Definition of 'Business Model'

The plan implemented by a company to generate revenue and make a 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. The business model topic is very popular among business people today because in various industries we can see a proliferation of new and innovative business models (i.e. new ways of making money). In several industries new business models are threatening or even replacing established companies and conventional ways of doing business. Just have a look at the music or airline industry. Hence, the interest in business models comes from two opposing sides: Established companies have to find new and innovative business models to compete against growing competition and to fend off insurgents Entrepreneurs want to find new and innovative business models to carve out their space in the marketplace Within this context the business model concept is a particularly helpful unit of strategic analysis tailored to todays competitive business environment. It helps executives as well as entrepreneurs increase their capacity to manage continuous change and constantly adapt to rapidly changing business environments by injecting new ideas into their business model. But what actually is a business model? In management meetings the question of what a business model is (even what our business model is) often remains relatively vague. The main reason for this is because business people have an intuitive understanding of business models. Normal, since the business model is about how an organization makes money, which is a mangers job after all. However, there is often a lack of a more precise and shared understanding of what a business model is. Yet, such a common understanding is required if we want to have high quality discussions of ones business model and make important business model decisions. Therefore we have come up with the 9 building block approach to describing business models. It has the characteristics of any other type of model (e.g. in architecture or engineering). Like other models it is a simplified description and representation of a complex real world object. It describes the original in a way that we understand its essence without having to deal with all its characteristics and complexities. In the same line of thought we can define a business model as a simplified description of how a company does business and makes money without having to go into the complex details of all its strategy, processes, units, rules, hierarchies, workflows, and systems. Based on an extensive literature research and real-world experience we define a business model as consisting of 9 building blocks that constitute the business model canvas (readers of this blog will realize that this is an updated and slightly adapted version of the model): 1. The value proposition of what is offered to the market; 2. The segment(s) of clients that are addressed by the value proposition; 3. The communication and distribution channels to reach clients and offer them the value proposition; 4. The relationships established with clients;

5. 6. 7. 8. 9.

The key resources needed to make the business model possible; The key activities necessary to implement the business model; The key partners and their motivations to participate in the business model; The revenue streams generated by the business model (constituting the revenue model); The cost structure resulting from the business model.

The term business model became popular only in the late 90s, which, personally I think is related to the rapid erosion of prices in the IT and telecom industry. For managers and executives this means that they have a whole new range of possibilities to design their businesses. This results in innovative and competing business models in the same industries. Before, it used to be sufficient to say in what industry you where in, for somebody to understand what your company was doing. All players had more or less the same business model. Today it is not sufficient to choose a lucrative industry, but you must also design a competitive business model. In addition, increased competition and rapid copying of successful business models forces all players to continuously innovate and adapt their business model to gain and/or sustain a competitive edge.

business model
This describes the method or means by which a company tries to capture value from its business. A business model may be based on many different aspects of a company, such as how it makes, distributes, prices or advertises its products. [1] The business model concentrates on value creation. It describes a company's or organisation's core strategy to generate economic value, normally in the form of revenue. [2] The model provides the basic template for a business to compete in the market place, it provides a template on how the firm is going to make money, and how the firm will work with internal players (firms employees and managers) and external players (stakeholders such as customers, suppliers, and investors). The business model indicates how the firm will convert inputs (capital, raw materials and labour) into outputs (total value of goods produced) and make a return that is greater than the opportunity cost of capital and delivers a return to its investors. This means that a business models success is reflected in its ability to create returns that are greater than the (opportunity) cost of capital, invested by its shareholders and bondholders. Business models are an essential part of strategy they provide the fundamental link between product markets, within the industry, and the markets for the factors of production such as labour and capital. Any resilient business model must be able to create and sustain returns for its investors over time, otherwise, it is likely to go out of business or fashion. [3] Example The 'razors and blades' model used by companies such as Gilette, in which a basic product (the razor) is sold cheaply, but an essential add-on or consumable (the blade) is sold at a high price once the customer has been lured in. [4] Another example is a mobile phone company may sell handsets (the bait) at a reduced price while signing up customers to buy calls over the period of a contract (the hook). [5] Also General Motors, for many years, had an unsustainable business model as its returns did not match or exceed its cost of capital. Profitability was focused on the financing of cars, i.e. providing financing to its automotive customers, such as loans to buy the cars, through its finance subsidiary GMAC, rather

than by designing and manufacturing sought after cars that are also cost competitive. When the financial crisis struck, this model encountered problems, and as GMAC had to seek a US government bailout, the companys already precarious condition turned into bankruptcy. [6]

strategic intent
Definition
A readily grasped declaration of the course that the management of a business plans on taking the company in over some future time frame. The strategic intent of a business needs to be easily understood by every member of the firm so that all staff can be working toward a consistent overall goal. "Strategic intent is defined as a compelling statement about where an organization is going that succinctly conveys a sense of what the organization wants to achieve long-term." according to the University of Illinois at Springfield website.

Characteristics of strategic intent

According to Hamel and Prahalad, strategic intent captures the essence of winning, it is stable over time, and it sets a target that deserves personal effort and commitment. Strategic intent goes beyond simply copying what competitors are doing.

What is a strategic intent of an organisation? Answer:

Strategic intent refers to the purposes the organization strives for. These may be expressed in terms of a hierarchy of strategic intent. The framework within which firms operate, adopt a predetermined direction and attempt to achieve their goal is provided by a strategic intent. The hierarchy of strategic intent covers the vision, mission, business definition, business model and the goals and objectives.