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| A Comment on Business Models |
| Friday, November 10, 2006 |
In the 1990's, the term business model was everywhere and was being tossed around very liberally. Basically, if you said the word business model you looked smarter than you were and it matter little if you understood what you were saying or new how to implement one, because you were so smart. The term itself and its definitions are only as specific as the user can make them and, for the most part, you will look smarter today if you use the term and know what it means. If you really know how to define a business model and can recognize when one is new to the world or unprotected you can patent the model and it becomes an intellectual property that you can negotiate with as an asset.
What is a business model?
A business model is a conceptual tool used to describe a business system. This tool allows for a business to be diagrammed and discussed as an abstract entity. A business models include a description or illustration the core business functions and how the relate to the system that the business exists in. The process of creation of a business model requires basic systems thinking and the end result can be simple or complex. The modeler determines the degree of complexity. So, in a nutshell a business model is a tool.
The simplest business model would be the village merchant business model, which is Business A sells Product A to Customer A for a fee. It is the basic model that underlies most business concepts.
What is this utility of a business model?
A business model is primary a communications and planning tool that can be used to express complex tools in a compact and understandable form. When a business can be expressed in finite terms and reduced to its basic activities and relationship investor, stakeholders, managers, and, increasingly, governments can evaluate the merits of any given business.
Entrepreneurs should consider business models to be of the utmost importance because they will be accountable for the risks involved in any given business activity they participate in and should make every effort to understand what it is their business is supposed to be doing. This general sense of the functions and entities that make up the business system can then be communicated to employees and al members of the business team in order to keep the entire group focused on reaching the same goal.
Is there a specific process for creating a business model?
There has been an effort to introduce conventions into the practices of expressing a business model, but these efforts will benefit academics much more than the average individual, but there are a lot of people who need business models. A business mode can be expressed in using any method appropriate for the author of the model and the parties to which it needs to be communicated.
Resources for understanding the significance of business models:
To understand business models, practice drawing system diagrams of how businesses you know work or talk to businesses owner and ask them to diagram their businesses for you. If you work in an office talk to a manger and ask them to diagram how your department works and how it relates the product or service your company provides. Business models have a lot to do with how you think about a business. As such, there are literally hundred of thousands of resources that you can consider.
Recommended readings:
In the 1990s, the big push for business process reengineering started as almost every major business realized that there were benefits to be gained by implementing new technologies into there business to effect radical change in business performance. I would recommend that anyone interested in an overview of business process reengineering to read Reengineering the Corporation - A Manifesto for Business Revolution by Michael Hammer and James Champy. This as an excellent overview of the subject by authors who claim to have invented the concept. Another book I would recommend is Process Innovation: Reengineering Work Through Information Technology by Thomas Davenport. These authors have been very influential on the subject and, after reading several books and a number of papers by each author you will find that many of their differences a primarily semantic. The major area where they are of a difference of opinion is about the rate at which the desired changes should be implemented.
Both books are highly educational reads, although, Hammer and Champy write in a more narrative style. I recommend reading about Business Process Reengineering (BPR) and Business Process Innovation (BPI), because these two activities are heavily dependent upon understanding a business model and both of these authors discuss in sufficient detail how to examine a business from a conceptual view and provide examples of how models have been utilized to transform businesses. These books are over a decade old, businesses still operate on the same basic principle with the primary differences being the technology that is employed to accomplish tasks in an economically beneficial manner. |
posted by Domesticated Dog @ 2:49 PM  |
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