Value Creation Potential of New Business Models

A business model is composed of three elements. These describe a generic way of creating value and identify the maximum potential value of that model for customers. The elements of a business model are the “job to be done” for the customer, the asset configuration, or set of resources and capabilities, required to deliver the product or service to the customer, and the revenue (or monetization) model. An example would be ride sharing: “providing immediate transportation services through a mobile platform that utilizes other people’s vehicles, by charging a demand driven transaction fee.”

All companies will have some business model. But any number of firms can adopt a given business model—think Lyft and Uber in ride sharing. Similarly, firms pursuing different business models can compete for the same customer—as taxis compete with ride sharing companies. This recalls the earlier notion of “strategic groups” as fundamentally different ways of competing within the same industry. A private label manufacturer is in a different “strategic group” from, or competes with a different “business model,” than a branded CPG company.

In contrast, no two firms should have the same strategy. What determines the relative success of those pursuing the same business model, such as Lyft and Uber, is their specific “classic” strategy—how they translate the business model into their target product/customer (scope), and value proposition and activity set (competitive advantage)—and how effective they are at implementing the strategy to realize value over time, i.e., the other two elements of the complete strategy landscape.