Designing effective business models mandates that stakeholders of business enterprises understand the core concepts that lie beneath such models. A Business model that is built on sound concepts can take your business to the top range whereas a poorly made one spells doom.
Investopedia defines business model in plain language as “the plan implemented by a company to generate revenue and make profit from operations. The model includes the components and functions of the business, as well as the revenues it generates and the expenses it incurs”. This led business practitioners to add or subtract components to a business model at will, without ever understanding the business process and the core concepts that function as building blocks around which a business model is built.
Addressing the lack of awareness of concepts academic researchers spawned several definitions of business model incorporating a number of core concepts. Surveying the literature on business model definitions and core concepts Suvi Nenonen and Kaj Storbacka of Hanken School of Economics, Finland have published a thought provoking article titled “Business model design: conceptualizing networked value co-creation” wherein they have painstakingly analysed definitions of business model given by several academic writers and have succeeded in tracing five core concepts that form main threads in these definitions:
1. Value Creation: As a core concept, value creation ranks first in the list as most academic writers harp on this issue in one way or another. Alternate phrases such as value proposition, value design, value configuration or simply value for customers adorn in their writings. Designers of business models are reminded of the necessity to convey their customers how their firms create value in the first place
2. Earnings Logic: Resorted to by many authors, earnings logic is spelt out at varying length of details. Profit potential, revenue model, revenue logic, capture value, profit formula, return to stakeholders, transactional link to exchange partners, cost structure are chief amongst these. The fundamental aspect of making profit has never been lost on these authors
3. Value Network: Thirdly, value network is emphasised as vital concept in building and sustaining business models. This was worded differently by academic writers as: structure of value chain, partner network, value network, link to external stakeholders, transactional links to exchange providers and so on. This concept cultivates external orientation of a business and defines structure, content and governance of transactions with external actors
4. Resources & Capabilities: As juxtaposition to value network, resource & capability element prod business to look more inwardly by employing assets in a suitable manner. This concept theme is illustrated by writers in the following ways: core competency, resources, assets, processes, activities and strategy & structures of material aspects residing within a business. Capability and capacity is the bulwark on which a business is built and sustained, as does the business model itself
5. Strategic Decision: A key concept confronting designers is the framing of strategic choice within a business model. Such a choice is found in expressions in academic writings as: target market, target customers, position within value network, competitive strategy, market segmentation and others that seek to differentiate the market niche and produce products and services that could satisfy the chosen segments
6. Belief System: Even though belief system was not identified by Suvi Nenonen and Kaj Storbacka as a core concept, I trust that the degree of conviction a business has on its name and goodwill ultimately decide on the success of a business model. This particular point is stressed by H L Tikkanen et al who speak of belief system in such terms as reputational rankings, industry recipe, boundary beliefs, and product ontologies.
No comments:
Post a Comment