What is a Business model?
● Model
○ A model is a plan or diagram that’s used to make or describe something.
● Business Model
○ A firm’s business model is its plan or diagram for how it competes, uses its resources, structures its relationships, interfaces with customers, and creates
value to sustain itself on the basis of the profits it generates.
○ The term “business model” is used to include all the activities that define how a firm competes in the marketplace.
Dell’s Business Model:
Dell’s Approach to Selling PCs versus Traditional Manufacturers
The Importance of Business Models:
● Serves as an ongoing extension of feasibility analysis. A business
model continually asks the question, “Does this business make sense?”
model continually asks the question, “Does this business make sense?”
● Focuses attention on how all the elements of a business fit together and constitute a working whole.
● Describes why the network of participants needed to make a business idea viable are willing to work together.
● Articulates a company’s core logic to all stakeholders, including all employees.
How Business Models Emerge:
● The Value Chain
○ The value chain is the string of activities that moves a product from the raw material stage, through manufacturing and distribution, and ultimately to the end user.
○ By studying a product’s or service’s value chain, an organization can identify ways to create additional value and assess whether it has the means to do so.
○ Value chain analysis is also helpful in identifying opportunities for new businesses and in understanding how business models emerge.
Components of a Business Model:
