Early 'business model' models: Drucker's Theory of Business

In an earlier post, I described Humphrey's 'team action management' (TAM) business performance model as an early 'business model' model. Another model in this series is Drucker's 'Theory of the Business', which is described in his thirty-first HBR article (Sep 1994).

Drucker's theory of business consists of three parts: (1) assumptions about the environment of the organization, (2) assumptions about the specific mission of the organization, and (3) assumptions about the core competencies needed to accomplish the organization's mission.

Moreover, Drucker addresses four specifications of a valid theory of business:

1. The assumptions about environment, mission, and core competencies must fit reality.
2. The assumptions in all three areas have to fit one another.
3. The theory of business must be known and understood throughout the organization.
4. The theory of business has to be tested constantly.