Define and Discuss – Business Models
by Aminat Abubakar – Thursday, 12 January 2017

In their book Business Model Generation, Osterwalder & Pigneur (2010, p.14) define business model as “the rationale of how an organization creates, delivers, and captures value.”  The concept is important because it shows the different scenarios organization can deploy to create new products or improve on existing products in order to generate revenue.  Osterwalder & Pigneur explained that the business model is the seamless integration with the nine-business building block canvas categorized into four components with the business setting namely customers, offers, infrastructure, and financial viability which is very important to an organizational strategic implementation through organizational structures, processes, and systems (2010, p. 15).

The nine building blocks canvas includes Customer Segments, Value Proposition, Channels, Customer Relationships, Revenue Streams, Key Resources, Key Activities, Key Partnerships, and Cost Structure.  Thompson, Strickland, and Gamble (2010, p. 14) mention, “a company’s business model is management’s story line for how the strategy will be a money maker.”

An organization utilize Customer Segments based on customer profile research through geographical, social, and demographic survey to distinguish who their customers are in order to create value to generate revenue. Value Proposition solves customer problems or satisfies customer needs based on the interpretation of the Customer Segments research result.  Channels are means an organization uses to convey value proposition to customers in the form through electronic media and social media, physical distribution, and sales channels.  Customer Relations indicates how an organization would go about acquiring, retaining, and expanding on their customers, these could be through face-to-face contact, automated or self-service.

Revenue Stream shows how an organization generates revenue from Customer Segment through Value Proposition.  Key Resources are the assets needed such as financial, physical, intellectual, and human capacity to generate value proposition.  Key Activities are actions taken by an organization towards the success of its operations.  Key Partnerships such as strategic alliance, joint ventures, and supplier/buyers that would leverage value proposition.  Cost Structure highlights the inherent cost to operate the business.

As mentioned by Christensen, Bartman, and van Bever (2013), if a business model is “executed correctly, it has the ability to make companies resilient in the face of change and to create growth unbounded by the limits of existing businesses.”  However, as explain by Cliffe threat to business model failure occurs when there are internal problems, and disconnect from the customer profile (2011).
Future investigation to avoid risk of failure is needed there is much to be learned about importance of knowing the business model to an organizations success.

Business Model Canvas Explained

References

1. Clayton M. Christensen, Thomas Bartman, and Derek van Bever (2016, September 13). The Hard Truth About Business Model Innovation. Fall 2016  Retrieved from http://sloanreview.mit.edu/article/the-hard-truth-about-business-model-innovation/
2. Cliffe, S., (2011, Jan-Feb). When Your Business Model Is In Trouble. Retrieved from https://hbr.org/2011/01/when-your-business-model-is-in-trouble
3. Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation. Hoboken, NJ: John Wiley & Sons, Inc.
4. Strategyzer (Director). (2011, September 1). Business Model Canvas Explained [Video file]. Retrieved from https://www.youtube.com/watch?v=aN36EcTE54Q
5. Thompson, Jnr., A. A., Strickland III, A. J., & Gamble, Gamble, J. E. (2010). Crafting and Executing STRATEGY. The Quest for Competitive Advantage Concepts and Cases. (17th ed.). New York, NY: McGraw-Hill Irwin