The Role of a Business Model

It is extremely difficult for managers to understand the myriad possible choices that they must make, to connect new technologies to new markets.  And the world of technical choices differs greatly from the world of economic and social choices.  Defining the business model requires managers to link the physical domain of technical inputs (what capacity, what speeds, what functions) to an economic domain of outputs (what value to consumers, what price, what warranties, support, or distribution channels) in face of great technical and market uncertainty.   In truth, no one person fully understands the totality of the task the organization is performing.  This is the most important role of a business model: to create a heuristic, a simplified cognitive map, from the technical domain of inputs to the social domain of outputs, as depicted in Figure 4.1.  oi-2

 

 

The firm’s realization of economic value from its technology depends upon its choice of business model, rather than from some inherent characteristic of the technology itself. Over time, the business becomes more entrenched in its current model, and is not able to recognize the information that may point the way to a different and perhaps better model.  This is the potential trap.  

 

 

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Excerpt from: 

[What You Don’t Read About: Open Source Business Models]

[The Cognitive Implications of the Business Model]