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Business models in strategic management
Business models in strategic management

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1.3 Business models as conceptual representations of how an organisation functions

This view considers business models as formal conceptual representations. The word ‘formal’ differentiates this view from the view of business models as cognitive/linguistic schema because cognitive and linguistic schemas are not fully formalised. In contrast, in the view of business models as conceptual representations, they can be represented in a formal way (written and/or graphical).

A definition of business models in this view is:

A business model is a conceptual tool containing a set of objects, concepts and their relationships with the objective to express the business logic of a specific firm. Therefore we must consider which concepts and relationships allow a simplified description and representation of what value is provided to customers, how this is done and with which financial consequences.

(Osterwalder et al., 2005, p. 10)

A similar definition puts forward the idea of business models made of different components, or blocks:

the concept refers to the description of the articulation between different [business model components] or ‘building blocks’ to produce a proposition that can generate value for consumers and thus for the organization.

(Demil and Lecocq, 2010, p. 227)

Business models’ literature is relatively young and there is no agreement on how to formally represent a business model on paper. In this course, however, you will learn about a popular way of representing business models: a business model canvas.

A woman presenting in a boardroom to others sat round a table. The presenter is standing next to a flipchart.

A business model canvas is a tool for visualisation of a business model that helps to make sense of how an organisation creates value. Designing a business model canvas is a creative process that involves strategic decision makers at various levels of an organisation. In this process, the work of strategic teams resembles that of an artist aiming to express their thoughts and ideas on canvas; hence the name business model canvas.

You will explore this tool and how you can apply it in greater detail in Section 4 on designing business models.