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Introduction to business models

This is a introduction to the term business models. The teacher Wiebke also explain the different between a business model and a strategy
Hello, this is a short introduction to the term business model. The term business model is really or has really become a buzzword during the recent years. It’s used everywhere and in different ways all over. And there’s really a problem with that, people use it in different terms and don’t really, like, know what they mean with it. But what you can think like in general about business model is that it describes the basic logic of how the company actually works. And some also say that actually it’s about like how the company actually is earning money. But I think that is a little bit too easy and too simplified.
But the most common definition of business model is actually saying that describes the rationale behind how a company actually creates value, it delivers value and captures value. And this three terms. The value creation, value, delivery and value capture also builds the three cornerstones of the business model. And one model that is called the Magic Triangle actually places those three terms as the cornerstones and puts puts the value for the customer in the center. And like starting with the value for the customer in the center, it looks like the value creation that actually saying like what you are actually doing for your customer.
You look at the value delivery, saying how you do this and you look at the value capture that is saying why are you actually doing this and why are you supposed to make revenue? So profits out of this and this magic triangle is really good, like to use and to really think through your whole business model and the whole way of like how your company is actually functioning and how it is, how the logic is behind them, the rationale behind it, and really to try to work with all those different aspects here.
And and quite many maybe wonder, OK, but what is the difference to a like strategy and business models and strategy basically is the overall direction that a company wants to go, like decides maybe which industry in which like if you want to compete on costs or maybe you want to be like be better or different from other companies. And that is like what the strategy is making inside a company. And then based on this strategy, you actually have like certain business model types that will be able to fulfill the strategy. And from those different business models, like you can work with this business models who have to choose one or one way of selling your your products or services.
And and that will then basically describe how you actually do this, how you sell your products. But with deciding this, deciding on the business model type or like the overall business model, not all decisions have been made already, but there are still certain tactics that you have to decide and how you have to work with your business model to actually say and really define how much value you will be able or your company will be able to generate over time. And I also want to mention, just like a little bit about business model innovation, because that is quite common that it is talked about like, yeah, we need to innovate our business model and to work with that.
But basically, always when you really rethink your business model and try to do also small changes to it, you actually work with the business model and you try to innovate that. But of course, there are certain examples when companies have like really changed their business model and really made this more radical changes and radical type of innovations that are quite often like in the media and talked about. And one example is, yeah, is Xerox.
They are a early example maybe, and they, Xerox, they are doing this copy machines, this quite big copying machines and they of course really good, but they are also very expensive and maybe large companies, they can afford to buy them, but especially like smaller companies they like at least from the like start up cost. It’s very much too expensive to buy one of those big machines and they will not be willing to do that. And what Xerox did said, OK, but we will not be able to sell the machine as one part. But we can, for example, lease the machines to a company that they just pay over time, as long as they’re using the machine.
Or we even can, like, introduce the business model where we where they just pay for use or pay for each copy that they are actually doing with the machine. And then maybe we even can get paid for that paper and the the color and so on. And and we really have like a different business model that also maybe stimulates that they are using it more and really feel the the ease of the use of our machines. And we can feel the benefit of our really good copy machines. And it worked perfectly.
This change in the business model and they really got sold, sold all their copy machines to much more customers and really earned money over time, which was really the advantage of their business model. And this is also a great example that shows that business models are not static. You really have to work with them over time and look to them all over again and not just like. Happy with the business model you have, so keep on working and looking at your business model and try to innovate it.

In this video, Wiebke will give an introduction to business models. She explains the difference between a business model and a business strategy. You will also be introduced to the magic triangle.


Before moving on, what did you learn from the video? Did it change your view on business models? Put your thoughts in the Comments section below

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