DEFIN­ING A BUSI­NESS MODEL

Economic Challenger - - NEWS -

A busi­ness model is a frame­work which guides an en­tre­pre­neur in plan­ning a busi­ness or­ga­ni­za­tion. It is a roadmap for en­abling the en­tre­pre­neur to sur­vive and grow with the busi­ness. The con­cept of the busi­ness model first ap­peared in the ABI In­form data­base in 1975. Be­tween 1975 and 1994, there were 166 ar­ti­cles that cited the term, while 1,563 ar­ti­cles were re­ferred to it dur­ing the pe­riod 1995-2000 (Ghaziani & Ven­tresca 2002). Wealth cre­ation is t he most i mpor t ant el­e­ment i n an en­trepreneur­ship (Knight, 1921). Amit and Zott (2001) de­fines busi­ness model “as a value cre­ation po­ten­tial aris­ing from the de­sign of trans­ac­tions be­tween a fo­cal firm and ex­ter­nal stake­hold­ers such as part­ners, ven­dors, and cus­tomers. The busi­ness model spans firm and in­dus­try bound­aries.” This per­spec­tive in­te­grates the the­o­ret­i­cal views of the “value chain frame­work” (Porter, 1985), Schum­peter's the­ory of “cre­ative de­struc­tion” (Schum­peter, 1942), the re­source-based view of the firm (Amit and Shoe­maker, 1993), strate­gic net­work the­ory (Gu­lati, 1998), and trans­ac­tion cost eco­nom­ics (Wil­liamson, 1975). The sources of value cre­ation sug­gested by th­ese the­o­ries re­fer to fac­tors that en­hance the to­tal value cre­ated in trans­ac­tions (Bran­den­burger & Stu­art, 1996), and which give rise to four dis­tinct themes (nov­elty, ef­fi­ciency, com­ple­men­tar­i­ties, and lock-in) that can be used to de­scribe and mea­sure busi­ness model de­sign (Zott and Amit, 2003). Fur­ther ex­tend­ing the “value cre­ation” per­spec­tive, Ma­gretta (2002) con­cep­tu­al­izes busi­ness mod­els as “sto­ries that ex­plain how en­ter­prises work” (2002: 87), and that cen­ter on a value-cre­at­ing in­sight. The main ques­tions a busi­ness model an­swers are:

Who is be­ing served? What is the value that the cus­tomer is able to de­rive? What are the value propo­si­tions that the com­pany would be able to of­fer to other stake­hold­ers? How is the com­pany dif­fer­ent from its best com­peti­tor? (See, also, Zott and Amit, 2003). Other re­searchers sug­gest that the busi­ness model refers more to ques­tions about value ap­pro­pri­a­tion. Eisen­mann, for ex­am­ple, views the busi­ness model as “a hy­poth­e­sis about how a com­pany will make money over the long term: what the com­pany will sell, and to whom, how the com­pany will col­lect rev­enue, what tech­nolo­gies it will em­ploy, when it will rely on part­ners, and fol­low­ing from the last two points,

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