WHAT ACTUALLY IS
A BUSINESS MODEL
As the
term business model intuitively suggests it has something to do with
business and it has something to do with models:
· business: the activity
of buying and selling goods and services, or a particular company that
does this, or work you do to earn money.
· model: a representation
of something, either as a physical object which is usually smaller than
the real object, or as a simple description of the object
which might be used in calculations.
The term
business in the expression business model relates to "the activity
of buying and selling goods and services" and "earning money". Related to
the second definition it can be said that the term model relates to "a
representation of something as a simple description of the object which
might be used in calculations". By combining the two we get a first simple
understanding which is that a business model is a representation of how a
company buys and sells goods and services and earns money.
In general
the purpose of creating a model is to help understand, describe, or
predict how things work in the real world by exploring a simplified
representation of a particular entity or phenomenon. Thus, in the case of
a business model the model helps to understand, describe and predict the
"activity of buying and selling goods and services" and "earning money" of
a particular company. Differently put, the business model is an abstract
representation of the business logic of a company.
A business
model is a conceptual tool that contains a set of elements and their
relationships and allows
expressing a company's logic of earning money. It is a description of the
value a company offers to
one or several segments of customers and the architecture of the firm and
its network of partners
for creating, marketing and delivering this value and relationship
capital, in order to generate
profitable and sustainable revenue streams.
A last
thing that must be considered when talking about business models is their
type.
First:
The abstract business model concept, which is a generic model of elements,
components and relationships.
Second:
Design
Business Model
Implement Business Model
Finance
Business Model
Management defines and designs the right business logic that responds to
market circumstances.
Management works out a financial structure for the business model (e.g.
internal funding, venture capital, stock market funding). The
business model is implemented into business structure, business processes
and infrastructure.
Origin,
Definition, Place and Role of Business Models in the Firm there are the
operating business models that are the implemented and existing business
models of different companies. In other words, they represent an instance
of the generic business model.
Finally:
There are
the scenario business models that are only virtual, not existing as such
in the real world. They can serve different ends like fostering
innovation, simulating opportunities or acting as a guideline in change
management. They represent a virtual instance of the generic business
model.
THE
BUSINESS MODEL'S PLACE IN THE COMPANY
In order
to get a better understanding of the business model and its role, it is
important to explain how it is situated in the company. The business model is a conceptualization of the
money earning logic of a firm. As such it can function as a conceptual
link, forming a triangle between strategy, business organization and Information
Technology. Because there is often quite a substantial understanding
gap between these three “worlds”, the business model concept could serve
as a federator or glue.
Business strategy, business organization and IT
look at the firm from different angles and on different business layers.
These categories also often regroup different groups of employees with
different preoccupations and worldviews. Business people position the
company in the market define the direction and formulate objectives and
goals, whereas business process and IT designers have to understand and
implement these visions into something more concrete. In order to
guarantee a smooth implementation of business visions and alignment
between the different groups, firms require a very clear communication of
concepts and understandings between the implicated parties. This is where
conceptually defined business models come into play. By using an
ontological approach to business modeling, one can create a shared and
common understanding of what a company does to earn money and facilitate
communication between people and heterogeneous and widely spread
application systems (Fensel 2001).
