What is a Business Model ? A design for the successful operation of a business, identifying revenue sources, customer base, products, and details of financing. Business models are “at heart, stories — stories that explain how enterprises work. A good business model answers a number of key questions.
- Who is the customer? And what does the customer value?
- It also answers the fundamental questions every manager must ask: How do we make money in this business?
- What is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost?”
Alex Osterwalder, developed a really insightful Business Model template, known as the “business model canvas”. It’s essentially an organized way to lay out assumptions about the key resources and key activities in an organizations value chain. It also outlines the value proposition, customer relationships, channels, customer segments, cost structures, and revenue streams of a Business Model.
Business Models Evolving…Successful businesses have developed business models that enable them to fulfill client needs at a competitive price and sustainable cost. Over time, circumstances change, and many businesses revise their business models frequently to reflect changing business environments and market demands. The process of evaluating and refining and revising existing business models has resulted in the introduction of several innovative new Business Models across several industries. In fact, Business model innovation (BMI) remains a hot topic in business circles.
I looked back at an HBR article on BMI from 2011 by Sarah Cliffe – and found some useful insights from by Rita Gunther McGrath on why business model innovation is becoming increasingly important.
- The first is the increasing speed of everything. Product life cycles and design cycles are getting shorter. When the pace of change gets faster, people realize that they need to look for the next big thing.
- A second issue is inter-industry competition. Competition is coming from unexpected places. Who could have anticipated that the iPad’s success would put all kinds of display devices, like electronic photo frames – out of business?
- A third trend is disruptions from business models that offer better customer experiences instead of simply products. Traditional toy retailers are struggling, but Build-a-Bear got people to pay good money to provide free labor and make their product themselves.
There’s much to learn about different types of Business Models and the impact they’re having on Digital Transformation across organizations worldwide. Below are some great Business Model articles from HBR and an interesting illustration of several innovative business models, by Mark Johnson.
Great resource from HBR
- What is a Business Model
- When Your Business Model Is in Trouble
- 4 Paths to Business Model Innovation
- Alex Osterwalder’s Business Model Canvas