Great question! These words, like many other business words, are often thrown around without much precision. Everybody "kinda" knows what they mean. But if you ask 10 executives for their definitions, you'll likely get 15 different answers. These will all sound really good--but often contradict one another and are full of other ambiguous buzzwords. It seems odd. We don't have good definitions for business model or strategy (or how they inter-relate), yet millions of businesses are doing these things Every day.
For me, these are concepts too important to keep ambiguous. For better or worse, I have a degree in philosophy. If I learned anything from that, it's the importance of language and meaning. With that in mind, I investigated this exact question about 5 years ago because I was engaged with some strategic planning--and almost every resource I found on the subject seemed inadequate. So I read dozens of papers and synthesized that into the following definitions. While this is my take on it, I believe this yields a powerful framework for business planning and analysis.
A business model is a snapshot of the way a business is configured to create, deliver, and capture value. At its core, a business model is comprised of strategy, structure,
and systems. These dimensions are defined below:
- A business strategy is the realization of value a company offers to one or more customer segments and of the arrangement of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams.
- The business structure is the realization of the people, processes, and partners that work to create and deliver value in accordance with the strategy of the business model.
- Business systems are the technology and infrastructure used to enable and streamline how the business structure (e.g. people, process, partners) delivers value against the business strategy.
Properly applied, a business model can serve as a context for strategic business planning. A strategic business plan provides the roadmap for changing from the current business model to a future/envisioned business model. If planned and executed well, the strategy of the new business model results in the creation, delivery, and capture of more value—meaning a better financial performance and a greater return on invested capital.
On a side note, people often mistake revenue model (e.g. freemium) for business model. A revenue model represents the part of the business model that captures value from customers.
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