What is a business model, why is it important, and how to apply it to IT Strategy? Read On!
A business model is a conceptual blueprint that outlines how an organization creates and exchanges value - generates revenue and makes a profit. It underscores the viability of the business and explains who the business serves, what it offers, how it offers it, and how it achieves its goals.
Every organization, for profit or not, has a business model. This business model exists whether it has been explicitly defined or not. For all practical purposes, the choice of a business model often determines the success or failure of a venture. So, there are three simple rules to follow when it comes to business models: choose wisely, communicate widely, and follow without fail.
It is important to note that a company's business model should evolve in response to changes in both external or internal factors. In a Harvard Business Review article in 1994, Peter Drucker discussed how IBM's business model changed over time. He cites IBM as a sterling example of a company that is able to strategically adapt to changing circumstances. He observes that sooner or later, every company has to face the reality that some of their underlying assumptions about their business are no longer true. In IBM's case, they had to face the fact that the hardware business was no longer viable. However, they were eventually able to find success in other areas such as services.
It is important to understand the distinction between a business model and a competitive strategy. A business model is a description of how your business runs, while a competitive strategy explains how you will do better than your rivals implementing its business model.
The business model has been a topic of discussion for many years, but it has recently regained popularity. There are several reasons for this resurgence, including deregulation, globalization, and the increasing awareness of sustainability issues.
Even though the concept of a business model is something that is talked about often in the business world, there are still many enterprises that do not fully understand it - the primary reason being that while companies tend to focus on creating innovative models, most evaluate them in isolation. However, the success or failure of a business model of an enterprise depends on how their model interacts with the models of other players in their industry. Too often, businesses create models without thinking about what the competition is doing, and as a result they deploy business models that are doomed to fail.
Everything an organization does must conform to its business model. Yes, including IT. To reiterate this point, everything that the IT organization does must conform to the organization's business model. It is imperative for the CIO to understand what their company’s business model is and its implications for information technology i.e. how will IT be deployed to actualize the business model.
We refer you to an excellent discussion on business models. CIOs can learn what a business model is and how to understand their own organization’s.
This guide to business models will help you understand:
- The definition of a business model
- What are the building blocks of a business model?
- Why do organization’s even in the same industry have different business models?
- What are the different types of business models? Are there recognizable patterns one can use to understand models?
- How does a business model drive everything an organization does - from strategy to operating model and everything in between?
- Why is it important to understand your organization’s business model?
- How to build a business model?
- How to apply business models to your everyday work?
CIOs can learn how to understand the business model of their own organization so they can create an IT Strategy and Operating model that actualizes it. MUST Read!
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