Tuesday, May 24, 2011

A business model definition

A business model describes the value logic of an organization in terms of how it creates and captures customer value (Fielt, 2011).

The definition is related to Osterwalder and Pigneur (2010), but with 'customer' value and without 'delivering' value. The definition is well aligned with Chesbrough (2006), Johnson (2010), and Teece (2010).

While most authors are not very explicit about what they mean with value, most definitions seem to refer to mean 'customer value' (i.e. value for the customer).
We excluded 'delivering' value from the definition as we see delivering value as part of creating value. Customer value implies use value, which cannot be created without being delivered.

We see the identification of the different elements of a business model, such as the value proposition, resources or revenues, not as part of the business model definition, but as part of the business model framework. A framework operationalizes the definition and makes it more concrete and specific. This creates some flexibility as there can be multiple, different specific frameworks while adhering to a single, generic definition. This caters for the use of the concept for multiple purposes and in different contexts, and the development of the concept over time.

While the business model has a specific organization as its focus, we want to make explicit that often this focal organization operates in an organizational network and that the organizational network can play a prominent role in creating and capturing value. If this is the case then the network will be included in the business model. However, the network will still be from the perspective of the focal organization.

An organization can have multiple business models, either in time (sequentially) or at the same time (simultaneously). While outside the scope of the current discussion, this requires understanding of synergies and conflicts between business models and creates a need for business model portfolio management and business model lifecycle management.

We also leave open the possibility that the organization is a profit or non-profit organization. Capturing value will often be about financial revenue models that contribute to the monetary bottom-line of the organization. However, we do not want to exclude a broader perspective than profitability including also social responsibility and environmental sustainability.

See the 'Understanding business models' whitepaper (pdf here) for more information.


Chesbrough, H. (2006). Open business models: How to thrive in the new innovation landscape. Boston, MA: Harvard Business School Press.
Fielt, E. (2011). Understanding business models (Business Service Management whitepaper volume 3). Brisbane, Australia: Smart Services CRC. Available via: http://eprints.qut.edu.au/41609/
Johnson, M. W. (2010). Seizing the white space: Business model innovation for growth and renewal. Boston, MA: Harvard Business Press.
Osterwalder, A., & Pigneur, Y. (2010). Business model generation: A handbook for visionaries, game changers, and challengers: (self-published).
Teece, D. J. (2010). Business Models, Business Strategy and Innovation. Long Range Planning, 43(2-3), 172-194.

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