What is a Business Model?
[Disclaimer: I am currently gathering academic knowledge about this topic. Please share me your views and papers on this topic.]
Although both terms seem similar, a business model focuses on the "process of creating value"; a business framework focuses on "the structure of assumptions and facts"
[Business Model]
Basically, a business model is the way on how a business creates value on a continuous basis. This also assumes on its ability to thrive among its current or future competitors. According to articles in Harvard Business Review,
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In The New, New Thing, Michael Lewis refers to the phrase business model as “a term of art.” — “All it really meant was how you planned to make money
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Peter Drucker defined the term — “assumptions about what a company gets paid for”
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Joan Magretta, defines what a business model is in the article “Why Business Models Matter,” as “at heart, stories — stories that explain how enterprises work (reference below)
There is no one definition but a business model is not just "doing better than others". A business model is one in which a core competency enables the business to create value. For example, better phones is not a business model for Apple, but the App store and iTunes store is its business model. A great search algorithm isn't the business model for Google, but the ability to use its software to create a network of Android-friendly devices is.
Business models may change over time. Microsoft's business model was to license its Windows software as a platform so it could sell its other programs. However, as the IT environment changed, it is now focusing on "providing efficient solutions on multi-platforms as a subscription service" as a business model. The same happened in Adobe as well.
Furthermore, we should keep in mind that a decent business model does not equal a big business. As long as the business model is solid the business will be "profitable".
[Business Framework]
A business framework is "a structure of assumptions and facts to guide the understanding of a business".
Is there a hierarchy in which there exists an overall framework? Probably not. Frameworks are based on different perspectives and assumptions. Ideally, different frameworks would yield the same result. But just as valuating a stock, different methods will result in different outcomes.
So, I believe that it is important to have a handful of frameworks to rely on and also understand each frameworks' assumptions. In these pages, I will discuss the most openly taught frameworks. As most information can be found on the internet, business textbooks and other sources, I may not thoroughly differentiate text the original source from my thoughts. However, I will attempt to record each source.
The frameworks I will discuss are:
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Grown-Share Matrix (Boston Consulting Group)
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McKinsey Matrix
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SBU System (Arther D. Little)
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Five Force Model (Michael Porter)Material : Competitive StrategyRelated -
Diamond Model (Michael Proter)
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Strategy Canvas (Simon-Kutcher & Partners)Material : Price-Profit GraphRelated
Reference
Originally written on April 25, 2017
Relocated and updated February 17,2018
