Business Models in Contemporary Strategic Management

Abstract

The business model concept is a relatively new and not clearly defined phenomenon in economic literature. However, the term business model is currently researched a lot, and it is gaining attention in the literature. The goal of the paper is to clarify what a business model is and how it is connected to strategic management. The research method used is systematic literature review.

A business model is a concept that shows how the components of a system fit into the system of processes, showing how an organization work. By other words, the business model is the relationship between strategy and business processes. Defining and using a business model is an important managerial task, but the company strategy is also needed as this deals with external environment as well, such as industry competition.

The paper groups business model definitions into two main categories: (1) business models based on the value chain of the organization and (2) business models based on the value proposition of the organization. Those business models that are built on Porter’s value chain theory, examines how value can be created for the customers through the operation activities of the organization. These business model definitions describe the logic of a business system behind the actual processes of value creation. In many cases, where the value proposition is the main part of the business model, the way how profit is generated is the most important element of the business model. This can be considered as a financial perspective, while the previous one is an operations management perspective.

The Business Model Canvas is one of the most popular business model design tools today, used primarily in the technology sector. This tool simplifies the definition of the business model of an organization by making visualizing the parts of the business model.