Five core concepts of business model

As a key business strategy, corporates design business models that are built on five core concepts. If the core concepts are sound ones then company goes to top range whereas poorly made one spells doom. Therefore, these five core concepts are considered as the building blocks upon which business model is constructed. Here they are:

Little bit of history before I go to list out the core concepts. Suvi Nenonen and Kaj Storbacka of Hanken School of Economics, Finland published a thought provoking article titled “Business model design: conceptualizing networked value co-creation” wherein they have succeeded in tracing five core concepts that form main threads:

1.     Value creation: As a core concept, value creation ranks first in the list. Alternate phrases such as value proposition, value design, value configuration or simply value for customers mean the same thing.  Designers of business models must convey their customers how their firms create value in the first place.

2.     Earnings logic:  Once again earnings logic has alternate names. Profit potential, revenue model, revenue logic, capture value, profit formula, return to internal stakeholders, transactional link to exchange partners, cost structure are chief amongst these. The fundamental aspect of making profit is vital in every business strategy.

3.     Value network: Thirdly, value network is emphasised as vital concept in building and sustaining business models. This is also referred as structure of value chain, partner network, value network, link to external stakeholders, transactional links to exchange providers and so on. This concept cultivates external orientation of a business and defines structure, content and governance of transactions with external parties.

4.     Resources & capabilities: As juxtaposition to value network, resource & capability element prod business to look more inwardly by employing assets in a suitable manner. This concept also has alternate names such as core competency, resources, assets, processes, activities and strategy & structures and all material aspects within a business. Capability and capacity is the bulwark on which a business is built and sustained, so does the business model itself.

5.     Strategic decision:    A key concept confronting designers is the framing of strategic choice within a business model. Such a choice is found in expressions as:  target market, target customers, position within value network, competitive strategy, and market segmentation. Strategic decision seeks to differentiate the market niche and produce such products and services that satisfy the chosen segments in marketplace.

In addition to the five core principles identified by Suvi Nenonen and Kaj Storbacka, sixth core principle belief system was introduced by H L Tikkanen et al who also gave different terms for this aspect such as reputational rankings, industry recipe, boundary beliefs, and product ontology.

Cheers!

Muthu Ashraff Rajulu

Business Strategist

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E-mail:   cosmicgems@gmail.com

Blog: Business Strategist