Friday, August 27, 2010

Business models: Earlier/related concepts

While the term business model gained prominance in relationship with e-business and the Internet from the 1990s onwards, it was not exclusively used in this context. Moreover, related concepts have appeared for longer in management literature. Some examples by prominent management scholars are ‘theory of business’ (Drucker 1994), ‘business idea’ (Normann 1977 cited in Hedman and Kalling 2003) and ‘business concept’ (Hamel 2000).

Magretta (2002) refers to Peter Drucker’s ‘age-old questions’ when discussing what good business models are: Who is the customer? And what does the customer value? In his 1994 HBR article, Peter Drucker (1994) refers to the notion of a ‘theory of the business,’ which is very similar to the idea of organizations having a business model.

Drucker's theory of business refers the assumptions on which an organization has been built and is being run. These assumptions shape any organization's behaviour, dictate its decisions about what to do and what not to do, and define what the organization considers meaningful results. Drucker also warns that organizations run the risk that these assumptions no longer fit reality and that therefore their theory of the business no longer works.

See also earlier posts on Drucker's Theory of Business and Humphrey's TAM.

Drucker, P.F. 1994. "The Theory of the Business," Harvard Business Review (72:5), pp 95-104.
Hamel, G. 2000. Leading the Revolution: How to Thrive in Turbulent Times by Making Innovation a Way of Life. Boston, MA: Harvard Business School Press.
Hedman, J., and Kalling, T. 2003. "The Business Model Concept: Theoretical Underpinnings and Empirical Illustrations," European Journal of Information Systems (12:1), pp 49-59.
Magretta, J. 2002. "Why Business Models Matter," Harvard Business Review (80:5), pp 3-8.
Normann, R. 1977. Management for Growth. Chichester: John Wiley & Sons.

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