The words “business model” are inescapable in our daily fare of business news. These two ubiquitous words seemed to effortlessly rise up to prominence during the dot-com boom of the late 1990s. When businesspeople, journalists, academics, and other observers could not easily relate to “new economy” businesses given the difficulty of pointing to specific assets and tangible products, they needed something to latch on to. That something became “the business model.” When companies produced valuations with frenzied multiples, people justified the future profit potential through “the business model.” Later, when that potential was wiped away, savants confidently proclaimed, “The business model was simply not viable.”
The popularity of describing success and failure through business models has stayed with us. Today, when companies fail, journalists write that the business model was flawed. Contrarily, if a company continues to beat quarterly forecasts, analysts jubilantly write about the advantage realized through the company’s business model.
But, strangely, for all of this talk about “business models,” it’s hard to find a common operating definition. To some, business models are ephemeral flights of fancy created by a backroom business engineer, and to others business models are static foundations etched in stone. Many assume that just mentioning the business model of a particular company will engender in everyone a common understanding of how that business model works.
In this course, we aim to give an operational definition of “business model” and provide a set of tools to determine the business model for any organization. We relate business models to the “engine” of an organization (i.e., how it works). By studying how it works, we’re able to apply the same technique to both for-profit and not-for-profit firms. The cases take us around the world to industries as diverse as computer software and hardware, cellular telephony, commercial aircraft, airlines, apparel, aluminum, pulp and paper, retail stores, consumer packaged goods, environmental NGOs, cults, and even art auction houses.
This course is for students who want to
• be able to quickly determine the business model of any organization;
• ascertain how a particular business model helps the organization create and capture value over time;
• understand how business models of different organizations interact; and
• learn how to improve a business model.
Regardless of your intended career path after graduation, understanding business models will place you in good stead. For those who wish to pursue investment banking or private equity, you will be constantly pressed to understand that “engine” which produces profits. In a consulting career, you’ll be assigned to find fixes—and it will be hard to fix anything without understanding how the business model works. Finally, if you opt for a career in industry, whatever company, discipline, and position you find yourself in, you’ll have to be able to understand the context in which you operate and how your actions fit into the policies, assets, and decision making of the firm.