A business model describes
the rationale of how creates, delivers, and captures value(economic, social, or other forms of
value). The process of business model construction is 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, offerings, strategies, infrastructure, organizational
structures, trading practices, and operational processes and policies. The
literature has provided very diverse interpretations and definitions of a
business model. A systematic review and analysis of manager responses to a
survey defines business models as the design of organizational structures to
enact a commercial opportunity.Further extensions to this design logic emphasize the use of narrative or
coherence in business model descriptions as mechanisms by which entrepreneurs
create extraordinarily successful growth firms.
Whenever a business is established,
it either explicitly or implicitly employs a particular business model that
describes the architecture of the value creation, delivery, and capture
mechanisms employed by the business enterprise. The essence of a business model
is that it defines the manner by which the business enterprise delivers value
to customers, entices customers to pay for value, and converts those payments
to profit: it thus reflects management’s hypothesis about what customers want,
how they want it, and how an enterprise can organize to best meet those needs,
get paid for doing so, and make a profit.
Business models are used to describe
and classify businesses (especially in an entrepreneurial setting), but they
are also used by managers inside companies to explore possibilities for future
development. Also, well known business models operate as recipes for creative
managers. Business models are also referred to in some instances within the context of
accounting for purposes of public reporting.
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