Business Model Development
Dr Ashok Ohol, SJ
XISS, Ranchi Jharkhand
Business Model
• business model describes the rationale
of how an organization creates, delivers,
and captures value, in economic, social,
cultural or other contexts. The process of
business model construction and
modification is also called business model
innovation and forms a part of business
strategy.
• In theory and practice, the term business
model is used for a broad range of informal
and formal descriptions to represent core
aspects of a business, including purpose,
business process, target customers, offerings,
strategies, infrastructure,
organizational structures, sourcing, trading
practices, and operational processes and
policies including culture.
What is a business model and
why is it important for your business?
• The term business model is widely used in theory and
practice and reflects core aspects of a business as such.
Osterwalder and Pigneur describe it as “[…] the rational of
how an organization creates, delivers and captures value”
(2010, p.14). To translate these 3 core tasks into concrete
building blocks they developed the
Business Model Canvas. The Business Model Canvas
comprising of customer segments, value propositions,
(distribution) channels, customer relationships,
revenue streams, key resources, key activities,
key partnerships and cost structure.
• This method can help safe water businesses to capture
the strategy of how to create value for specific target
groups, called customer segments and how to reach
these customer segments with safe water or household
water treatment solution (HWTS) at what price. An
important dimension at an early stage is to determine
the revenue streams so that the business can become
cost-covering or profitable. In a next step, business
model covers the aspects of what resources are needed,
how to finance the business, with whom to collaborate in
order to make the business work etc. When reflecting on
your existing business or defining a new idea it is crucial
to address these topics, specifically when you are
working in the complex BoP market.
For whom is business model development essential?
• Developing a business model is essential for
profit and socially oriented safe water firms
who are starting to concretise a business idea.
It will help to assess and refine the business
idea as well as reflecting and improving the
model of a current business. It is applicable for
profit-oriented operations as well as for not-
for profit oriented ones.
How to create a new business model
• With the help of the prominently used
Business Model Canvas (BMC) (OSTERWALDER &
PIGNEUR 2010), a company can refine, reflect or
define its business model and take strategic
decisions on how to proceed and implement its
developed ideas. The goal of the BMC is to assist
water entrepreneurs in understanding their business
idea and how the business operates to encourage
discussions, foster analysis and leverage creativity to
design a business model that works.
Design logic and narrative coherence
• Design logic views the business model as an
outcome of creating new organizational
structures or changing existing structures to
pursue a new opportunity.
Complementarities between partnering firms
• business models should be understood from an
open systems perspective as opposed to being a
firm-internal concern. Since innovating firms do not
have executive control over their surrounding
network, business model innovation tends to
require soft power tactics with the goal of aligning
heterogeneous interests.[7] As a result, open business
models are created as firms increasingly rely on
partners and suppliers to provide new activities that
are outside their competence base.
Categorization
• Choudary contrasts pipes (linear business models)
with platforms (networked business models). In
the case of pipes, firms create goods and services,
push them out and sell them to customers. Value
is produced upstream and consumed
downstream. There is a linear flow, much like
water flowing through a pipe. Unlike pipes,
platforms do not just create and push stuff out.
They allow users to create and consume value.
Platform
• There are three elements to a successful platform
business model. The toolbox creates connection by
making it easy for others to plug into the platform. This
infrastructure enables interactions between participants.
The magnet creates pull that attracts participants to the
platform. For transaction platforms, both producers and
consumers must be present to achieve critical mass.
The matchmaker fosters the flow of value by making
connections between producers and consumers. Data is
at the heart of successful matchmaking, and
distinguishes platforms from other business models.
Design
• Business model design generally refers to the activity of
designing a company's business model. It is part of the
business development and business strategy process and
involves design methods. Massa and Tucci (2014)[40] highlighted
the difference between crafting a new business model when
none is in place, as it is often the case with academic spinoffs and
high technology entrepreneurship, and changing an existing
business model, such as when the tooling company Hilti shifted
from selling its tools to a leasing model. They suggested that the
differences are so profound (for example, lack of resource in the
former case and inertia and conflicts with existing configurations
and organisational structures in the latter) that it could be
worthwhile to adopt different terms for the two.
• They suggest business model design to refer
to the process of crafting a business model
when none is in place and business model
reconfiguration for process of changing an
existing business model, also highlighting that
the two process are not mutually exclusive,
meaning reconfiguration may involve steps
which parallel those of designing a business
model.
Economic consideration