Business models are used by businesses to assist in guiding the firm towards their mission and purpose. It is a description, at the strategic level, of the way an organization should operate. They apply to all forms of business.
There are varying opinions on how a model should be constructed, here are two examples:
Reinventing Your Business Model
-In Reinventing your Business Model (Harvard Business Review, Dec. 2008), the authors (Johnson, Christensen, Kagermann) believe that a good business model consists of four interlocking elements that create and deliver value.
Customer Value Proposition (CVP) – Creating value for customers is one of the most important aspects of a successful business. Once we understand the customer’s needs, we can design a solution for the need and move to the next step.
Profit Formula – Blueprint that defines how a company creates value for the customer and value for the firm.
Revenue Model – Price X Volume
Cost Structure – Direct and Indirect Costs, driven by the cost of key resources.
Margin Model – Contribution needed from each transaction to reach the desired profit levels
Resource Velocity – How fast we need to turn over inventory and utilize resources.
Key Resources – Assets such as personnel, products, facilities and tech required to deliver the value proposition to the customer.
Key Processes – Operational and managerial processes that deliver value to the customer.
Business Model Canvas
– A generic business model template, called the Business Model Canvas, is provided in Business Model Generation: A Handbook for Visionaries, Game Changers and Challengers, written by Alexander Osterwalder and Yves Pignuer. The Canvas is made up of nine building blocks:
Customer Segments –
Value Propositions –
Channels – Communication, Distribution and Sales
Customer Relationships –
Revenue Streams –
Key Resources – Assets required to deliver the products/services