Business Models

Knowledge Center

What are Business Models?

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

Generic 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.

Forum Forum about Business Models. 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 avai... 9   2 comments The Strategy Sketch (Kraaijenbrink) DESCRIPTION STRATEGY SKETCH. SUMMARY The Strategy Sketch is a structured visual template by Jeroen Kraaijenbrink containing ten key elements of strategy. It facilitates discussing, analyzing, evaluat... 6   2 comments 🔥 Using the Freemium Business Model: Try Before you Buy Freemium - a combination of "Free" and "Premium" - has become a dominant business model amongst multiple internet start-ups and smartphone applications. The Freemium model's idea is that the users get... 6   3 comments 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 / re... 6   1 comments What Exactly is a Management Model? Hello! I am a student and I am writing a work about the Scandinavian management model. After looking through a huge amount of articles, I've realized that there is not a proper definition of a 'manage... 5   2 comments Why does Innovation often Requires Changes in the Business Model? 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 in... 4   1 comments Using the Business Model Canvas for Markets with Many Customers 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 "si... 3   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. Shared language was t... 3   Business Model Examples for Online Shop Hello, I have the requirement to insert a business model for a case study I'm are working on. My case study is an online shop business of a student. What business model can you recommend that I use fo... 3   1 comments Partners in the Business Model Canvas and SWOT Dear all, I am new here and I really need help. I have recently started my company and I drew and prepared my Business Model Canvas with the 9 blocks. My question is really difficult: What is the r... 3   5 comments 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 gai... 2   1 comments 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 ... 1   2 comments Start a new topic about Business Models Sign up for free

Courses about Business Models. Beginners Course Advanced Course Course for Experts

Best Practices The best, top-rated topics about Business Models. Here you will find the most valuable ideas and practical suggestions. 🥇 The Startup Business Strategy Frame Startup success is greatly attributed to pre-startup phase planning. Startups develop business plans to pitch their ideas to secure funding and or partners. Perusing (Ed: ~reading) and relating the f... 45   22 comments 🥈 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, ... 7   5 comments 🥉 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?... 6   7 comments 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 us... 5   9 comments

Expert Tips Advanced insights about Business Models. Here you will find professional advices by experts. Consultancy Tips Teaching Tips Practical Implementation Tips Innovating by Reconsidering Value Delivery Fundamental Innovation When innovating their business model, companies need to reconsider their value proposition from all perspectives. One of...

Information Sources Various sources of information regarding Business Models. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops. Tools for Social Entrepreneurs Social Business Idea Generation, Business Development, Funding, Marketing and Partnerships, Social Business Toolkit This nice toolkit provides many useful tools for social entrepreneurs wanting to establish a social business. It include... From Product And Process Innovation to Business Model Innovation Business Model Innovation, Performance Management This presentation elaborates on the concept of business models, specifically focusing on innovating business models. The... Innovation and Business Models Business Models, Business Model Innovation This presentation is about Business Models and Innovation, emphasizing Innovation in Business Models. The presentation i... Reinventing your Business Model Business Model Change, Strategic Innovation A presentation that clearly explains the concept of changing business models according to Kagermann, Johnson and Christe... Creating Inclusive Business Models Business Models, Corporate Sustainability, International Development, Investing in Africa Presentation that provides an introduction into inclusive business models, especially focusing on (agri) businesses in ... Circular Business Models Circular Economy, Business Models, Recycling, Waste Reduction Circular economy supports to minimise resource depletion, waste, and emissions through innovative business models. Read...

Tools Useful tools regarding Business Models. News Videos Presentations   Books Academic More

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

Return to Management Hub: Change & Organization  |  Strategy & Innovation

More on Management  |  Return to Management Dictionary

This ends our Business Models summary and forum.