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What are business models?
A selection of talks on Strategy
My name is Charles Baden-Fuller. I'm a Centenary Professor of Strategy at Cass Business School, City University London. Today I want to talk to you about what are business models and how this concept can be useful for managers and for society.
The agenda for today, is to talk about business models under three different headings. First of all, what is a business model? It's a mechanism which combines customer sensing, value creation, and value capture. It contains theory about how things work. The business model also defines the rules of the game of competition. And innovation in business models is an important driver of industry change. These statements are quite novel and challenging, because many people see competition between firms as occurring through products, through firms and through technologies. But I'm suggesting that the business model is the way that that competition takes place. Thirdly, we'll talk a bit about how managers can use the concept of a business model. Could it help them make sense of the world and as a mechanism to guide their organisations.
So what is a business model? It's tractable concept that helps us tell us about the economics of our business, and it has three important dimensions. The first, is how do we identify who is our customer? What I call the customer sensing dimension. Secondly, how do we actually create value for those customers through the delivery of the product or service to those customers, what I call the value delivery mechanism. Lastly, how do we monetise these benefits? Something typically called value capture. These three concepts; identifying customers, creating value for the customer, and monetising that value, extends a traditional strategy emphasis on just value delivery, as extolled by my colleagues Rafi Amit and Chris Zott, in their work on business models, to include the dimension of monetisation, or value capture as emphasised by David Teece and also customer sensing as emphasised by my colleagues George Day, Rita McGrath and Ian MacMillan.