business model

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What follows is the template for a business organization. In its generic form, as presented here, the template can be referred to as a 'business design construct' to distinguish from the same template used to define a particular business organization, in which case the term 'business model' can be used. This usage of these terms is only a suggested possibility.

In business literature, there are a variety of definitionsnew of 'business model'. On one end of the spectrum is 'how a business makes money'. This is clear, crisp, and certainly of critical importance. What this definition lacks is guidance as to what to do next to either assess or design a business model. On the other end of the spectrum of definitionsnew is the business model as a comprehensive collection of elements and a structure that represents the totality of a business organization. This type of model is facilitates inquiry and is comprehensive enough to reflect the intended outcome of the actual workings of the current business organization or a strategy. The BAi 'business model' is a comprehensive model.

Structure of the BAi model --
The structure of the BAi business model is based on the four aspects, or perspectives, of the business organization --

  • purpose - environment
  • function
  • processes
  • resources & structure

Basis for the BAi model --
The business model definition is based on the systems science definition of the business organization as a complex social system. Systems science is the science of complexity -- complex problems and systems. In addition, the model that follows has been developed by BAi consistent with idealized design, systems principles, the inquiry process, and iterative design principles.

Strategy and the model --
Strategy is about the creative innovation of the business. Thus strategy is about designing a business. In order to design something, we must be able to define it, model it, describe it, understand its nature, know its principles, and appreciate its dimensions. If we intend to transform a business, we must be able to understand its current state, its future state, and the gap between the two. A business model guides the business organization inquiry - serving as template to initiate inquiry for understanding the existing state and as a starting point for the inquiry to define a future state.

The business model and competitive strategy go hand-in-hand. The business model is a representation of the business whether ""as is"", ""to be"", ""idealized"", ""projected"", or ""planned"". The business model shows the elements of and interrelationships of these elements that make up a business organization. The more explicitly defined and synergistic these elements are the greater the business's competitive advantage. Knitting business model elements together, showing their relationships and interdependencies, expresses the strategy as a business model while providing a blueprint to guide the strategy implementation. The model furthers our understanding of the business as a system. Understood as a system, the better the model elements integrate and compliment one another, the stronger the business model, thus the strategy. The strategic elements making up the business model are described below in logical groupings and sequence.

Model - the real and the representation --
A business organization is made up from elements, such as offerings, processes, and people, and their interrelationships. The business organization model represents the actual business organization. This representation serves as a means to classify the elements and understand their interrelationships, thereby understanding the behavior and capability of the business organization. In regards to business innovation and design, the model, as a design construct, serves as the guide.

Business model or Business design construct --
When the model is used to facilitate business design and business model innovation, it is referred to as a business design construct. In this case the model serves as a guide for the innovation and design process. The model encourages completeness in thinking through what the business organization is or should be, serves as a mechanism to stimulate innovation, and prompts thorough understanding of the business organization's behavior due to the interactions of its parts.

Model - innovation, design, and strategy --
The business model, as a template, serves as a framework, at guiding light, which shapes the inquiry process to understand the business organization. The business model, as a design construct, serves as a starting point, as a guide to the inquiry process for business innovation and design, to define a new or improved business organization. There is nothing about the model -- as a template, construct, or guide -- to constrain the design. If over time the model is found to be incomplete or elements need new classifications, the model could be updated to reflect those needs.

Business models and mental models --
Mental models and business models are interrelated. Explicitly understanding the mental models of the members of the organization regarding their business flushes out mental constraints members typically place on business model innovation. See mental models for an explanation.

Elements vs. aspects --
Business elements, the parts of the business, are associated with the aspects of the business organization in the business model construct. The elements, though organized by aspect - purpose, function, process, and structure -- do not constitute an aspect. An aspect is a perspective by which to view the business organization as defined above.

Said another way, aspects are perspectives of a system and elements are parts of a system, and though for business model representation purposes elements are associated with aspects, the aspects do not ""own"" the elements, that is, an aspect is not a super set made up of parts most visible to that aspect. Thus a particular set of business model elements may be more visible from a particular aspect, but are not ""parts"" making up the aspect.

All of the business model elements are visible from any of the aspects, some are just more clearly visible than others. For example, offerings are most clearly visible from the function aspect, but the elements of mission, values, behavioral principles, inputs, and processes are visible as well, if the inquirer looks for those elements as well. All elements are to be viewed, discerned, and contemplated from every aspect at some time during the inquiry process. For example, inquiry on the integration of the aspects requires viewing all of the elements from multiple perspectives.

Collectively, the elements making up a business organization are connected in a practically indecipherable network of interrelationships. What the aspects provide is a perspective for inquiry on this mess of interrelationships and to draw attention to a particular subset of elements in the process. This does not mean that the elements of purpose can only be ""seen"" from the purpose aspect. For example, they can also be viewed, discerned, and contemplated from the aspect of function, which is the output of the business organization.

Business model contents and structure --
The model structure is based on the system aspects. The elements by aspect are listed below. For more discussion related to the elements see the associated architectures -- purpose architecture, function architecture, process architecture, and structure architecture -- and the associated aspects -- purpose aspect, function aspect, process aspect, and structure aspect.

Purpose - environment aspect -- environment -- The environment includes all that is important to the business organization that is outside of its boundaries. The environment is where, or the context within which, the organization defines it purpose. The environment elements include --

  • Market -- where the firm chooses to compete
  • Competitors -- those firms that compete directly, indirectly or in any other way with the offerings of the firm.
  • Industry -- the collective group of suppliers, affiliates, channel partners, competitors, etc. that make up the industry. Industry can have multiple definitionsnew for a specific firm. A producer of vinyl lineals may be in the window industry, pipe industry, lineal extrusion industry, or construction industry simultaneously.
  • Stakeholders -- Can refer to anyone or party that has some economic exchange with the business. This would include employees, owners (investors), lenders, debtors, suppliers, customers, and the governments (local, state, national, international). Going beyond immediate transactions can include the community at large, beyond governing bodies. Some businesses are held accountable for the communities of their suppliers. Also, affected by the business are future generations.

Environment-Purpose aspect -- purpose -- The objective of the business model elements associated with the purpose aspect is two-fold - first is to be purposeful and provide organizational focus and second to seek solutions and opportunities in the environment. These objectives are pursued by the leaders of the business via the strategic management process. The purpose elements include --

  • Vision (Jim Collins' term)
    • core ideology
      • values - essential and enduring tenants of the organization. Timeless guiding principles.
      • purpose/passion - the organization's fundamental reason for being.
    • envisioned future
      • achievements to be - lofty inspiring and guiding goals well beyond the existing planning cycles. BHAG's.
      • vivid descriptions - a picture of a better world because the organization pursues its purpose.
  • identity -- Identity is the fundamental characteristics of the organization and its members -- those characteristics members most strongly value and form the basis for how they identify themselves. A coherent sense of identity is what frees people to contribute in creative and diverse ways. See identity.
  • Identity is the sense-making capacity of the organization. It is the organization's sense of self, the touch point for all decisions and the collective organization knowledge of who it is. This sense of self, i.e. identity, includes vision, mission, values, and plus factors related to the path the organization is on. This worldview includes interpretations of its history, present decisions and activities, and its sense of the future. (Wheatley, 2005, pp 37-39)

Function aspect -- The objective of the business model elements associated with the function is to provide value to the environment in pursuit of the business organization's purpose. Function encompasses offerings, outputs, ends, and effect (see function aspect). Function elements include --

  • all offering types - commodities, goods, services, experiences, and transformations
  • fulfillment and support - what the business does to market its offerings, reach, service, and support customers
  • information and insight - information exchanged between the customer and the business
  • relationship dynamics - the nature of the interactions between the customer and the organization
  • pricing structure - pricing related to the offerings and their value to the customer
  • value proposition - the value proposition to the customer typically has multiple dimensions, including customer sacrifice
  • customers - even the customers themselves have a pattern to be understood in terms of its architecture and implications for the business organization

Process aspect -- The objective of the business model elements associated with the processes is to produce the function. These elements are the activities of the business organization. All activities of the business organization fit the following process classification --

  • throughput processes - these are the processes which generate and distribute wealth for the business organization
    • demand creation -- branding, advertising, placement, image management
    • sell -- calls, problems solving, contracts, negotiation
    • order -- order taking, offering configuration, order configuration, order processing
    • plan -- plan capacity, plan orders, plan delivery
    • source -- supply base development, supplier selection, resource acquisition, inbound logistics
    • make -- value add processes, material conversion
    • deliver -- channel development, offering delivery, outbound logistics
    • service -- post-delivery servicing, remote support, on site support
    • return -- return mistakes, warranty, end of life
  • organizational processes - these are the processes that enable the throughput and creation of future potential processes
    • measurement -- generate truth; the generation and dissemination of information, understanding, and knowledge
    • decision -- making choices; creating power-to-do; development and duplication of power, authority, and responsibility; provide governance
    • membership -- create commitment; provide meaningfulness and excitement of what is done
    • conflict management -- formation and institutionalization of values for regulation of behaviors and decisions
  • creation of future potential - processes to develop new capabilities, offerings, and businesses
    • skills development -- development of the capabilities of the members of the organization
    • innovation producing processes (see types of innovation) --
      • research -- search for new technologies
      • process development -- development of new process capability
      • offering development -- development of new offerings
      • business innovation -- business model innovation to improve value provided and the efficiency in delivering that value
      • business startup -- the creation of whole new business models
      • management innovation -- a marked departure from traditional management principles, processes, and practices, or, a departure from customary organizational forms that significantly alters the way the work of management is performed (Hamel, 2006).
    • strategic management -- at its core, strategic management is about producing the ongoing innovation needed to evolve the business organization, sustaining its competitive advantage.
  • competencies --
    • What are the competencies required to conduct business?
    • Which of those are core to the business, as in critical to the value provided by the business and its strategic success?
    • Of those, which ones are distinctive, unique and critical to a competitive advantage?
    • What is your business better at than anyone else in the world?
    • What could your business be better at than anyone else in the world?
  • value system processes --
    • What are the processes from the origination of the value system to the end customer and the end of the product life cycle?
    • What are the costs and value added by process?
    • What is the performance by process?

Resources & Structure aspect -- The objective of the business model elements associated with the structure is to organize and make available the resources of the business organization. Structure encompasses resources, inputs, means, and cause (see structure aspect). Structure elements include --

  • Resources --
    • people -- leaders, managers, innovators, and architects, among others, whose capabilities enable the competencies of the activities of the organization
    • financing -- the sources of capital to fund the firm
    • functional expertise - includes the skills needed by the members of the organization to effectively carry out the activities of the processes of the organization. Functional expertise relates to the skills of individuals in contrast to the competencies of the organization. How skilled people are organized and how effective the process designs are key factors determining the level of competency of the organization.
    • entities -- partners, suppliers, aligned organizations which are essential to the value creation of the organization
    • strategic assets - include tangible and intangible assets - brands, patents, oil field leases, mineral rights, infrastructure, proprietary standards, secret formulations, etc. The more unique and valuable these assets, the more the opportunity exists for them to contribute to a competitive advantage.
    • other necessary resources - includes any non-strategic resources or assets that are necessary to organization to carry out its business, whether people, skills, other physical assets, partners, suppliers, and alliances.
    • consumable resources for conversion - includes those resources acquired and converted to add value, even if the conversion is only to deliver the acquired resources.
    • techniques - particular methods or secrets that produce unique value.
    • brand names
    • contracts
    • equipment, etc.
  • Structure --
    • networks - personal networks are informal, formal, internal and external. Informal networks often have greater influence in an organization than the relationships displayed on the organization chart.
    • principles - organizational, business, and management principles which guide behaviors -- lessen the need for explicit detailed rules and higher level decision making in response to events and opportunities.
    • ownership - those who hold ultimate sway over the organization.
    • governance - the ultimate authority from which all other authority flows.
    • organizational structure - is certainly the structure of the human resources of the business organization, but more importantly it is the decision making structure of the organization. As the decision making structure it addresses both who and how decision get made - addressing one of the key purposes of a social system, effecting choices. The decision making structure creates the power-to-do within the organization, duplicating power from the very top of the organization down to lower levels (see social system). The lower the level decisions can be made, guided by such things as values and principles, enabled by such things as skills and business savvy, the more efficient decision making is and the more responsive the organization is to events, whether those events are problems or opportunities.
    • value system structure - the organization and ownership of the network of activities making up the channel, supply chain, value chain, and overall value system. This structure determines the degree of control and influence over the value produced by the value system and who collects the benefits of providing the value.
    • physical configuration - addresses the physical structure and geographical location of the assets of the business organization, including its members. Physical location has not only significant impact on costs for such things as the distribution of goods -- but also for the type of community which is best for attracting and retaining the right members for the organization and the culture of the area where the organization is located. Certain types of businesses thrive best in a business ecosystem of similar businesses, such as financial companies in Manhattan and high tech firms in silicone valley in California. Also, the culture of countries have a significant impact on the financial success of their business organizations.
    • information architecture -- the information and its structure which enables the processes of the business organization.
    • culture -- stories, rituals and routines, symbols, organizational structure, control systems, power structures, communications, incentives.