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Business Model
Executive Solutions can guide and optimize your business model. Check the feasibility of it and finally implement the business organization, the business processes and link them to your business ICT architecture
A business model describes the rationale of how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts. The process of business model construction is part of business strategy.
In theory and practice, the term business model is used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, business process, target customers, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies.
Business models are used to describe and classify businesses, especially in an entrepreneurial setting, but they are also used by managers inside companies to explore possibilities for future development.
The bait and hook business model (also referred to as the "razor and blades business model" or the "tied products business model") was introduced in the early 20th century. This involves offering a basic product at a very low cost, often at a loss (the "bait"), then charging compensatory recurring amounts for refills or associated products or services (the "hook"). Examples include: razor (bait) and blades (hook); cell phones (bait) and air time (hook); computer printers (bait) and ink cartridge refills (hook); and cameras (bait) and prints (hook). A variant of this model is Adobe, a software developer that gives away its document reader free of charge but charges several hundred dollars for its document writer.
In the 1950s, new business models came from McDonald's Restaurants and Toyota. In the 1960s, the innovators were Wal-Mart and Hypermarkets. The 1970s saw new business models from FedEx and Toys R Us; the 1980s from Blockbuster, Home Depot, Intel, and Dell Computer; the 1990s from Southwest Airlines, Netflix, eBay, Amazon.com, and Starbucks.
Today, the type of business models might depend on how technology is used. For example, entrepreneurs on the internet have also created entirely new models that depend entirely on existing or emergent technology. Using technology, businesses can reach a large number of customers with minimal costs.
Business model design refers to the activity of designing a company's business model. It is part of the business development and business strategy process and involves design methods.
Some Definitions/Considerations the Business Model
The Business model design includes the modeling and description of a company's:
Business model design is distinct from business modeling. The former refers to defining the business logic of a company at the strategic level, whereas the latter refers to business process design at the operational level. A business model design template can facilitate the process of designing and describing a company's business model.
Examples of business models
In the early history of business models it was very typical to define business model types such as bricks-and-mortar or e-broker. However, these types usually describe only one aspect of the business (most often revenue model). Therefore, more recent literature on business models concentrates on describing business model as a whole instead of one most visible aspects.
The following examples provide an overview for various business model types
Related concepts
The process of business model design is part of business strategy. The implementation of a company's business model into organizational structures (e.g. organigrams, workflows, human resources) and systems (e.g. information technology architecture, production lines) is part of a company's business operations.
It is important to understand that the implementation of business model is enabled by business operations, which refers to the firms process-level activities, capabilities, functions and infrastructure (e.g., business process and business process modeling), at the operational level, whereas business model design and innovation refer to defining the business logic of a firm (or a network of firms) at the strategic level. Hence, an operationally viable and feasible business model requires lateral alignment with the underlining business operations.
The brand is a consequence of and has a symbiotic relationship with the business model since the business model determines the brand promise and the brand equity becomes a feature of the model. Managing this is a task of integrated marketing.
See also Commons related to Business models.
Business plan Business process modeling Business reference model Business rule Competitive advantage Core competency Growth platforms Market forms Marketing Marketing plan Strategic management Strategic planning Strategy dynamics Value migration The Design of Business Enterprise Architecture Business Model Canvas Component business model
Executive Solutions can guide and optimize your business model. Check the feasibility of it and finally implement the business organization, the business processes and link them to your business ICT architecture
A business model describes the rationale of how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts. The process of business model construction is part of business strategy.
In theory and practice, the term business model is used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, business process, target customers, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies.
Business models are used to describe and classify businesses, especially in an entrepreneurial setting, but they are also used by managers inside companies to explore possibilities for future development.
The bait and hook business model (also referred to as the "razor and blades business model" or the "tied products business model") was introduced in the early 20th century. This involves offering a basic product at a very low cost, often at a loss (the "bait"), then charging compensatory recurring amounts for refills or associated products or services (the "hook"). Examples include: razor (bait) and blades (hook); cell phones (bait) and air time (hook); computer printers (bait) and ink cartridge refills (hook); and cameras (bait) and prints (hook). A variant of this model is Adobe, a software developer that gives away its document reader free of charge but charges several hundred dollars for its document writer.
In the 1950s, new business models came from McDonald's Restaurants and Toyota. In the 1960s, the innovators were Wal-Mart and Hypermarkets. The 1970s saw new business models from FedEx and Toys R Us; the 1980s from Blockbuster, Home Depot, Intel, and Dell Computer; the 1990s from Southwest Airlines, Netflix, eBay, Amazon.com, and Starbucks.
Today, the type of business models might depend on how technology is used. For example, entrepreneurs on the internet have also created entirely new models that depend entirely on existing or emergent technology. Using technology, businesses can reach a large number of customers with minimal costs.
Business model design refers to the activity of designing a company's business model. It is part of the business development and business strategy process and involves design methods.
Some Definitions/Considerations the Business Model
- ….is a ‘‘a statement of how a firm will make money and sustain its profit stream over time.’’
- ….is the blueprint of how a company does business.
- ….is ‘‘the totality of how a company selects its customers, defines and differentiates it offerings, defines the tasks it will perform itself and those it will outsource, configures its resources, goes to market, creates utility for customers and captures profits.’’
- …..is ‘‘the design of key interdependent systems that create and sustain a competitive business.’’
The Business model design includes the modeling and description of a company's:
- value propositions
- Target customer segments
- Distribution channels
- Customer relationships
- Value configurations
- Core capabilities
- Partner network
- Cost structure
- Revenue model
Business model design is distinct from business modeling. The former refers to defining the business logic of a company at the strategic level, whereas the latter refers to business process design at the operational level. A business model design template can facilitate the process of designing and describing a company's business model.
Examples of business models
In the early history of business models it was very typical to define business model types such as bricks-and-mortar or e-broker. However, these types usually describe only one aspect of the business (most often revenue model). Therefore, more recent literature on business models concentrates on describing business model as a whole instead of one most visible aspects.
The following examples provide an overview for various business model types
- Bricks and clicks business model : Business model by which a company integrates both offline (bricks) and online (clicks) presences. One example of the bricks-and-clicks model is when a chain of stores allows the user to order products online, but lets them pick up their order at a local store.
- Collective business models : Business system, organization or association typically composed of relatively large numbers of businesses, tradespersons or professionals in the same or related fields of endeavor, which pools resources, shares information or provides other benefits for their members. For example, a science park or high-tech campus provides shared resources (e.g. cleanrooms and other lab facilities) to the firms located on its premises, and in addition seeks to create an innovation community among these firms and their employees.
- Cutting out the middleman model : The removal of intermediaries in a supply chain: "cutting out the middleman". Instead of going through traditional distribution channels, which had some type of intermediate (such as a distributor, wholesaler, broker, or agent), companies may now deal with every customer directly, for example via the Internet.
- Direct sales model : Direct selling is marketing and selling products to consumers directly, away from a fixed retail location. Sales are typically made through party plan, one-to-one demonstrations, and other personal contact arrangements. A text book definition is: "The direct personal presentation, demonstration, and sale of products and services to consumers, usually in their homes or at their jobs."
- Distribution business models, various Value-added reseller model : Value Added Reseller is a model where a business makes something which is resold by other businesses but with modifications which add value to the original product or service. These modifications or additions are mostly industry specific in nature and are essential for the distribution. Businesses going for a VAR model have to develop a VAR network. It is one of the latest collaborative business models which can help in faster development cycles and is adopted by many Technology companies especially software
- Fee in, free out : Business model which works by charging the first client a fee for a service, while offering that service free of charge to subsequent clients.
- Franchise : Franchising is the practice of using another firm's successful business model. For the franchisor, the franchise is an alternative to building 'chain stores' to distribute goods and avoid investment and liability over a chain. The franchisor's success is the success of the franchisees. The franchisee is said to have a greater incentive than a direct employee because he or she has a direct stake in the business.
- Freemium business model :Business model that works by offering basic Web services, or a basic downloadable digital product, for free, while charging a premium for advanced or special features.
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Other examples of business models are:
Auction business model, All-in-one business model , Chemical Leasing, Low-cost
carrier business model, Loyalty business models Monopolistic business model Multi-level
marketing business mode Network effects business model, Online auction business
model Online content business model Online media cooperative Premium business
model, Professional open-source model, Pyramid scheme business model, Razor and
blades business model, Servitization of products business modl, Subscription
business model
Business model frameworks - Technology centric communities have defined "frameworks" for business modeling. These frameworks attempt to define a rigorous approach to defining business value streams. It is not clear, however, to what extent such frameworks are actually important for business planning. Business model frameworks represent the core aspect of any company; they involve “the totality of how a company selects its customers defines and differentiates its offerings, defines the tasks it will perform itself and those it will outsource, configures its resource, goes to market, creates utility for customers, and captures profits”.A business framework involves internal factors (market analysis; products/services promotion; development of trust; social influence and knowledge sharing) and external factors (competitors and technological aspects).
Related concepts
The process of business model design is part of business strategy. The implementation of a company's business model into organizational structures (e.g. organigrams, workflows, human resources) and systems (e.g. information technology architecture, production lines) is part of a company's business operations.
It is important to understand that the implementation of business model is enabled by business operations, which refers to the firms process-level activities, capabilities, functions and infrastructure (e.g., business process and business process modeling), at the operational level, whereas business model design and innovation refer to defining the business logic of a firm (or a network of firms) at the strategic level. Hence, an operationally viable and feasible business model requires lateral alignment with the underlining business operations.
The brand is a consequence of and has a symbiotic relationship with the business model since the business model determines the brand promise and the brand equity becomes a feature of the model. Managing this is a task of integrated marketing.
See also Commons related to Business models.
Business plan Business process modeling Business reference model Business rule Competitive advantage Core competency Growth platforms Market forms Marketing Marketing plan Strategic management Strategic planning Strategy dynamics Value migration The Design of Business Enterprise Architecture Business Model Canvas Component business model