Blogpost #1 - Define and Discuss Business Models
by Juan Gallego - Friday, 3 February 2017, 3:02 PM
When it comes to business models, there does not appear to be one single authoritative definition. However, academic experts and business practitioners seem to agree that the success or failure of an enterprise or industry is very closely linked to its business model. For this reason, it is essential that companies who wish to succeed must understand all the major and minor elements of their businesses. Moreover, understanding the success and failure of commercial enterprises makes the study of business models a worthwhile endeavor.
In the book Business Model Generation (2010, p. 14), Osterwalder & Pigneur define the business model as “the rationale of how an organization creates, delivers, and captures value.” Although this may not be the only true definition of a business model, I believe it captures the essential components. To put it in my words, a business model is a systematic way of analyzing and understanding the most fundamental components of a commercial enterprise. It is a means by which to divide the big picture into its many components.
Likely the most important part of the business model is quantifying an understanding the central premise of what a company or business intends to do, and how this activity will generate revenue or value. Indeed a description I liked is from Joan Magretta (2002, p. 5) who describes business modeling as “… the managerial equivalent of the scientific method – you start with a hypothesis, which you then test in action and revise when necessary.”
However, for a business to succeed it must have more than a highly desirable product or service; it must also understand all the other components that are essential and influence the business, including the customer, the generation of the product or service, how it will be delivered, and much more. For this more detailed analysis, I find Osterwalder & Pigneur’s Business Model Canvas (2010, p. 44) to be of significant value, as it provides a relatively simple structure by which to break down the big picture of the business.
While there is much more that can be written about business models, it is essential the companies and industries understand that these are not one-size-fits-all, nor are they static. Indeed, there are many historical examples where enormously successful companies, industries, and products, have declined to becoming massive failures, due to outdated business models. For companies to remain successful, they must constantly review and update their core business models, and all of the associated interdependencies.
References:
Joan Magretta. (2002). Why business models matter. Harvard Business School Publishing Corporation, 86–92.
Osterwalder, A., Pigneur, Y., & Clark, T. (2010). Business model generation: a handbook for visionaries, game changers, and challengers. Hoboken, NJ: Wiley.
by Juan Gallego - Friday, 3 February 2017, 3:02 PM
When it comes to business models, there does not appear to be one single authoritative definition. However, academic experts and business practitioners seem to agree that the success or failure of an enterprise or industry is very closely linked to its business model. For this reason, it is essential that companies who wish to succeed must understand all the major and minor elements of their businesses. Moreover, understanding the success and failure of commercial enterprises makes the study of business models a worthwhile endeavor.
In the book Business Model Generation (2010, p. 14), Osterwalder & Pigneur define the business model as “the rationale of how an organization creates, delivers, and captures value.” Although this may not be the only true definition of a business model, I believe it captures the essential components. To put it in my words, a business model is a systematic way of analyzing and understanding the most fundamental components of a commercial enterprise. It is a means by which to divide the big picture into its many components.
Likely the most important part of the business model is quantifying an understanding the central premise of what a company or business intends to do, and how this activity will generate revenue or value. Indeed a description I liked is from Joan Magretta (2002, p. 5) who describes business modeling as “… the managerial equivalent of the scientific method – you start with a hypothesis, which you then test in action and revise when necessary.”
However, for a business to succeed it must have more than a highly desirable product or service; it must also understand all the other components that are essential and influence the business, including the customer, the generation of the product or service, how it will be delivered, and much more. For this more detailed analysis, I find Osterwalder & Pigneur’s Business Model Canvas (2010, p. 44) to be of significant value, as it provides a relatively simple structure by which to break down the big picture of the business.
While there is much more that can be written about business models, it is essential the companies and industries understand that these are not one-size-fits-all, nor are they static. Indeed, there are many historical examples where enormously successful companies, industries, and products, have declined to becoming massive failures, due to outdated business models. For companies to remain successful, they must constantly review and update their core business models, and all of the associated interdependencies.
References:
Joan Magretta. (2002). Why business models matter. Harvard Business School Publishing Corporation, 86–92.
Osterwalder, A., Pigneur, Y., & Clark, T. (2010). Business model generation: a handbook for visionaries, game changers, and challengers. Hoboken, NJ: Wiley.