Going behind the scenes: What is a business model?

What is a business model? 

A business model describes how an organisation creates and delivers value to stakeholders and/or customers. 

The “business model canvas” is a structured way of visualising this logic. This framework was developed by Osterwalder and Pigneur ^[1]. It is an internationally recognised way of describing how businesses operate. 

In the version below ^[2], the business model has been split into “back stage”  and “front stage”. The “back stage” reflects the elements that define how the business works and its cost structure. The “front stage” describes how the organisation interacts with the market, its customers, and its revenue model.

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The following 2-minute video explains the nine elements of this framework. 

The Ellen MacArthur Foundation commonly employs the tagline “circular by design”. A circular business model designs and re-thinks business models using circular principles. To operate in practice requires collaboration and reciprocity from other organisations in the supply chain that a business interacts with to create products and/or deliver services. 

The strength of the business model canvas lies in the fact that it is both simple and flexible. Like any framework it has limitations. In particular, it doesn’t direct the user to consider other types of value that can be created or destroyed by businesses. This includes social value; environmental value or other nonfinancial benefits that they bring to the market or their customers. 

In the graphic below, Osterwalder and Pigneur’s canvas has been annotated by the Ellen MacArthur Foundation with prompts and questions. These are designed to support people to identify opportunities to shift a business model to enable circularity. 

© Graphic by the Ellen MacArthur Foundation/Ideo 2016 

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References 

^[1] The Business Model Canvas 

 ^[2] Defining the Concept of Circular Economy Business Model