benefits of use of business models include:
• Improved communication: improved communication among business executives, by providing a common perspective for the organization’s core business logic, can help executives to “get on the same page”
• Providing a Common Perspective: having a common perspective, structure, and understanding allows for more effective business design6 and enables the successful deployment of an organization’s target-state Enterprise Architecture
In summary, business models support clarity of thought using a different point of view from the one provided by traditional strategic planning methods and can foster the greater level of thinking required for innovation.
4.4 Different Example Representations of Business Models
(Syllabus Reference: Unit 1, Learning Outcome 1.1.3: You should be able to describe different example representations of business models.)
Business models can be represented in many different ways. This section describes a number of examples, including the Three-Element Framework shown in Figure 3. Other well-known framework examples include the Four-Box Framework (Figure 4), the Business Model Cube (Figure 5), and the Business Model Canvas (see Figure 6).
4.4.1 The Three-Element Framework
The Three-Element Framework from the Business Model Innovation Factory7 shown in Figure 3 describes the structure of a business model in its most abstract form, relating operating model, customer experience, and the financial model.
Figure 3: Abstract View of a Business Model
4.4.2 The Four-Box Framework
The Four-Box Framework, shown in Figure 4,8 comprises:
• A customer value proposition – an offering that helps customers more effectively, reliably, conveniently, or affordably solve an important problem
• A profit formula – defining how a company creates value for itself and shareholders
• Key resources – the people, technology, products, equipment, partnerships, channels, and brand to deliver the customer value proposition
• Key processes – such as design, development, manufacturing, marketing, and training, which deliver the customer value proposition
Many of the terms and ideas are similar to the Business Model Canvas (see Section 4.4.4).
Figure 4: Four-Box Framework
4.4.3 The Business Model Cube
The Business Model Cube, shown in Figure 5,9 is designed as a generic framework for working with any business model, proposing that any business model has seven generic dimensions (Value Proposition, User & Customer, Value Chain, Competencies, Network, Relations, Value Formula).
Figure 5: Business Model Cube
4.4.4 The Business Model Canvas
The Business Model Canvas, described in Business Model Generation by Alexander Osterwalder and Yves Pigneur (see References), is an intuitive technique for creating a sketch of a business model. As shown in Figure 6,10 it includes nine segments which form the building blocks for the business model. This is explored in detail as an example of how to create a business model in Chapter 5.
“We need a business model concept that everybody understands: one that facilitates description and discussion. We need to start from the same point and talk about the same thing. The challenge is that the concept must be simple, relevant, and intuitively understandable, while not oversimplifying the complexities of how enterprises function”.
[Source: Alexander Osterwalder & Yves Pigneur]
Figure 6: Overview of the Business Model Canvas
4.5 Business Models and Business Architecture
(Syllabus Reference: Unit 1, Learning Outcome 1.2.1: You should be able to explain the relationship between business models and Business Architecture.)
Business models provide a high-level visual representation of the design of a business. They describe the rationale for how an organization creates, captures, and delivers value to its various internal and external stakeholders. They also provide a basis for establishing a common understanding of how to describe and manipulate the business in pursuit of new strategic alternatives. In addition, they can be used for discussions around business innovation and strategy planning for the allocation of resources.
Usually there is sufficient information available in a draft business model for interested parties to explore overall feasibility and support strategic decision-making. On the other hand, the sketch view does not normally contain sufficient information to perform a risk assessment or to develop a plan to execute the agreed strategy.
While a business model creates alignment for achieving business strategy, it is the Business Architecture that articulates the different perspectives and impacts of the business model.
Business Architecture breaks the business model down into the core functional elements that describe how the business works, including the business capabilities, value streams, organizational structure, and information objects required to deliver the desired business result. This process can also identify gaps and conflicts in the thinking and assumptions
