What is a Business Model?

 

The essence of BM

The Business Model (BM) is a conceptual tool for academics and practitioners to design, analyze or manage the business of organizations.  

The BM is a partial abstraction of a business, either actual or projected.

The BM is a fundamental concept for management, as it is what shows the underlying reasons for performance, provided that processes are run properly and transaction counterparts respond appropriately.

 

A definition of BM

The BM of an organization consists in the fundamental characteristics of its business with regard to the management of value, and in the general and ordinary way this one is operated to reach a strategic goal.

The BM is characterized by the context, content and concept of the organization's regular business operations to use, create, maintain and exchange value.

The BM is virtually a map, a flowchart and an animation representing the business, and a profile adopted by the organization to implement its business policy and achive business performance.

 

Bm2 as Business Design tool

Whether we are talking about a start-up, a new business inside an existing company or the reorganization of an activity, the Bm2 framework is an effective tool for Business Design, following the logic of BMs.

The way a business works is becoming more and more important, when we compare with more traditional approaches that considered, along the history of business management, products, quality, marketing, or more generally "resources", as the main drivers of performance. Especially since the rise of the Internet, there are countless examples of businesses whose success came more from the new logic they relied on than on any particular aspect of their activity. A new practice recently emerged, reflecting this need for entrepreneurs and "intrapreneurs" to benefit from new ways to do business and making them actual "business designers": Business Model Innovation (BMI).

The Bm2 Framework sets the relevant concepts and elements to design businesses in an effective way, taking into account all potential sources of performance in a BMI perspective.

 

Bm2 as Decision-Making tool

Business management usually consists in handling "wicked problems" that are not easy to formulate, for which objectives are not obvious and involve multiple stakeholders, for which root cause analysis is subject to judgement, lists of solutions are never exhaustive and decisions' effects are uncertain (Rittel and Webber, 1973). In a world of such high complexity, the standard "rationalistic" approach for decision-making is unrealistic. And the "incremental" approach is often too conservative, as it only allows marginal changes and leaves little place for innovation.

A more efficient way to handle wicked problems is to apply a "mixed-scanning" approach (Amitai Etzioni, 1967), introducing a split between fundamental decisions, with major implications and requiring a high level vision, and incremental decisions, at a more detailed level, implementating or anticipating those fundamental decisions. Applying this approach to business management, the Bm2 Framework marks the split between those two levels: on the one hand, strategy implies making fundamental successive choices of BMs (either planned or emergent), and on the other hand, tactics is about incrementally managing the current BM.

The Bm2 Framework sets the relevant concepts and elements that allow this mixed approach, at both levels of decision-making for business management.

 

Bm2 as Investor Relation tool

Financing its activity is of major importance for most organizations. It is the case for start-ups, of course, but it is also the case for mature organizations. 

The Bm2 framework is an important Investor Relation tool, with mostly two different approaches:

  • A prospective approach: Bm2 is a communication tool to present the way the organization is planning to run its activity. A BM forecast should be the operational counterpart of financial forecasts in that respect.
  • A reporting approach: Bm2 is a communication tool to present the actual way the organization's business is currently run. A BM report should be the operational counterpart of financial reports in that respect.

It is indeed more and more accepted among investors that technology or products are not the only drivers of innovation or performance. The BM, seen through the Bm2 framework, is the necessary tool to let investors grasp what may actually lead to success.

The Bm2 Framework presents the relevant concepts and elements to understand the roots of current or future performance for investors.

 

The essence of BM and the constitution of the Bm2 framework

To understand the essence of BM according to the Bm2 framework, before considering the 7 Blocks, refer to the following points (available in the "Bm2 Introduction" section of the right column):  

BM Background:

Business Operations:

Value Management:

BM Fundamentals:

 

Bm2: Design, Analyse & Manage your Business