Business Model

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For most , a business model refers to the way in which an organization creates and delivers value. Some use the term to mean a high-level accounting spreadsheet that describes how a given business or unit of a business is going to make money. In essence, a business creates something of value for some group of customers. The assumption is that customers will pay $X for the product or service, which the business, using its technologies and processes, can produce for $Y, and the difference between $Y and $X is the profit the business will earn. Many process theorists look at business models in this way when they are trying to evaluate the basic assumptions of a firm or business unit.

The term was given new prominence in 2010 when Osterwalder and Pigneur published their book, Business Model Generation (Wiley) that provided a more comprehensive way of talking about business models. By incorporating concepts like customer relationships, value proposition and key activities (processes) inside the concept of a business model, the authors turned the concept of a “business model” into an analytic tool that has developed its own following. In essence, the Osterwalder-Pigneur concept of a business model is a kind of business architecture framework.

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