4.3 The Impact and Benefits of Business Models

       (Syllabus Reference: Unit 1, Learning Outcome 1.1.2: You should be able to describe the impact and benefits of business models.)

      Business leaders can obtain powerful leverage using business model artifacts in conjunction with other strategic planning artifacts, Business Architecture views, and organizational change methods to accelerate strategic execution and alignment.

       Why Business Models Matter?

      The business model “forces” managers to think rigorously about their business.A business model’s great strength as a planning tool is that it focuses attention on how all the elements of the system fit into a working whole.

      [Source: Joan Magretta, Harvard Business Review]

      Business model artifacts highlight the critical relationships between the various elements that constitute a business in ways that:

      • Are not fully covered by other approaches or techniques and, therefore, contribute to a more complete examination of costs, revenues, and other business perspectives

      • Are covered by other approaches or techniques – but through a different method or viewpoint – in which case business modeling helps cross-check and correlate other points of information and assumptions

      The 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,

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