products or services that create value for a specific Customer Segment
• Distribution Channel. Distribution Channels are the means by which a company communicates with and reaches its Customer Segments to deliver its Value Proposition.
• Customer Relationships. Customer Relationships describe the types of ongoing interactions a company establishes with specific Customer Segments.
• Revenue (revenue streams) are all financial rewards (expressed in cash or otherwise) that a company generates from each Customer Segment.
• Key Resources. Key Resources are the company assets and liabilities required to implement a certain business model. These resources allow an enterprise to create and offer its Value Proposition, reach markets, maintain relationships with Customer Segments, and earn revenues.
• Key Activities. While Key Resources are a snapshot of what constitutes the firm at a point in time, Key Activities are akin to a flow description of the firm. Activities capture the main processes that must be in place to make the business model work.
• Key Partnerships . Partnerships is the network of suppliers and partners that help make the business model work.
• Cost Structure. The Cost Structure describes all costs incurred to implement and operate a business model. Costs are required for creating value using Resources and Activities, delivering value via Distribution Channels and maintaining Customer Relationships.
• Competitors. Competitors is the set of all external organizations that operate or have the potential to operate in providing competing Value Propositions to Customers. Competitors may use similar or different business models.

Examples

• Banking Business Models

See Also

• Business Strategy is a high level planning tool that captures the vision, goals and objectives of the organization
• Business Plan is the ”flight manual” for the concrete and specified realization of a business model. It concerns a fixed time period and is based on an up-to-date assessment of the various market conditions.
• A Budget is a specific financial schedule that captures ex-ante only certain monetary aspects of the business plan
• Financial Statements capture ex-post the realizations of some financial variables related to the business plan
• A Business Process Model is a lower level description that uses IT tools (e.g. UML language of BPMN notation) to describe fairly precisely the actors, processes and data flows implementing the activities involved in a Business Model
• Business Model Risk
• Business Model Analysis