Technological & Environmental

Innovation

Lecture Note 05
Business Model

Thamali Nayanathara Sarathchandra

MSc. CPM, BSc.QS (Hons), Green SL Associate Professional,
Diploma in Commercial Arbitration (Reading)

05/19/2025 1
 Contents of Lecture Note 05
1. What is Business Model?
2. Strategy vs. Business Model
3. The Business Model Canvas
4. Elements of Business Model
5. Benefits of Business Models
6. Disadvantages of Business Models
7. Types of Business Model
8. How to Create Business Model?

05/19/2025 2
 What is Business Model?
A business is also set of activities about ‘how’ to create customer, and ‘what’ to do keep customer
happy (Drucker, 1994).

The business model defined the architecture, principles, logic and capabilities that an enterprise
applies for creating, delivering and capturing value.

The Business Model address,

1. How the value proposition of the enterprise is defined?,
2. To whom value is created?
3. How value is created? (What are the value drivers of different stakeholders of the business, how
company’s offering responds to these drivers and how does to convert to monetary value)
4. What resources and competencies are utilized to create define value?
5. How revenue stream are created from the value that the company provide its customer?

05/19/2025 3
 What is Business Model?

• A right business model is instrumental in developing an enduring value differential in the minds of
customers between one firm’s good or services and those of it rivals. (Hitt et al., 2002).

• Business model is the combination of who, what, where, when, why, how and how much an
organization uses to provide its good and services (value offering) and develop resource to continue its
effort. (Mitchel and Coles, 2004).

• Business Model as a concise representation of how an interrelated set of decision variables in the
areas of venture strategy, architecture and economics are addressed to create sustainable competitive
advantage in defined markets.

05/19/2025 4
 What is Business Model?

Business Model that enable a transformation toward sustainability must meet three objectives
simultaneously.
1. The provision of business incentives for the delivery of long-term services levels and performance
2. The empowerment of professional within the business to act according to long-term goals
3. Adequate short-term returns for financing the other objectives.

05/19/2025 5
 Strategy vs. Business Model

Strategy Business Model

Plan for the future success Translate a strategy into to

of a business in competitive logical framework for
and dynamic environment economic value creation

Focus on the value

Less evident proposition with emphasis
on the customer role.

05/19/2025 6
 The Business Model Canvas

The Business Model Canvas is a

strategic management tool that provides
a visual framework for developing,
describing, and analyzing a business
model. It was introduced by Alexander
Osterwalder and Yves Pigneur in their book
"Business Model Generation" and has
become widely used by entrepreneurs,
startups, and established businesses to
outline and communicate various aspects of
their business

05/19/2025 7
 The Business Model Canvas
1.Customer Segments: Identifies the different groups of people or organizations that the business aims to
serve.
2.Value Propositions: Describes the unique value that the business offers to its target customer segments.
3.Channels: Outlines how the business delivers its value proposition to customers and reaches its target
audience.
4.Customer Relationships: Specifies the type of relationship the business establishes with each customer
segment, ranging from personal assistance to self-service.
5.Revenue Streams: Details the sources of revenue generation for the business, including pricing models and
payment methods.
6.Key Resources: Lists the essential assets, infrastructure, and resources required to deliver the value
proposition and run the business.

05/19/2025 8
 The Business Model Canvas

7. Key Activities: Highlights the critical actions and activities the business needs to perform to operate
successfully.
8. Key Partnerships: Identifies external organizations, suppliers, or collaborators that contribute to the
business's success.
9. Cost Structure: Breaks down the major costs and expenses associated with operating the business.

05/19/2025 9
 Elements of Business Model

Value Creation Value Capture

• The significance of the business model

stems from its systematic character – it is
key activities Value proposition:
product/service offering
not about details of isolated elements, but
how the elements are interrelated and how
they strengthen each other to form a well- Key resources: Target group:
brand, information,
customer/stakeholder
knowledge,
functioning entire system technology, employee,
segment, relationship,
channels
partners

Cost structure Revenue model

05/19/2025 10
 Benefits of Business Model

1. A good business model gives the company a competitive edge

in the industry.
2. A strong business model provides the company good reputation
in the market place encouraging investors to remain invested in
the company.
3. Making the business model strong leads to an ongoing business
profit leading to an increase in cash reserve and new
investments.
4. A proven business model brings financial stability to the
organization.

05/19/2025 11
 Disadvantages of Business Model

1. Once a business model is created, then it restricts to implementation new

ideas for the product.
2. Creating a business model is time-consuming as a lot of factors need to
be considered.
3. There might be a chance that the business model may turn out to be
inaccurate.

05/19/2025 12
 Types of Business Model

Retailer
One of the more common business models most people interact with regularly is the retailer model. A
retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or
distributors and interface directly with customers.

05/19/2025 13
 Types of Business Model

Manufacturer Subscription
A manufacturer is responsible for sourcing Subscription-based business models strive to attract
raw materials and producing finished clients in the hopes of luring them into long-time, loyal
products by leveraging internal labor, patrons. This is done by offering a product that
machinery, and equipment. A manufacturer requires ongoing payment, usually in return for a fixed
may make custom goods or highly duration of benefit. Though largely offered by digital
replicated, mass produced products. A companies for access to software, subscription
manufacturer can also sell goods to business models are also popular for physical goods
distributors, retailers, or directly to such as monthly reoccurring agriculture/produce
customers. subscription box deliveries

05/19/2025 14
 Types of Business Model

Bundling Razor Blade

If a company is concerned about the cost of This business model aims to sell a durable product
attracting a single customer, it may attempt below cost to then generate high-margin sales of a
to bundle products to sell multiple goods to disposable component of that product. Also referred
a single client. Bundling capitalizes on to as the "razor and blade model", razor blade
existing customers by attempting to sell companies may give away expensive blade handles
them different products. This can be with the premise that consumers need to continually
incentivized by offering pricing discounts for buy razor blades in the long run.
buying multiple products.

05/19/2025 15
 Types of Business Model

Reverse Razor Blade Franchise

Instead of relying on high-margin The franchise business model leverages existing
companion products, a reverse razor blade business plans to expand and reproduce a company
business model tries to sell a high-margin at a different location. Often food, hardware, or
product upfront. Then, to use the product, fitness companies, franchisers work with incoming
low or free companion products are franchisees to finance the business, promote the
provided. This model aims to promote that new location, and oversee operations. In return, the
upfront sale, as further use of the product is franchisor receives a percentage of earnings from
not highly profitable. the franchisee.

05/19/2025 16
 How to Create Business Model?

Identify Your Audience Define the Problem Understand Your Offerings Document Your Needs
1. Understanding your target 1. Essential to know the 1. Align your expertise with the 1. Identify challenges - both
market is fundamental. problem you're addressing. market needs. product and operational.
2. Craft product, messaging, 2. Ensure a demand for your 2. Tailor the product to meet 2. Document potential hurdles
and approach accordingly services or products. customer demands. for future assessment.

Incorporating Feedback Test Your Model Set Monetization Solutions

Find Key Partners
1. Adjust and refine the 1. Validate your plan through 1. Essential step: How your
1. Leverage partnerships for
business model based on testing. business will make money
success.
feedback. 2. Conduct surveys, soft 2. Align monetization strategy
2. Examples of partnerships in
2. Emphasize the importance launches, and gather with your chosen business
different industries.
of continuous improvement. feedback. model.

05/19/2025 17
 Questions?

05/19/2025 18
 Thank You

05/19/2025 19