The “theory of a business” is an old way of referring to a business model employed by Drucker (1954). Since then, the term business model, in popular speak, has often been reduced to a revenue model, which is the way an organization generates revenue. The distinction between revenue model and business model comes from a larger understanding of the creation of value by an organization. Therefore a business model includes the financial dimension but is not simply reduced to it.
Since the early 2000s, a growing field of research has been devoted to the study of business models. Zott, Amit & Massa (2011) revisited the past literature to compare and contrast the different definitions of a business model. Their table is reproduced in Appendix 1. Another research that combed through existing definitions was Alex Osterwalder’s doctorate dissertation (2004). It ended up describing a business model as an abstract conceptual model that represents the business and money earning logic of a company.His complete definition is the most robust:
“A business model is a conceptual tool that contains a set of elements and their relationships and allows expressing a company’s logic of earning money. It is a description of the value a company offers to one or several segments of customers and the architecture of the firm and its network of partners for creating, marketing and delivering this value and relationship capital, in order to generate profitable and sustainable revenue streams.”
A more synthetic definition is found in the subsequent bestseller Business model generation (Osterwalder & Pigneur 2010) where they state that “A business model describes the rationale of how an organization creates, delivers and captures value.“
Working on “the theory of a business” is now called business model innovation. The term business model innovation might sound like yet another management trend or worse, it might simply be a new way to describe a familiar subject. Nonetheless, there is much to learn about business models as a means to drive change in organizations. The first of which is applying design methods to an organization. And that is as novel as was the design process for industrial objects of the 1950s.