The logic of the business model

Byadmin

At its simplest, a business model describes how an organisation creates, delivers, and captures value. A business model answers questions such as:

  • Who do we create value for?
  • What value do we create?
  • How do we create and deliver that value?
  • How do we reach the people who receive it?
  • How do we capture value economically?
  • What resources and capabilities make this possible?
  • Who else must participate?
  • What are the key costs, risks and dependencies?
  • What makes the model viable and sustainable?

An organisation may have one overarching business model and multiple business-model configurations (components) underneath it. The customer is not just somewhere at the end of that business model. The customer is potentially part of the logic of the model itself. Let’s look at the three parts:

Value creation

Traditional business-model thinking asks:

What value do we create?

SoC adds:

What customer needs, jobs to be done (JtbD) and desired outcomes are fundamental to that value creation?

The stake of the customer is potentially strong when the business’s value-creation logic is fundamentally dependent on solving something that matters to customers. But that’s not enough. An organisation might claim to create customer value while its actual economic model depends on something that works against customer interests. That’s where SoC becomes more revealing.

Value delivery

The business model also defines how value gets to the customer. This includes channels, relationships, processes, partners, technology, service models, etc.

SoC asks:

How is the customer’s context reflected in the way value is delivered?

For example:

A company can choose a highly standardised delivery model because scale and cost efficiency are fundamental to its economics. Another might deliberately build a highly personalised delivery model because the customer’s context is fundamental to the value proposition. Both are legitimate business models. They embody different levels and forms of SoC.

Value capture

Business models don’t only create and deliver value. They capture value. And this is where the interests of the organisation and customer can align or conflict.

Think about the following:

  • Who pays?
  • What are they paying for?
  • When do they pay?
  • What happens if they don’t?
  • What data is exchanged?
  • What is monetised?
  • Who bears the risk?
  • Who captures the economic upside?

SoC asks:

What does the customer have at stake in the value-capture mechanism itself?

That’s much deeper than asking whether customers like the product.

An organisation could be highly customer-centric in its language and marketing while having a business model in which the customer’s interests have relatively little structural weight. Conversely, an organisation might not describe itself as highly customer-centric but have a business model that is deeply dependent on creating a particular customer outcome. SoC therefore looks underneath the rhetoric. It examines the actual business logic.

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