Saturday, October 3, 2009

An Introduction to Business Model

A business model is a framework for creating economic, social, and/or other forms of value. The term business model is thus used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies.

Conceptualization of business models try to formalize informal descriptions into building blocks and their relationships. While many different conceptualizations exist, Osterwalder [Alexander Osterwalder, The Business Model Ontology - A Proposition In A Design Science Approach, Thesis, 2004] proposed a synthesis of different conceptualizations into a single reference model based on the similarities of a large range of models, and constitutes a business model design template which allows enterprises to describe their business model.

4 pillars of business models:
• Core capabilities: The capabilities and competencies necessary to execute a company's business model.
• Partner network: The business alliances which complement other aspects of the business model.
• Value configuration: The rationale which makes a business mutually beneficial for a business and its customers.

• Value proposition: The products and services a business offers. Quoting Osterwalder (2004), a value proposition "is an overall view of products and services that together represent value for a specific customer segment. It describes the way a firm differentiates itself from its competitors and is the reason why customers buy from a certain firm and not from another."

• Target customer: The target audience for a business' products and services.
• Distribution channel: The means by which a company delivers products and services to customers. This includes the company's marketing and distribution strategy.
• Customer relationship: The links a company establishes between itself and its different customer segments. The process of managing customer relationships is referred to as customer relationship management.

• Cost structure: The monetary consequences of the means employed in the business model. A company's DOC.
• Revenue: The way a company makes money through a variety of revenue flows. A company's income.


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